Underground storage tanks (USTs) are a known risk in real estate transactions and should be considered in every buyer’s due diligence. Whether residential, commercial, industrial, or agricultural, a leaking UST can have serious financial consequences and can, if not properly addressed, become the buyer’s problem post-closing. That said, the discovery and removal of a UST can, at times, also be a very simple process, handled in the routine course of the real estate transaction. In other words, UST due diligence should be taken seriously, but discovery of a UST does not automatically mean there is a serious problem.
Leaking Underground Storage Tanks Are Liabilities
Currently or historically leaking underground storage tanks (LUSTs) are liabilities. Each owner and operator of the property at the time that a leak (discharge) occurred is jointly and severally liable for the remediation, regardless of fault. In addition, a person who purchases a property where contamination exists may be held responsible for the clean-up, regardless of fault, unless the purchaser has properly conducted due diligence in accordance with mandated standards. This article is focused on UST remediation, and, therefore, does not address due diligence and those standards and procedures for the innocent landowner defense and bona fide prospective purchaser defenses to environmental liability. I will address due diligence and liability in my next post. However, the caveat, “Buyer Beware,” remains true for UST liability.
Regulated Tanks vs. Unregulated Tanks
Generally speaking, New Jersey regulations pertaining to USTs (NJAC 7:14B) categorize tanks into two categories: regulated tanks and unregulated tanks. The size, contents, and use of the tank determine which regulations apply. USTs are considered “regulated” tanks unless they fall within an exemption set forth at NJAC 7:14B-1.4(b). Fourteen (14) exemptions exist, which exemptions as of January 2014 are copied at the end of this article. Of these, unregulated tanks which commonly are addressed in real estate transactions include: farm or residential tanks of 1,110 gallons or less used to store motor fuel for noncommercial purposes; non-residential heating oil tanks of 2,000 gallons or less used for onsite consumption; and residential heating oil tanks for onsite consumption. Also exempted are certain underground tanks falling within other regulatory programs, such as septic tanks.
Abandoned Underground Storage Tanks
Regulated tanks are more likely an issue in commercial, industrial, and agricultural real estate. That said, here in central New Jersey, the subdivision of historic farms has resulted in the discovery of significant regulated tanks on what is now a smaller residential lot. Tanks may have been decommissioned and left buried onsite for decades prior to discovery of a release. Current owners may not know about USTs abandoned onsite by prior owners. However, USTs are the primary source of groundwater contamination, and, therefore, in many transactions (especially residential and farms), buyers demand that sellers remove (close) underground storage tanks and replace them with above ground tanks. If contamination is found, reporting to the NJDEP is mandatory.
Buyer’s Due Diligence
Past ownership, use, and public records should be carefully reviewed to assess potential UST risk. As part of a contract buyer’s due diligence, environmental professionals can also provide scans of the ground using metal detectors, ground penetrating radar, or electromagnetic sensors, for the purpose of detecting undisclosed and/or unknown USTs. These ground scanning technologies are not equal in their ability to detect tanks, and not every site is appropriate for each of these technologies. Consult an environmental professional.
Leaking Underground Storage Tanks Must Be Reported
Whether regulated or unregulated, a leaking underground storage tank (LUST) must be reported, investigated, and remediated pursuant to the administrative and technical requirements of the Site Remediation Reform Act (SRRA, N.J.S.A. 58:10C). UST closure, investigation of potential contamination, and remediation of known contamination must be performed by a properly licensed environmental professional holding proper insurance. “Unregulated” is a misleading characterization for exempted tanks: regulations still apply, and unregulated USTs must be investigated, closed, and if necessary, remediated, pursuant to NJDEP regulations. However, the New Jersey Department of Environmental Protection has developed a streamlined and simpler program for remediation of unregulated heating oil tanks (the UHOT program).
Who Must Perform the Remediation?
Remediation of regulated leaking USTs must be performed by a licensed site remediation professional (LSRP). Remediation of unregulated leaking UHOTs may be performed by a certified subsurface evaluator or an LSRP. I have developed a network of trusted LSRPs and subsurface investigators and can gladly refer them.
Additional differences exist between the remediation of regulated and unregulated heating oil tanks (UHOTs). For example, the NJDEP is no longer issuing a letter of No Further Action upon the completion of remediation, unless, the leaking UST is a UHOT being remediated under the more streamlined UHOT program. All other discharge incidents are documented as having been remediated to the NJDEP standards by the issuance of a Response Action Outcome (RAO) letter written and certified by a licensed site remediation professional (LSRP). Mandatory timeframes and the preliminary assessment requirements that generally apply to all site remediations do not apply to unregulated UHOT remediation.
Often time, home and farm buyers waive their right to conduct thorough environmental due diligence and UST scans because of financial constraints or concerns about alarming sellers and losing the deal. With respect to USTs, such waiver must be made only after a careful consideration of risks and liabilities of leaking USTs. For buyers/lessors who do want the opportunity to conduct environmental due diligence, the transaction agreement should be properly drafted to include the representations, due diligence contingencies, site access, limitations on investigative scope, indemnifications, and additional provisions to legally protect the prospective parties. In addition, a buyer purchasing property after seller’s remediation should understand and have contract protections regarding the scope and limitations of letters of No Further Action (NFA) and Response Action Outcome (RAO), as well as the due diligence required to establish a defense to liability for both known and unknown environmental contamination.
Exemptions NJAC 7:14B-1.4(b) (Unregulated Tanks)
1. Farm or residential tanks of 1,100 gallons or less capacity used for storing motor fuel for noncommercial purposes;
2. Tanks with a capacity of 2,000 gallons or less used to store heating oil for onsite consumption in a nonresidential building;
3. Tanks used to store heating oil for onsite consumption in a residential building;
4. Septic tanks installed in compliance with rules adopted by the Department pursuant to the Realty Improvement Sewerage and Facilities Act (1954), N.J.S.A. 58:11-23 et seq.;
5. Pipelines, including gathering lines, regulated under the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. §§ 1678 et seq., the Hazardous Liquid Pipeline Safety Act of 1979, 49 U.S.C. §§ 2001 et seq., or intrastate pipelines regulated under State law as approved by the Department;
6. Surface impoundments, pits, ponds, lagoons, storm water or wastewater collection systems operated in compliance with N.J.A.C. 7:14A-1 et seq.;
7. Liquid traps or associated gathering lines directly related to oil and gas production and gathering operations;
8. Tanks situated in an underground area including, but not limited to, basements, cellars, mines, drift shafts, or tunnels, if the storage tank is situated upon or above the surface of the floor;
9. Tanks situated in an underground area including, but not limited to, basements, cellars, mines, drift shafts, or tunnels if the storage tank is equipped with secondary containment, and is uncovered so as to allow visual inspection of the exterior of the tank;
10. Any pipes, lines, fixtures or other related equipment connected to any tank exempted from the provisions of this chapter as set forth in (b)1 to 9 above, and 11 to 14 below;
11. Flow-through process tanks;
12. Wastewater treatment tanks;
13. Electrical equipment; and
14. Hydraulic lift tanks.
NJAC 7:14B-1.4(c through f) Additional tanks are partially exempted (not all regulations apply)
© Shanahan & Voigt, LLC 2014
BE ADVISED that these comments are not legal opinions and are not to be relied upon as legal advice. If you need legal advice, contact your county bar association; most of which have referral services.