march 2007

New DCA Policy Affects Registration of Condominium Developments on Contaminated Property

BACKGROUND

Registration with the Planned Real Estate Development (PRED) program of New Jersey’s Department of Community Affairs (DCA) is required before the sale of most condominiums, cooperatives, and other developments in which common elements are shared.

DCA recently adopted a new policy under which Final Registration will not be granted for any developments undergoing environmental remediation that have not yet received a No Further Action (NFA) letter from the New Jersey Department of Environmental Protection (NJDEP), unless certain conditions are fulfilled. The purpose of the policy is to avoid subjecting unit owners to liability arising from a developer’s failure to complete the remediation of contamination at the development site.

NEW PROCEDURES FOR REGISTRATION

In order to implement the new policy, DCA has now established new registration procedures for developments on contaminated properties. If a remedial action is required, then prior to registration, the property must have received an approval from NJDEP of a Remedial Action Workplan (RAW) for all affected areas and all contaminants at the site. Under this scenario, DCA will grant a Conditional Registration permitting the sale of units. However, the closing of the transaction will not be permitted to occur until NJDEP issues a NFA.

In order to obtain Final Registration, DCA requires both RAW approval and the posting of a financial assurance in an amount equal to the estimated cost of the remediation, as approved by NJDEP or certified as reasonable by a remediation professional.

The new DCA policy also requires that the Public Offering Statement (POS) contain a synopsis of the environmental conditions at the property and the approved remedial action, including a schedule for completion of the work. The POS must also describe any restrictions on the use of the property and any obligations to be performed by the community association for post-remedial monitoring, maintenance and reporting.

WE RECOMMEND

If you are considering developing a property for condominium use and the site is undergoing remediation:

Structure your RAW to allow for a phased cleanup consistent with the development plans. This will allow NJDEP to issue an NFA for each phase, so that Final Registration can be granted as each phase of the development is completed.

Carefully draft the environmental section of the POS so that it includes the information required by DCA.

Evaluate available options for financial assurance mechanisms.

Seek a full or partial release of any financial assurance in accordance with the terms of the selected instrument and the applicable regulations, at appropriate milestones.

If you have any questions concerning these issues please contact Jay A. Jaffe.