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Industrial Site Recovery Act (ISRA) How to Determine if ISRA Applies to You

 

Site Remediation Following the Industrial Site Recovery Act ( ISRA)

The Industrial Site Recovery Act (ISRA) is a unique environmental law1 which requires the remediation of certain business operations (site) prior to their sale or transfer or upon its cessation of on site business operations. Industrial Establishment is the defined term in the ISRA rule that describes those businesses regulated under ISRA. The remediation of “industrial establishments” has been law in New Jersey since 12/31/83 2. Compliance with ISRA begins at the time of specified triggering events. Read further to learn more about who must comply with ISRA and when compliance begins.

Who Must Comply with ISRA?

Any person who owns the industrial establishment, owns the real property of an industrial establishment or is the operator of the industrial establishment must comply with ISRA.

How to Determine if ISRA Applies to You

This portion of the guide is designed to help both business and property owners, as well as their legal and technical representatives, determine if the Industrial Site Recovery Act (ISRA) (N.J.S.A. 13:1K and N.J.A.C. 7:26B), applies to their property or business. It is strongly recommended that this guide be used as a supplement to the ISRA regulations which can be found by following the above link. Hopefully, through the use of this guide and the regulations in tandem, you will have a better understanding of how ISRA applies to you or your client.

What is an industrial establishment?

The term industrial establishment cannot be defined without first discussing the North American Industry Classification System (NAICS)3. NAICS is a classification system created by the federal government to facilitate the collection of statistical information. All businesses have NAICS numbers based on the nature of their business. The ISRA rule at Appendix C sets forth those NAICS numbers which are regulated.

Useful Links regarding NAICS

An industrial establishment is a business whose NAICS number is listed in Appendix C of the ISRA rule. In addition to having a listed NAICS number the business must have operated in New Jersey on or after December 31, 1983 and business operations must involve the storage or handling of hazardous substances as defined at N.J.A.C. 7:1E, the New Jersey Spill Compensation and Control Act. Hazardous substances include petroleum products and those substances listed at Appendix A of N.J.A.C. 7:1E. To view the list of hazardous substance, see the following http://www.nj.gov/dep/rpp/brp/dp/downloads/NJAC_7_1E_App_A_and_B.pdf [pdf]

In summary, to be an industrial establishment, a business must;

  • have a NAICS number listed in Appendix C and;
  • have operated in New Jersey on or after December 31, 1983 and;
  • use or store hazardous substances as defined at N.J.A.C. 7:1E.

For the complete definition of Industrial Establishment, see N.J.A.C.7:26B-1.4.

What events require an ISRA filing for an Industrial Establishment?

The need to comply with ISRA occurs after a triggering event. The event usually indicates that a significant change in the ownership or operations of the business or property is about to take place (for example, the signing of an agreement to sell the property of an industrial establishment). Compliance with ISRA is required at the time of the triggering event (the signing of the agreement in this example) and prior to the closing of the property sale.

A reminder before we delve further into the complexities of ISRA triggering events; ISRA only applies to an Industrial Establishment as defined above. If the place of business does not meet the above criteria defining an industrial establishment, ISRA does not apply. That said, an inclusive list of ISRA triggering events can be found in the ISRA rule at N.J.A.C. 7:26B-3.2. http://www.nj.gov/dep/srp/regs/isra/

Common transactions which trigger the requirement of an industrial establishment to comply with ISRA include; the sale of property, sale of business or the cessation of operations. It’s easy to determine if ISRA has been triggered as the result of these types of transactions. But ISRA also applies to more complex business transactions. How does the owner or operator of an industrial establishment know if their planned “Corporate Reorganization” or stock transfer will require ISRA compliance?

The following guidance is provided to assist you in making these types of determinations. Please note, this guidance is largely based on the Departments regulations formerly codified at N.J.A.C. 7:26B-2.2 Applicability determinations. Though the Department no longer offers the service of determining ISRA applicability, the determinative criteria embodied in this former section remain valid.

