What Is a CNS?

Once a contaminated site is successfully remediated, the New Jersey Department of Environmental Protection (“NJDEP” or “Department”) will issue a No Further Action letter (“NFA”). The NFA constitutes the NJDEP’s written determination that the remediation has been completed to the satisfaction of the NJDEP in accordance with the Technical Requirements for Site Remediation, N.J.A.C. 7:26E (“Tech Regs”), and any other applicable requirements. An NFA may cover either the entire property or only a portion of the property. Since January 6, 1998, every NFA issued by NJDEP must be accompanied by a Covenant Not to Sue or “CNS” (see N.J.S.A. 58:10B-13.1(a)). The NJDEP issues the CNS to the individual or entity conducting the approved remediation. The NJDEP’s Site Remediation Program guidance describes a CNS as follows:

The CNS is a fi nality document; it is NJDEP’s own commitment that it will not institute civil actions to require more clean up or funds for cleanups against those who conducted the remediation that resulted in the NFA or against any subsequent owners, lessees, or operators who come onto the site after the NFA/ CNS is issued. (NJDEP’s Brownfi elds Frequently Asked Questions Guidance) (emphasis supplied). Simply stated, a CNS is the NJDEP’s agreement not to bring any civil action or seek payment of cleanup and removal costs to address contamination that existed prior to the date of the fi nal certifi ed report or affi davit that served as the basis for the NJDEP’s issuance of an NFA.

The terms and conditions of the CNS can be found in Appendix C of the Oversight of the Remediation of Contaminated Sites regulations, N.J.A.C. 7:26C (“Oversight Rules”). The model CNS at Appendix C is a boiler-plate document that the NJDEP is loath to revise or change. The CNS takes effect upon the return to the NJDEP of an original CNS executed by both the NJDEP and the person or entity remediating the property.

Who Does a CNS Protect?

The NJDEP covenants that it will not bring any civil action against:

  • the person who undertook the remediation;
  • subsequent owners of the subject property;
  • subsequent lessees of the subject property; and
  • subsequent operators at the subject property.

However, the CNS excludes from the scope of its protection an important category of individuals and entities. A CNS will not benefi t a person who is in any way responsible or liable for cleanup and removal costs under the Spill Compensation and Control Act, N.J.S.A. 58:10- 23.11 et seq. (“Spill Act”). Spill Act liability provisions cast a wide net. The relevant case law includes several cases that stretch the defi nition of “in any way responsible” for discharged hazardous substances under the Spill Act to seemingly tortured lengths.1 Thus, mere issuance of the CNS does not guarantee protection. In fact, the model CNS makes clear that “the Department makes no representation by the issuance of this Covenant, either express or implied, as to the Spill Act liability of any person.” A CNS will always issue, but it will not protect persons and entities that are “in any way responsible” under the Spill Act.

A purchase or rental of a property undergoing remediation prior to issuance of an NFA/CNS puts the purchaser or lessee in an uncertain position. Does the mere ownership or operation of the property make the new owner or operator “in any way responsible” under the Spill Act, even though the new owner or operator had nothing to do with the environmental condition of the property? A reasonable argument can be made that it does. Therefore, a prospective purchaser or operator can only be sure of the CNS protections if it purchases the property after the NJDEP issues the NFA/CNS approval. If at all possible, a purchaser or lessor should try to take title to or occupancy of a contaminated property only after the NFA/CNS has been issued by the NJDEP. The transfer of title or existence of a leasehold after the issuance of an NFA/CNS will provide a new owner or operator with the best chance to be considered within the universe of persons benefi ting from a CNS.

