ISRA for New Jersey Sellers: What Triggers It and How a Sale Can Close

This guide is for owners and landlords selling New Jersey property where an industrial business operates. Each point comes from the statute, the rule or an official government page, and the links are in the Sources list at the end.

We buy warehouses and industrial buildings in Camden, Burlington and Gloucester counties, including sites where ISRA applies. We're part of a family-owned business that has been operating for over 15 years. Whether ISRA applies, and what it asks of you, depends on the facts of each site, so your environmental professional makes the calls for your property.

What is ISRA?

ISRA, the Industrial Site Recovery Act, is a New Jersey law. It applies when a covered industrial business closes operations or transfers ownership or operations, including when the land and buildings it operates on are sold. The owner or operator then notifies NJDEP and has the site investigated and, where needed, cleaned up.

A sale can close before that work is finished once a Remediation Certification is filed or NJDEP approves a waiver or exemption. For a seller, ISRA matters most on the day you sign a sale agreement, because the five-day notice runs from signing. ISRA applies only in New Jersey. Pennsylvania's closest program, Act 2, works differently, as the comparison below shows.

Which businesses does ISRA cover?

ISRA covers an industrial establishment only when three things are all true. Its NAICS code, the federal code for its type of business, is listed in Appendix C of the ISRA rule. It has operated on or after December 31, 1983. And those operations on site involved generating, manufacturing, refining, transporting, treating, storing, handling or disposing of hazardous substances or wastes.

The code belongs to the business, not the building

The rule defines an industrial establishment as a place of business, or the real property where it's conducted, with a NAICS code listed in Appendix C. So the question is what operates on the property. Appendix C includes warehousing, NAICS 493, only for establishments that store raw materials for other establishments of the same enterprise. Codes for some chemical and petroleum distributors, such as 424690, 424710 and 424720, are on it too. A building used for ordinary storage may fall outside ISRA, while the same building with a covered manufacturer or distributor in it may not.

What the property includes

For a property the owner occupies or leases to a single tenant, the industrial establishment includes all the blocks and lots where the business is conducted. It also includes adjoining lots the same owner or operator controls, if they're vacant or used with the business. On a leased property with two or more leased spaces, it includes the covered tenant's leasehold. It also includes any areas of concern that supply, are associated with or are used for hazardous substances or wastes going to or from that leasehold, wherever they are.

An area of concern is any place where hazardous substances or wastes are known or suspected to have been discharged or handled, or may have migrated. Tanks, floor drains and spill areas are common examples.

No state ruling on whether it applies

NJDEP stopped issuing ISRA applicability determinations on April 30, 2008. The owner or operator now works out whether ISRA applies with an environmental professional, using the rule's definitions and NJDEP's applicability guidance.

What triggers ISRA when you sell?

ISRA is triggered by closing operations or by transferring ownership or operations. For a seller, the usual trigger is selling any of the real property where a covered business operates. Selling the business, transferring title through an option to purchase, some transfers of stock, partnership or LLC interests, and a lease of 99 years or longer count too. So does a temporary stop of more than two years.

The rule's definitions, in N.J.A.C. 7:26B-1.4, list each one.

Change in ownership

• Selling or transferring the business
• Selling or transferring any of the real property it operates on, including adjoining vacant lots controlled by the same owner or operator
• Transferring title by exercising an option to purchase
• Reorganizing a partnership into a corporation, LLC or similar entity
• Certain transfers of partnership interests, stock or LLC interests, such as one that causes a merger or changes who holds the controlling interest

Other transfers of ownership or operations

• Selling or transferring more than 50 percent of the establishment's assets, not counting real property, within any five-year period. The rule excludes transfers made to replace, modify or retool equipment.
• Signing a lease of 99 years or longer for the establishment
• Dissolving an entity that owns or operates the establishment, or an indirect owner, unless it's an indirect owner whose assets wouldn't have been available for the remediation
• Transferring the establishment to a trust, unless the grantor and beneficiary are the same or members of the same family