The guidance offered herein can be categorized on a transactional basis as follows; Transactions relative to;

  1. a transfer of ownership or operations involving an evaluation of whether the indirect owner's assets would have been available for remediation. (Indirect owner transactions)
  2. a transfer of ownership or operations involving an evaluation of whether the subject transaction is a corporate reorganization not substantially affecting the ownership. (Corporate reorganization transactions)
  3. a transfer of ownership or operations involving an evaluation of whether the subject transaction is a transfer of a controlling interest. (Controlling interest transactions)

Indirect Owner Transactions

The key to ISRA applicability relative to indirect owner transactions is to determine whether the indirect owner has exercised control over the industrial establishment or the direct owner or operator thereof. An affirmative finding that the indirect owner has exercised control over the industrial establishment or the direct owner or operator thereof, would result in a determination that the indirect owner's assets would have been available for remediation thus triggering the requirements of ISRA. The following six criteria have been developed to determine if the indirect owner's assets would have been available for remediation. The owner or operator of the industrial establishment should:

  1. Identify each direct owner and each indirect owner of the industrial establishment;
  2. Identify whether the indirect owner has exerted fiscal control over the direct owner or industrial establishment including, but not limited to, imposing any restriction upon the financing, borrowing, budgeting, dividends and cash management of the direct owner or industrial establishment;
  3. List all persons that are officers and directors for both the direct owner and the indirect owner of the industrial establishment to establish whether the officers, directors and employees of the indirect owner constitute a majority of the directors of the direct owner or the industrial establishment or such smaller number of directors as is sufficient to effectively direct the management and policies of the direct owner or the industrial establishment;
  4. Identify whether the officers, directors and employees of the indirect owner are involved in the day-to-day operations of the direct owner or the industrial establishment and whether the day-to-day operations of the direct owner or the industrial establishment are relevant to the generation, manufacture, handling, storage or disposal of hazardous substances or hazardous wastes;
  5. Identify whether the indirect owner has the ability to control the activities, policies or decisions of the direct owner or the industrial establishment and whether these activities, policies or decisions are relevant to the generation, handling, storage or disposal of hazardous substances or hazardous wastes; and
  6. Evaluate any additional information which may be relevant to this determination.
    Please note, when performing this type of analysis, no one factor is determinative. All factors in their totality must be must considered.

Corporate Reorganization Transactions

Corporate reorganizations are excepted from ISRA applicability if they meet two basic concepts based on the four factors listed below. Firstly the transaction must be between “Persons” as defined at N.J.A.C. 7:26B-1.4, under common ownership. Secondly, the financial ability of the owner or operator of the industrial establishment to remediate the site cannot be significantly diminished as a result of the transaction. The owner or operator of the industrial establishment should:

  1. Identify each direct owner of the industrial establishment, indirect owner of the industrial establishment and the organizational structure of the person, prior to, and after the proposed transaction;
  2. Identify whether the transaction involves the transfer of stock and/or assets, solely among persons under common ownership or control and/or shareholders or owners of such persons. A transaction between related corporations that prepare financial statements or tax returns on a consolidated basis will be presumed to be among corporations under common ownership or control;
  3. Identify:
    1. Whether the transaction will result in an aggregate diminution of more than 10 percent in the net worth of the industrial establishment or of the person directly owning or operating the industrial establishment. The applicant must include all transactions occurring within the five-year period preceding the date of the proposed transaction in the calculation of "aggregate diminution"; or
    2. Whether there is an equal or greater amount in assets that is available for the remediation of the industrial establishment before and after the transaction(s);
  4. Consider any additional information which may be relevant to this determination.

Controlling Interest Transactions

Controlling interest transactions deal with the transfer of an interest in a company and how the transfer affects the control of that company. A finding that the subject transaction results in a change in the person holding the controlling interest in the direct owner or operator or indirect owner of an industrial establishment would result in a determination that the transaction is a change in ownership as defined by N.J.A.C. 7:26B-1.4, thus triggering the requirements of ISRA. Normally speaking, this type of analysis pertains to the transfer of stock in a corporation. The following three factors are used to determine if a contemplated transaction will result in a transfer of a controlling interest in an industrial establishment. The owner or operator of the industrial establishment should:

  1. Identify whether the transferor is transferring more than 50 percent of the voting or ownership interest in the direct owner or operator or indirect owner of an industrial establishment. There is a rebuttable presumption that any person who has more than 50 percent of the voting or ownership interest holds a controlling interest in that direct owner or operator or indirect owner; or
  2. Identify whether the transferor is transferring 50 percent or less of a voting or ownership interest in the direct owner or operator or indirect owner of an industrial establishment and:
    1. Identify whether the transferor possess(es), directly or indirectly, the power to direct or cause the direction of the management and policies of the entity; and
    2. Identify whether a voting trust, shareholder's agreement, proxy or similar agreement exists which would enable the transferor to elect a majority of the board of directors or a smaller number of directors sufficient to effectively direct or cause the direction of the management and policies of the entity; and
  3. Consider any additional information which may be relevant to this determination.

