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In a wake-up call for the residential property market, on September 28, 2012, the Appellate Division of the New Jersey Superior Court found that a residential property owner with a leaking underground storage tank that was "closed" before he purchased the property was liable for cleanup costs because he failed to conduct a due diligence inquiry prior to the purchase.
In State Farm Fire and Cas. Co. v. Timothy Shea, No. A-4124-10T1 (N.J. App. Div. Sept. 28, 2012), the facts showed that Shea owned property next to State Farm’s policy holder, Kimberly Rossi. Shea never did an environmental assessment of the property before he bought his home and he never used oil heat. What Shea did not know is that an abandoned tank on his property had leaked, and migrated onto Rossi's neighboring property (which also had its own leaking UST). State Farm paid for the cleanup costs and then sued Shea to recover them. Shea’s response, among others, was that he never used the tank, and should not be held liable for the cleanup costs.
A trial court found that Shea might have avoided liability altogether under the innocent purchaser defense of the New Jersey Spill Compensation and Control Act ("Spill Act") had he performed a sufficient environmental assessment before purchasing his property. But, Shea admitted that he had not engaged in any kind of environment assessment before the purchase and therefore could not benefit from the innocent purchaser defense. Thus, Shea was liable to Rossi for the damage from the leaking tank, even though Shea never used the tank in question. Shea argued that, as required by the State Supreme Court's recent decision in NJDEP v. Dimant, the lower court did not address whether the leak occurred during his period of ownership of the property. The Appellate Division noted that Dimant concerned the plaintiff's lack of evidence proving a connection between the contamination and the suspected source. Here, there was no factual dispute that the UST was leaking while Shea owned the property.
This case demonstrates that environment assessments are not just appropriate for commercial property--where environmental due diligence assessment area commonplace. In the case of both residential and commercial/industrial property, an owner may avoid cleanup liability if some measure of environmental due diligence is conducted before the purchase. The amount of protection available and the nature of the assessment that must be undertaken may vary based on the circumstances. It appears that, at a minimum, a preliminary assessment should be conducted in accordance with the Spill Act requirements. More evaluation may also be required depending on the results of the preliminary assessment.
Importantly, a residential property purchaser is not required to undertake such an environmental analysis. But if he or she fails to do so, then the property owner is at the risk of losing an innocent purchaser defense that might have been available had the investigation been performed. Without such a defense, a residential property owner can face considerable environmental remediation costs. For example, the attorneys at Lieberman & Blecher have been assisting residential property owners with underground storage tank leaks for over a decade, and we have seen UST cleanups run from as little at $20,000 to well over $1 million.