February 9, 2011 | Comments Off
Posted by Marc Policastro
Under the new Site Remediation Reform Act (SRRA), in most cases final determinations are made by the Licensed Site Remediation Professional (LSRP). The LSRP, not the State, issues the final “approval”, now known as a Response Action Outcome (RAO). In essence, RAOs replace No Further Action Letters which were issued by the State in the pre-SRRA era.
As a general matter, pre-SRRA contracts frequently required sellers of businesses and real estate to escrow funds until issuance of an NFA, at which time escrowed funds would be released to the seller. That begs the question: because the SRRA law subjects RAOs to a 3-year audit period, should purchasers require an escrow to cover the possibility that the RAO issued will be modified, or rejected entirely, within the 3-year audit period? The answer: Maybe. Even in the pre-SRRA world, NJDEP had the right to re-open a case, and lift a previously issued NFA where new information comes to light or misrepresentations are identified affecting environmental resources or health and safety concerns. However, because the SRRA creates an express 3-year audit window for RAOs, practitioners may be more inclined, for just that reason, to include a post-closing escrow to cover the period of uncertainty. Although both NFAs and RAOs are subject to a re-opener, in practice, RAOs may require an overtime period to settle purchaser concerns of finality. Purchasers may now be more inclined to require escrows for the full 3-year period, or, a portion of the audit period, depending on the level of contamination, whether off-site considerations are involved and the purchase price for the deal. Time will tell.