Closing operations

• A shutdown or cutback of at least 90 percent in the value of output within any five-year period, or in employees or operating area where output isn't defined
• A temporary stop of more than two years
• A shutdown for health or safety reasons by a court or a final agency action
• A Chapter 7 bankruptcy, or a Chapter 11 plan that provides for liquidation
• A change in operations to a NAICS number that isn't subject to ISRA
• Ending a lease or sublease, unless operations continue without disruption, or assigning one, unless the operator stays the same and operations continue without disruption

For a sale, the five-day clock starts when the agreement is signed, not at closing.

Does ISRA apply if a tenant runs the business?

ISRA can apply when a tenant runs a covered business. The law puts its duties on the owner or operator, and the rule's definition of owner includes whoever owns the real property. Selling any of that property is a change in ownership. Ending a lease or sublease counts as closing operations unless operations continue without disruption, and assigning one counts unless the operator stays the same as well.

When you sell the building and the tenant stays, the tenant's operations aren't closing, but the real property is changing hands. Your lease may say who handles ISRA. If it doesn't, settle it with the tenant early. The investigation needs access to the tenant's space and records, and the notice has to go out within five days of signing. The purchase agreement should also say who does what.

What happens after ISRA is triggered?

Within five days of signing a sale agreement, the owner or operator sends NJDEP a General Information Notice and sends the same information to the municipal clerk. A Licensed Site Remediation Professional (LSRP) then leads a preliminary assessment, a site investigation and, if contamination is found, a remedial investigation and cleanup. The LSRP finishes by issuing a Response Action Outcome.

1. The notice. Under N.J.S.A. 13:1K-9, it's due within five days after the sale agreement is signed. For a closing, it's due within five days after operations close or the decision to close is publicly released, whichever comes first. It identifies the establishment, describes the transaction, gives the dates and the parties, names an authorized agent and is certified as accurate.
2. An LSRP. NJDEP says owners and operators who filed the notice on or after November 3, 2009 must hire an LSRP and follow the state's site remediation law.
3. Preliminary assessment. A review of the site's history and records to find areas of concern.
4. Site investigation. Sampling to learn whether contamination is present in those areas.
5. Remedial investigation and remedial action. If contamination is found, the remedial investigation defines how far it goes, and the remedial action cleans it up.
6. Response Action Outcome. When the work is done, the LSRP issues a Response Action Outcome (RAO). The state's rule defines it as a written determination by the LSRP that the site was remediated in line with the applicable laws and rules.

Can a sale close before the ISRA cleanup is finished?

Yes, a sale can close before the ISRA cleanup is finished. Under N.J.A.C. 7:26B-1.8, the owner or operator can transfer ownership or operations before a final remediation document in four ways. One is submitting a Remediation Certification. The other three need NJDEP's approval: a regulated underground storage tank waiver, a remediation in progress waiver or a de minimis quantity exemption, for small amounts of hazardous substances.

The duty to remediate stays in place after closing. The de minimis exemption works differently: it exempts the owner or operator from the ISRA rule's substantive requirements, though not from any other law's requirement to clean up a discharge.

The Remediation Certification

NJDEP's Remediation Certification page says the transaction may proceed to closing once the form is submitted. The owner or operator completes it, and it must be accompanied by a Remediation Funding Source. The page says NJDEP "will NOT be issuing approvals" of these certifications, and no fee is required.

If the preliminary assessment and site investigation aren't finished yet, the funding source can rest on a surrogate cost estimate, a standard minimum set by NJDEP. The minimum is $100,000 when no contaminant information is known about the site, or $250,000 when groundwater contamination is known.

Waivers and the de minimis exemption

The other three routes need NJDEP's approval before closing. Your LSRP can tell you whether the underground storage tank waiver or the remediation in progress waiver fits your site. The de minimis quantity exemption, under N.J.A.C. 7:26B-5.9, is for small quantities. It fits only if there were never more than 500 pounds or 55 gallons of hazardous substances or wastes at any one time. That limit covers the whole period of the owner's or operator's ownership or operation. Hydraulic or lubricating oil must also have stayed at or under 220 gallons at any one time. The fee is $300.