Financial Information

When performing an analysis requiring information concerning the net worth of any person, the following information listed in 1 and 2 below should be consulted:

  1. Income and expenses or similar statements of each direct owner or operator or indirect owner of the industrial establishment, as applicable; and
  2. Audited balance sheets or similar statements of assets and liabilities of each direct owner or operator or indirect owner of the industrial establishment, as applicable, as used by that person for the preceding fiscal year that ended closest in time to the date of the applicability determination application.

What if my facility is subject to ISRA?

If you determine that your facility is subject to ISRA and your facility does not qualify for any of the waivers, exemptions or alternate compliance processes described below, then you are required to perform all necessary remediation at your facility. The process begins with the filing of a General Information Notice (GIN). The owner or operator of an industrial establishment must notify the NJDEP within five days of any triggering event by filing the GIN. Once this notification is made, the owner or operator must conduct a remediation in accordance with the Technical Requirements for Site Remediation N.J.A.C. 7:26E. With the enactment of the Site Remediation Reform Act on November 4, 2009 this remediation must be conducted by a Licensed Site Remediation Professional (LSRP). This includes at a minimum a Preliminary Assessment (PA) to identify potential Areas of Concern (AOCs) and if necessary a Site Investigation (SI) to determine if any contaminants are present above any applicable remediation standards. If there is contamination documented in the SI Report, the owner or operator must conduct a Remedial Investigation (RI) to determine the nature and extent of contamination. The next step is the proposal of a Remedial Action Workplan (RAW) detailing the measures necessary to remediate contaminated property to the applicable remediation standard. The Licensed Site Remediation Professional shall submit a Response Action Outcome when there have been no discharges of hazardous substances or wastes on the property or at the time any such discharges were cleaned up to the remediation standards in effect at the time.

In the case of a proposed transfer of ownership, the owner or operator must obtain a Response Action Outcome from a LSRP or a LSRP must certify a RAW prior to the actual transfer. When closing operations, the owner or operator must notify the NJDEP subsequent to closing or of its public release of its decision to close and submit to the NJDEP a Response Action Outcome or a LSRP certified RAW. This is all initiated through the filing of the ISRA application forms and/or reports in accordance with the Technical Requirements For Site Remediation, N.J.A.C. 7:26E (General Information Notice, Preliminary Assessment Report forms etc.). The execution of a Remediation Certification between the owner or operator and prospective purchaser is a third option to allow the transaction to be consummated prior to full ISRA compliance.

Alternate Compliance Options, Exemptions and Waivers

This section describes the various applications for alternate compliance options including exemptions and waivers that are provided by ISRA regulations. It is emphasized that whenever an application requires a certification, evaluation or investigation of a facility, these must be performed pursuant to the Technical Requirements for Site Remediation (TRSR), N.J.A.C. 7:26E.

A Certificate of Limited Conveyance, N.J.S.A. 13:1K-11.8, N.J.A.C. 7:26B-5.7, allows the owner of the real property to transfer up to one third of the appraised value of the real property where an industrial establishment exists without having to remediate the entire industrial establishment. This certificate is valid for three years after the issuance date. Before completing the transfer, the owner or operator must file a GIN, remediate the portion to be conveyed, and obtain a Response Action Outcome for that portion of the industrial establishment subject to the transfer.

A Deminimus Quantity Exemption, N.J.S.A. 13:1K-9.7, N.J.A.C. 7:26B-5.9, the owner or operator to close operations or transfer ownership or operations without conducting a remediation pursuant to ISRA under specific conditions. The owner or operator must submit a Deminimus Quantity Exemption application and a fee and obtain approval by the NJDEP prior to the transfer or closure. The required Deminimus quantity conditions exist if the total quantity of hazardous substances and hazardous wastes generated, manufactured, refined, transported, treated, stored, handled or disposed of at the industrial establishment at any one time during the owner's or operator's period of ownership or operations:

  • does not exceed 500 pounds or 55 gallons; or
  • if a hazardous substance or hazardous waste is mixed with non-hazardous substances, the total quantity in the mixture does not exceed 500 pounds or 55 gallons; or
  • if, in the aggregate, hydraulic or lubricating oil, does not exceed 220 gallons.

