What happens when a property owner refuses to consent to a deed
notice to address historic fill on its property?
Engineering and institutional controls, often a cap and deed
notice, can greatly reduce the cost of environmental
remediation. Where appropriate, engineering and institutional
controls can allow remediating parties to avoid costly excavation
or treatment of contaminated soil, instead allowing these materials
to remain underneath improvements such as parking lots, building
foundations, or landscaped areas. The ability to use
controls, however, becomes complicated if the party conducting the
remediation does not own the property. Legally, the property
owner’s consent is required to record a deed notice, and,
absent a contractual obligation, there is no legal mechanism to
require a property owner to accept a deed notice. If the
property owner will not agree to controls, the remediating party
must implement a remedial action that meets the residential soil
remediation standards, which could require a significant amount of
additional remedial work (e.g., excavation or treatment) to
eliminate soil impacts. N.J.S.A. 58:10B-13(a)(2) and
(b).
This situation is further complicated when the contamination at
issue is “historic fill.” Historic fill is contaminated
material that was deposited to raise the topographic elevation of a
given site; it was common practice for decades before modern
environmental laws to use as fill readily available materials,
including construction/demolition debris, ash, cinders, and other
materials we now know to be contaminated. Historic fill,
which NJDEP considers an area of concern that needs to be
addressed, typically contains relatively low levels of contaminants
that nonetheless exceed NJDEP’s residential soil remediation
standards. Because of the ubiquitous nature of historic fill
and commensurate with the risk it poses to human health and the
environment, the Legislature created a rebuttable presumption that
the appropriate remedial action for soil contamination associated
with historic fill is the establishment of engineering and
institutional controls. N.J.S.A. 58:10B-12(h)(1).
That brings us back to the question, what happens when a
property owner refuses to consent to a deed notice to address
historic fill on its property? This situation was recently
considered by the Appellate Division in Cozzoli Machine Company
v. Crown Real Estate Holdings, Inc., Docket No. A-1733-19 (App.
Div., Dec. 7, 2021).
In 2003, Cozzoli ceased operations and sold its property to RTN,
LLC which triggered the requirements of the New Jersey Industrial
Site Recovery Act (“ISRA”). After concern about the
progress of Cozzoli’s cleanup, RTN and NJDEP agreed that
engineering and institutional controls could be used as part of the
remedial strategy to address historic fill and RTN consented to
executing and recording a deed notice. Before the Response
Action Outcome was issued, RTN defaulted on its mortgage with Crown
Bank, which as a result of foreclosure took title to the property
and then ultimately conveyed the property to Sumo Property
Management, LLC. Sumo intended to construct a large
residential project; however, planning board approval was
conditioned on remediating to residential standards. As a
result, Sumo was unwilling to execute a deed notice and sought to
have Cozzoli remediate to residential standards. In its lawsuit,
Cozzoli sought access to the property to complete its remediation
by installing engineering controls and injunctive relief compelling
Sumo to execute a deed notice.
Sumo argued that it was not obligated to execute a deed notice
even though RTN, a prior owner, had provided consent. The
court disagreed initially, stating that to find for Sumo would
“hold a good-faith remediator” subject to the demands and
whims of the property’s successors-in-interest. The court
also noted the rebuttable presumption applicable to historic fill
and found that neither Crown nor Sumo timely challenged NJDEP’s
determination that the impacts being addressed were caused by
historic fill, but only belatedly disputed the determination during
the litigation. Moreover, the court found that Sumo had
inquiry notice of and thus was bound by RTN’s consent because
Crown as mortgagee would have known of NJDEP’s involvement and
Cozzoli’s remediation plan before it foreclosed on the
property. Crown’s knowledge was imputed to Sumo because
of overlapping ownership between the two companies; the chairman
and CEO of Crown was the managing member of Sumo. Finally,
the court also found Sumo played “fast and loose” because
while Crown was still the owner it unsuccessfully sought to dismiss
the litigation, arguing that there was only historic fill on the
property and that historic fill is not a contaminant and thus
engineering and institutional controls, including a deed notice,
were not required. Sumo, however, changed course and
attempted to argue the impacts were not caused by historic fill and
thus, controls as a remedy were inadequate. Given the
overlapping management and transfer of the property from Crown to
Sumo mid-litigation, the court found Sumo was estopped from arguing
the source of the contamination was from something other than
historic fill. Accordingly, the Appellate Division affirmed,
requiring Sumo to permit Cozzoli access to complete the engineering
controls and to execute a deed notice.
As is evident from the decision, the court viewed the current
property owner, Sumo, as a bad actor. Had the current owner
been a “good faith purchaser” with no connection to the
mortgagee it may still have been charged with inquiry notice
because presumably it should have performed an NJDEP file review as
part of its due diligence; however, that result is not as
clear. Also, if the contamination at issue was not the result
of historic fill, the court may have viewed the use of engineering
and institutional controls differently because the considerations
that led the legislature to adopt the rebuttable presumption in
favor of controls are absent. Thus, while this is an
interesting case that may indicate a remediating party can compel a
property owner to accept a deed notice, it appears to be somewhat
limited to its facts.
The issue of needing a property owner’s consent to employ
controls arises often. Accordingly, the need for consent
should be considered whenever there is an agreement involving
interests in the property (e.g., purchase and sale agreements and
leases). In addition, there are some principles that, with
the assistance of experienced counsel, may have applicability to
other situations where a remediating party is trying to compel a
property owner to accept a deed notice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
