13 Nov TRIGGERED: The Industrial Site Recovery Act (ISRA)
Reading Time: 3 minutesHOW TO MINIMIZE THE COST AND AGGRAVATION OF ISRA COMPLIANCE
The Industrial Site Recovery Act (ISRA) is arguably the most impactful hazardous waste cleanup law in New Jersey. ISRA has been law since December 31, 1983 when it was first introduced as the Environmental Cleanup Responsibility Act (ECRA). How important was this groundbreaking law? It fulfilled its intention; i.e., to stop real estate deals until environmental impacts are remediated.
ECRA was the first law of its kind, and it immediately caused a wave of site investigation and cleanup work that, were it not for ECRA, would have remained unaddressed. After 10 years, ECRA was replaced by a much-improved revision that was renamed ISRA.
Businesses subject to ISRA are required to prove that their sites are clean. If they are not, they must be investigated and remediated until they are clean. How clean? That is determined by New Jersey’s cleanup standards. Compliance is no longer administered by New Jersey Department of Environmental Protection (NJDEP) case managers; ISRA compliance is managed by Licensed Site Remediation Professionals (LSRPs) who, after they are certain the site has been cleaned pursuant to the applicable regulations and standards, will issue a Response Action Outcome (RAO). The RAO replaced the former, pre-Site Remediation Reform Act (SRRA) closure decree, the Negative Declaration.
What Triggers ISRA?
Companies are obligated to comply with ISRA after they meet a three-part trigger.* The first trigger is simple: Does the North American Industry Classification System (NAICS) code for the business in question match the NJDEP’s list of ISRA-subject NAICS codes? If the answer is no, the business is not subject to ISRA. If the answer is yes, then a second trigger is applied: Does the business use, generate, manufacture, refine, transport, treat, store, or handle hazardous substances or waste? If the answer is no, it is not subject to ISRA. If the answer is yes, then it may be subject to ISRA unless it meets certain de minimis quantity exemptions. If the business meets the first and second triggers, then a third and final trigger is considered: Either the business has been sold, there has been a major transfer of stock, or the business has ceased operation.
When Must You File?
The New Jersey regulations are clear: companies must do their initial ISRA filing five days after triggering ISRA. That is, the law compels responsible parties to act expeditiously. But from a strategic perspective, when should you do the environmental work? You can’t begin your ISRA process until there has been an ISRA trigger. But if you KNOW that you are going to trigger ISRA, why wait to do the actual environmental work?
Procrastination is the Root of Failed Real Estate Deals
If you are a long-time reader of ESA’s newsletters, you have heard us state repeatedly that sellers should address environmental issues well in advance of any deal. We have written many articles demonstrating how the environmental compliance process screws up real estate deals. Possibly worse than that, we have witnessed many situations where a buyer inserts themselves into the cleanup process, dictating how the cleanup should be done. And when that happens, costs escalate and, in effect, the tail (the buyer) begins to wag the dog (the seller); this is not what sellers want.
The Solution
If you own a business or building and you know that you are going to trigger ISRA, address the environmental investigation up front. There is an important benefit to doing so: it removes you from the burden of ISRA scrutiny because there is no buyer on the scene. This means that a series of people (the buyer, their attorney, and their broker) who could exert pressure and influence upon your environmental compliance process are absent. The environmental compliance work will thus be done at your leisure (but still within the prescriptive timeframes of the SRRA). And you will have the ability to use time to your advantage when making environmental decisions.
To find out if this strategy is truly in your best interests, speak to an expert at ESA. Let us examine your situation. We will discuss the merits of pre-ISRA cleanup as it applies to your situation and, if the strategy has merit, then we advise you to speak with your environmental attorney to get their opinion and approval.
There is great merit to addressing environmental matters in advance of your real estate deals. ISRA adds the additional complexity of complying with an important law while effecting cleanup. In the end, ESA knows this to be a fact: when you sell your building after environmental work has been finished, the sales process will be faster, smoother, and more profitable.
* ISRA triggers are far more complicated than described here. This article is concise for the sake of brevity. If you require more information about your situation, ask ESA or consult with your environmental attorney.