New Jersey DEP Announces Discontinuation of Letters of Non-Applicability Under the Industrial Site Recovery Act

April 21, 2008
by BRUCE KATCHER and MICHAEL GROSS
MGKF Special Alert

Without fanfare, the New Jersey Department of Environmental Protection ("NJDEP") posted an announcement on its website last week indicating that effective with any application submitted after April 30, 2008, it will no longer issue applicability determinations (commonly referred to as letters of non-applicability or "LNA's") with respect to the Industrial Site Recovery Act ("ISRA"). ISRA is the New Jersey law that requires, with some exceptions, a company to go through an clearance process for site contamination as a condition to the sale, transfer or cessation of operations of an industrial establishment (as determined by the facility's SIC or NAICS code) that handles hazardous substances.

The complexity of certain transactions and the nature of complex business operations frequently raise issues as to whether the transaction or the company's SIC or NAICS code was one to which ISRA applied. For many years, NJDEP has issued LNA's as a service to the regulated community so that parties engaging in a transaction or ceasing operations could take some comfort that the agency had concluded that their transaction or their business operations were not subject to ISRA. This will no longer be done.

NJDEP attributes the discontinuation of this service to budgetary constraints and the need to focus on required services. Because this service has been funded by application fees for many years, the desire to refocus the NJDEP's Site Remediation Program seems the more plausible explanation. This is part of a systematic effort to redirect the agency's resources into management and processing of active site remediation cases rather than providing what the agency apparently views as a non-essential service, but which the regulated community found to be extremely helpful in facilitating transactions.

A requirement to secure an ISRA LNA has often been a condition of a purchase agreement or a loan commitment and is frequently a standard term in leases. As LNAs will no longer be available, those engaging in sales of real estate and businesses which may give rise to ISRA compliance obligations will have to adjust their practices to reflect NJDEP's current practice.

If you have any questions concerning the impact of this decision, please feel free to contact Bruce Katcher (bkatcher@mgkflaw.com or 484-430-2320) or Michael Gross (mgross@mgkflaw.com or 484-430-2321).