January 1, 1900

Nielsen V. Lewis

The ãsmart growthä campaign continues to erect barriers to the construction of housing in New Jersey. One of the newest potential obstacles is the aggressive, recently announced enforcement program of the New Jersey Department of Environmental Protection (DEP) to assess and restore injured natural resources. The DEP's new natural resource damage (NRD) enforcement policy is yet another reason why brownfields redevelopment (both in urban and non-urban areas) may become an increasingly attractive option for the development industry.

Natural Resource Damage Claims

Throughout the 33 years of its existence, the DEP's regulatory activities have waxed and waned. Today it appears that the DEP's site remediation program is entering a new waxing phase. The instigator is "NRD claims," and the implications could be enormous for landowners, developers, builders, lenders, portfolio managers, insurers and others.

DEP Policy Directive 2003-07

With considerable fanfare, the DEP has launched an aggressive enforcement program to go after potentially responsible parties (PRPs) to assess and restore injured natural resources in New Jersey. Natural resources include all land, fish, shellfish, wildlife, biota, air, waters and other such resources owned, managed, held in trust or otherwise controlled by the State. In Policy Directive 2003-07 (Natural Resource Damages), the DEP announced its inauguration of an "accelerated" enforcement initiative to require PRPs to assess and restore natural resources injured by past or present discharges of hazardous substances throughout the state. Natural resource injuries for which DEP will seek compensation fall into two categories: injuries to natural resources (loss or impairment of ecological function) and loss of services provided by injured natural resources (e.g. loss of water supply, recreational uses and ecological services).

NRD claims are not the same as cleanup claims. The cost of restoring natural resources is over and above the cost of cleaning up a site. Thus, a company that has already "settled" and expended vast sums to clean up its property may still be liable for NRDs, unless the DEP specifically releases the company from NRD claims as part of the cleanup settlement.

In future contaminated site negotiations, the two types of claims will be closely linked. The DEP may no longer sign off on cleanups unless they include a commitment to pay NRDs or restore injured natural resources. "No further action" letters from the DEP, the sine qua non of many real estate and development transactions involving contaminated sites, may no longer be issued unless NRD claims are also resolved. Thus, NRD claims may be expected to complicate many future real estate and business transactions and site cleanup negotiations with the DEP.

Brownfields Redevelopment Is Exempt

Notably, redevelopment of brownfields is on a different footing. An explicit exception to the DEP's regulatory initiative has been carved out of the NRD program for brownfields redevelopment. In the broad sense, "brownfields" refers to any properties that are underutilized or vacant because of real or perceived contamination. Brownfields are not limited to urban industrial sites. There are thousands of brownfield sites of infinite variety throughout New Jersey, including, for example, "green" sites with a single leaking underground fuel tank. To encourage brownfields reuse, the DEP states that it will not assert NRD claims against brownfields developers meeting the "innocent purchaser" defense at sites where there has been historical natural resource injury. The DEP's Office of Brownfields Reuse invites developers to bring to its attention cases in which NRD claims present an impediment to redevelopment, promising to work with them to remove obstacles to the administration's goal of restoring the brownfields to productive use.

The "Greening" of Brownfields Redevelopment In an article appearing in a previous issue of our Quarterly,The Greening of Brownfields Redevelopment, we reviewed fresh opportunities for builders presented by the State's policy encouraging residential redevelopment of brownfields. In 1988, the Brownfield and Contaminated Site Remediation Act was enacted, providing new incentives for developers to restore abandoned and underutilized contaminated properties to productive use, including more flexible cleanup requirements and protections against unknown environmental liabilities. In its 2002-2003 DEP Policy Directive: Acceleration of Brownfield Cleanup and Reuse, the DEP adopted a policy of additional regulatory changes providing greater protections against environmental liability to innocent brownfields developers, removal of uncertainties and inefficiencies in the DEP's site cleanup requirements, and a broadening of the potential reuses of brownfield sites.

For example, the DEP will permit brownfields developers to begin construction where they have addressed soil contamination, but not groundwater, and, where contamination has multiple sources, they may be allowed to contribute to an environmental cleanup trust to be used for future cleanup of groundwater, while moving forward with construction.

The Office of Brownfields Reuse will work with interested parties to expand the uses of contaminated sites. Of particular interest to homebuilders, the DEP's Brownfields Policy Directive provides that the State's efforts will focus on identifying brownfield sites suitable for residential projects. With new regulatory policies and advancements in science and engineering controls, the list of successful residential development projects on brownfields acreage is growing. Recent success stories, such as Tallymawr (Toms River), Paterson Commons, So Caf? (Newark),The Victor Building (Camden) and Lafayette Village (Jersey City), can be reviewed on the DEP's website - www.nj.gov/dep/srp/brownfields

Conclusion

The supply of pristine land available for residential development in New Jersey is finite and ever-dwindling. Sometimes lost in the smart growth debate, a sizable window of opportunity has been provided by regulatory reforms in New Jersey for building on brownfields. The DEP's aggressive new NRD enforcement program merely reinforces the conclusion that residential development of brownfields is an alternative deserving a serious look by savvy builders. To investigate and evaluate a particular site, builders should perform an appropriate due diligence investigation in consultation with qualified professionals.

Nielsen V. Lewis is a partner of the Environmental Practice Group and a member of the Land Use Division. He concentrates his practice in the areas of environmental law, insurance law and land use, with an emphasis on prosecuting and defending complex environmental litigation.