A Remediation in Progress Waiver, N.J.S.A. 13:1K-11.5, N.J.A.C. 7:26B-5.4, allows an owner or operator of an industrial establishment to close operations or transfer ownership or operations if the site is already undergoing remediation with NJDEP oversight or oversight by a LSRP. The owner or operator must submit an ISRA Alternate Compliance Option form and a LSRP certified preliminary assessment report or a preliminary assessment/site investigation report. The certified report must confirm the applicant has had no discharges of a hazardous substance during its period of ownership or operations or any discharges by the applicant have been remediated as documented by providing a copy of a NJDEP No Further Action approval or a Response Action Outcome issued by a LSRP and that a remediation-funding source is in place. If the NJDEP approves the waiver, the remediation proceeds under the existing case until the LSRP issues a Response Action Outcome.

A Regulated Underground Storage Tank Only Waiver, N.J.S.A. 13:1K-11.6, N.J.A.C. 7:26B-5.3, allows an owner or operator of an industrial establishment to close operations or transfer ownership or operations without conducting remediation pursuant to ISRA if the only AOC is a regulated Underground Storage Tank (UST) or the only discharges at the site are from regulated UST’s. The owner or operator must submit an ISRA Alternate Compliance Option form and a LSRP certified preliminary assessment report or a preliminary assessment/site investigation report that supports a regulated UST is the only area of concern at the industrial establishment. If the NJDEP approves the waiver, the remediation continues with the existing underground storage tank case until the LSRP issues a Response Action Outcome.

For general questions regarding the ISRA process call the Office of Community Relations at (609) 984-3081.

1 New Jersey’s Spill Compensation and Control Act (N.J.S.A. 58:10-23.11) establishes that any person who has discharged a hazardous substance, or is in any way responsible for any hazardous substance, shall be strictly liable, jointly and severally, without regard to fault, for all cleanup and removal costs. ISRA, however, is unique in that it imposes, as a precondition of the sale or transfer of an industrial establishment or upon cessation of its operations, the requirement to conduct a preliminary assessment and other remediation requirements on the owner or operator of the industrial establishment.

2 In 1983, the Legislature found that discharges of toxic chemicals dating back to early industrialization had left a legacy of contaminated industrial property in this State. In response to the growing public awareness and concern of the risks to the public health and the environment and the potential costs to the State to clean up abandoned contaminated sites, the Legislature enacted the "Environmental Cleanup and Responsibility Act" (ECRA). The Legislature also found that the act's imposition of a cleanup plan approval before the transfer or upon the closing of an industrial establishment and the requirement to establish a funding source for the cleanup are in the general public interest by ensuring the discovery of contamination, by ensuring that funding for cleanup is set aside at the time it is available from a transfer or closing, and by ensuring that contaminated property is not abandoned to the State for cleanup. Through the implementation of ECRA, many contaminated sites were discovered and remediated, but it became clear that changes to the original legislation were needed.

On July 16, 1993, Senate Bill No. 1070 was signed into law as P.L. 1993, c.139. Senate Bill No. 1070 represented the Legislature's efforts to reform the process by which contaminated sites are remediated. Sections 1 through 22 of P.L. 1993, c.139, supplement and amend ECRA, including renaming the law to ISRA.

ISRA furthers the policy of this State to protect the public health and safety, and the environment by promoting efficient and timely cleanups and by eliminating any unnecessary financial burden on the persons responsible for remediating contaminated sites. This has been achieved by streamlining the regulatory process, by establishing summary administrative procedures for industrial establishments that have previously undergone an environmental review. The procedures in ISRA guard against redundancy from the regulatory process and minimize governmental involvement in certain business transactions

3 Please note, the ECRA/ISRA regulated universe of businesses was formally defined using the Standard Industrial Classification (SIC) system. That system was abandoned by the Federal Government in 1997 with the creation of NAICS. State legislation was enacted effective August 15, 2003, directing the Department to adopt rules identifying within NAICS “the generally equivalent universe of employers and facilities that have been to date covered by the SIC codes.” Appendix C is the result of that mandate.