Key Considerations for Owners/Operators of Industrial Properties
HOBOKEN, N.J., Sept. 12, 2019 – New Jersey’s industrial real estate market continues to thrive, due in large part to the ongoing evolution of e-commerce and the displacement of industrial users in New York by the expanding Brooklyn and Queens residential markets. The transfer of industrial properties can be complicated, and often is influenced by environmental concerns. Additionally, for many industrial establishments there is a strict regulatory framework in place within which owners and operators of industrial facilities must comply.
The Industrial Site Recovery Act (ISRA), implemented by the New Jersey Department of Environmental Protection (NJDEP), requires the remediation of certain sites prior to their sale or transfer. The following are some key considerations for owners/operators of industrial properties who may be impacted by ISRA:
- What typical transactions are applicable to ISRA?
Properties with operations classified as “industrial” according to the North American Industrial Classification System (NAICS) are subject to ISRA when a triggering event occurs. According to the NJDEP, any person who owns the industrial establishment, owns the real property of an industrial establishment or is the operator of the industrial establishment must comply with ISRA.
The ISRA process begins with determining if the Act applies to your type of business and transaction. There are the two major triggers:
- When significant change in the ownership or operations of the business or property is about to take place.
- If someone is selling an industrial business, or ceasing operations on a site but keeping the property.
ISRA also applies to more complex business transactions such as corporate reorganizations. Both the owner of the real property and operator of the industrial establishment are jointly liable for compliance with ISRA.
- Who can best assist property owners in determining the applicability of ISRA to ensure compliance with state laws?
Determining whether ISRA is applicable to a particular transaction requires information about the current operations at the property, historic uses of the property, and the details about the use or storage of chemicals or petroleum by the industrial operator. For these reasons, retaining the services of practitioners experienced with ISRA cases is imperative.
- What happens if a property owner is unaware that a transaction is an ISRA trigger?
While it’s usually determined during a Phase 1 Environmental Assessment that a property is ISRA applicable, there have been cases where a tenant has been operating on-site for many years and the property owner never realized the business was an ISRA-applicable entity. Once that tenant leaves the premises, the property owner becomes accountable, along with the tenant.
“Missed” ISRA triggers need to be addressed to comply with the law. Experienced environmental practitioners familiar with NJDEP policies can help property owners uncover and address these issues and ensure the responsible parties are complying with the law.
Owners often address ISRA applicability and compliance within their industrial leases and property sale agreements to reduce the occurrence of a disagreement over responsibility.
- If a property is subject to ISRA, what is required to begin the process?
New Jersey’s regulations require all responsible parties to act expeditiously. Companies must do their initial filing five days after triggering ISRA. The triggering event can be an agreement of same, a lease termination or any number of other events.
The responsible party must then hire a Licensed Site Remediation Professional (LSRP) to conduct an assessment and subsequent remediation of the site.
- Can you close a real estate transaction while ISRA is ongoing?
Yes. An owner/operator of an industrial establishment that triggers ISRA and wants to proceed to transfer ownership prior to obtaining a Response Action Outcome (RAO) must submit a Remediation Certification or obtain approval of a Remedial Action Workplan (RAW) with a Remediation Funding Source (RFS). Essentially these are agreements with escrow between the buyer, seller and DEP to complete remediation post-closing.
Going this route clearly takes more time and work, as it involves trust accounts and agreements between the buyer, seller and DEP about who is going to pay for what and who will take responsibility for holding the money, etc. But if it is a transaction that all parties want to see happen, it can still work.
As a transaction-focused firm, these are the types of projects in which Atlantic Environmental Solutions, Inc. (AESI) excels. Particularly if it will be a long case, we can advise clients of their options and requirements to get through the transaction and obtain an RAO in a manner that is advantageous to all parties involved.
AESI is committed to providing high quality and pragmatic environmental due diligence and remediation solutions to protect customer assets and reduce liability. The Hoboken, N.J.-based consulting firm offers a full range of transaction-related services and guidance to buyers and sellers of private and public property. With over two decades of experience managing and resolving environmental concerns, AESI has handled over $60 million in environmental projects at over 6,000 client locations across 47 states.
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Emily Ackel / Irene Zampetoulas