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New Jersey Court Holds Property Buyer’s Consent to Institutional Controls is Binding on Subsequent Buyer

What happens when a property owner agrees with a regulator and a prior owner/operator to accept a commercial-level clean-up with institutional controls, but before the remediation is complete and the deed restriction recorded, a new owner takes title and insists on a clean-up to residential standards? Under New Jersey’s Industrial Site Remediation Act (ISRA), who wins? The remediating party, ruled the New Jersey Superior Court, Appellate Division, on December 7, 2021, in an unpublished decision captioned Cozzoli Machine Company v. Crown Real Estate Holdings, Inc., No. A-1733-19.

For most of the twentieth century, Plaintiff Cozzoli Machine Company operated, and through a related entity owned, an industrial facility in Plainfield, NJ. In 2003, Cozzoli reached an agreement with the New Jersey Department of Environmental Protection (NJDEP) to remediate the site in anticipation of ceasing operations and selling the property to RTN , LLC. After several years of little progress, NJDEP and RTN became concerned the cleanup was proceeding in an untimely manner. The former investigated and issued two Notices of Deficiency (NODs); the latter sued.

RTN and NJDEP later agreed to Cozzoli’s implementing a cap on the site, rather than a more extensive excavation, —an outcome sanctioned by ISRA. The statute establishes a rebuttable presumption that “engineering or institutional controls that are designed to prevent exposure of . . . contaminants to humans” are acceptable if a property is located on historic fill material. N.J.S.A. § 58:10B-12(h)(1). But, when controls are selected as the remedy, “the person responsible for conducting the remediation shall . . . with the consent of the owner of the real property,” record a deed reflecting those controls. Id. § 58:10B-13(a)(2). Without such consent, the personal responsible must implement a more costly and time-consuming remedial action that meets the residential soil remediation standard. Id. § 58:10B-13(b). NJDEP approved the parties’ arrangement and issued a No Further Action letter. With then-owner RTN’s consent and NJDEP’s blessing, all was well as of 2009, although because of some minor outstanding issues, the recordation of the deed restriction was delayed and a Response Action Outcome had not yet been issued.

In 2010, though, RTN defaulted on the loan from Crown Bank used to purchase the property. Title eventually vested with Sumo Property Management, LLC. Sumo sought to build a large residential development on the site, which was conditioned on achieving strict residential development standards. Arguing that it never consented to the cap or below-residential standards, Sumo demanded Cozzoli conduct or pay for additional remediation beyond that to which RTN consented. Cozzoli, in turn, asked that Sumo allow it to enter the property to complete the work, and for Sumo to execute the deed notice under ISRA. Thus litigation commenced.

The Appellate Division had no trouble finding against Sumo and its “transparent financial interests.” The Court emphasized that Cozzoli obtained RTN’s consent, who was the current owner during the most relevant events. In reliance on that consent and NJDEP’s approval, Cozzoli spent years implementing the cap. Cozzoli had no control over the disposition of the property once it was no longer owner. Nor could Sumo claim lack of notice, as any simple record search would have unveiled Cozzoli and RTN’s prior litigation, the issuance of the NODs, and NJDEP’s consent to the cap. A contrary outcome in this case would make former owners and good-faith remediators like Cozzoli “hostage to the demands and whims of the property’s successors-in-interest.” Thus, the Court allowed Cozzoli to enter the property to complete the cap and required Sumo to record the deed notice required under ISRA.

Although unpublished, this case should reassure sellers of property that have reached remediation agreements with buyers under ISRA. If an immediate buyer consents to an institutional control rather than full-fledged remediation, that consent should be imputed to subsequent buyers who knew or should have known of the consent, even if the remediation is ongoing. Sellers can reasonably rely on this consent when dedicating time and money to clean up a site.