Selling part of a site

For selling part of an industrial establishment's land, ISRA has a separate option: a certificate of limited conveyance under N.J.S.A. 13:1K-11.8. It lets the owner transfer part of the land without remediating the entire establishment. NJDEP issues one only when these two amounts, added together, are no more than one third of the establishment's total appraised value before the transfer:

• The price or market value of the land being transferred
• Any loss in value to the property that's left

A certificate is valid for three years from the date it's issued. Before the conveyance, the owner or operator still has to meet ISRA's requirements for the land being sold, including any contamination migrating onto it from the rest of the site. The rest of the establishment comes under ISRA later, when it closes operations or changes hands.

Who does the ISRA work in a sale, and who pays?

The statute puts the investigation and cleanup on the owner or operator, "except that any other party may assume that responsibility." So another party, such as the buyer, can agree to do the work. If the work isn't done, the owner or operator is still strictly liable, without regard to fault. The purchase agreement should say who does what and who pays.

If the required remediation isn't carried out, the owner or operator is liable for the costs and damages that result, whoever agreed to do the work. The agreement should name:

• Who hires the LSRP
• Who provides the funding source
• Who pays if the work costs more than the estimate
• How progress is reported to the other side

What happens if ISRA is ignored in a sale?

If a seller fails to carry out the remediation ISRA requires, N.J.S.A. 13:1K-13 gives the buyer grounds to void the sale and recover damages. The owner or operator is also strictly liable, without regard to fault. NJDEP can assess penalties of up to $25,000 for a first offense and $50,000 for each later one, each day counted separately.

A buyer can't void the sale without warning: the statute requires notice to the seller first and a reasonable time to comply. In a court action, civil penalties can reach $25,000 a day, or $50,000 a day for violating an order or failing to pay an assessment, under N.J.S.A. 13:1K-13.1.

How is ISRA different from Pennsylvania's Act 2?

ISRA is mandatory. It's set off when a covered business closes operations or transfers ownership or operations, and it has to be addressed before a covered transaction closes. Pennsylvania's Act 2, the Land Recycling Program, is a voluntary cleanup program, and the state's Department of Environmental Protection says its liability protection extends to future owners.

Our FAQ explains Pennsylvania's Act 2 in more detail.

Does ISRA change the price or the timing of a sale?

ISRA can change both the price and the timing of a sale. A buyer prices in known or likely contamination and the cost of finishing the remediation. The five-day notice, the funding source and any waiver application also need lead time before closing. Bringing in your environmental professional before you sign gives both sides the same facts, so neither is surprised late.

We can't promise a set number of days to close a sale where ISRA applies. When you sell to us, you choose the date, within the required steps and the due diligence period in our offer. Those steps include the ISRA filings and New Jersey's bulk sale notice, which has to reach the Division of Taxation at least 10 business days before closing. Our seller's guide lists the other lead times in a warehouse sale, and our cost guide works New Jersey's seller fees through five sale prices.

How does Direct Warehouse Buyers handle ISRA?

Direct Warehouse Buyers buys New Jersey industrial property where ISRA applies and prices the building as-is, including what's known about its environmental condition. The owner or operator still gives NJDEP the notice and files the Remediation Certification, because the law and NJDEP's form put those steps on them. We work through the rest with you and your environmental professional.

The purchase agreement says who handles what, and our how-it-works page shows where ISRA fits in a sale to us. If you're not sure whether ISRA applies, tell us what operates on the property and its NAICS code if you know it. We'll go over it with you before a purchase agreement starts the five-day clock.

What should you have ready if ISRA may apply?

The local certificate rules that run alongside ISRA are on our county pages for Camden County towns, Burlington County towns and Gloucester County towns.