An NFA/CNS may be issued for one or more areas of concern rather than just for an entire property. The applicable statute, in pertinent part, states that: “[t]he covenant not to sue shall be for any area of concern remediated and may apply to the entire property if the remediation included a preliminary assessment and, if necessary, a site investigation of the entire real property, and any other necessary remedial actions.” (see N.J.S.A. 58:10B-13.1(a)). Therefore, the CNS required for each NFA may apply to individual areas of concern. Despite the statutory authority cited, the NJDEP is reluctant to issue an NFA/CNS for individual areas of concern at a site until all identifi ed areas of concern have been fully remediated. A purchaser, of course, may want one or more major environmental concerns, such as soils, to be covered by an NFA/CNS prior to acquisition, even if the entire property is not subject to an NFA/CNS. A focused NFA/CNS would allow a purchaser to rely on a CNS to reduce certain environmental liability risks at a property prior to taking a place in the chain of title. If the right mix of political and economic factors exist, it may be worth asking the NJDEP for an NFA/CNS for a specifi c area of concern prior to full remediation of all areas of concern at a property.

What Types of Environmental Liability Risks Does a CNS Cover?

The statutory authority for a CNS supports a broad release of environmental liability. A CNS is required by law to include a provision releasing the person who undertook the remediation (and, by implication, subsequent owners, lessees and operators) from all civil liability to the State of New Jersey in connection with the contamination remediated pursuant to an

NFA with respect to the:

  • performance of any additional remediation;
  • payment of compensation for damage to, or loss of, natural resources; or
  • payment of any additional cleanup and removal costs. (see N.J.S.A. 58:10B-13.1(a)1).

Interestingly, the model CNS does not expressly include the protection from payment of Natural Resource Damages (“NRD”). However, our recent experience fi nds that the NJDEP is currently issuing a CNS with protection for “payment of compensation for damages to, or loss of, natural resources.” In any case, most purchasers of real property probably no longer have to worry about NRD.2

The CNS clearly covers future Spill Act liability to the State of New Jersey, but the protection is broader than just protection from the Spill Act. For remediated areas of concern identifi ed in the NFA, the CNS appears to provide protection from civil liability to the State of New Jersey under all statutes, as well as under common law, for both changes in remediation standards as well as subsequent discovery of contamination that exceeds remedial standards. Liability protection available from the NJDEP under a CNS, however, will not protect from claims for additional remediation costs and other actions by the Federal government or third parties. Moreover, as previously noted, it will not provide any protection to a person or entity who may be liable under the Spill Act.

A major concern for many is the interplay of a CNS and a future triggering event pursuant to the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. (“ISRA”). The issuance of an NFA/ CNS may provide the basis for an ISRA waiver. For example, the ISRA statute and regulations include provisions for an Expedited Review Waiver or an Area of Concern Waiver based upon a prior NJDEP or USEPA approval of a remediation (see N.J.A.C. 7:26B-5.1 or 5.2, respectively).

The protection of the CNS should extend to any future owners, tenants and operators involved in subsequent ISRA cases. If any additional remedial action is required, the NJDEP should direct its attention to the former owner or operator that completed the underlying remedial action giving rise to the existing NFA/CNS or the person in any way responsible for the contamination. Of course, the discovery of additional contamination could start a complicated and expensive effort to prove that the additional contamination is truly the result of historic operations at the property. Therefore, anyone expecting to rely on the protections of a CNS should create a system of documentation that can be used to demonstrate that any contamination found at the site was discharged prior to the effective date of the CNS.

The issuance of an NFA/CNS does not relieve a subsequent owner, tenant or operator from the fi ling and other administrative requirements of ISRA. A General Information Notice and Preliminary Assessment (“PA”) would still need to be fi led. However, the ISRA PA would merely list the potential areas of concern with an explanation that No Further Investigation is needed due to the prior issuance by the NJDEP of an NFA. The ISRA PA would also need to confi rm that there has been no change in conditions or discharges at the area of concern since the issuances of the prior NFA/CNS. Any areas of concern not included within the scope of the prior NFA would need to be investigated and, if necessary, remediated by the subsequent owner, tenant or operator.

What is Not Included in the Release from Liability Under a CNS?

The release from liability under a CNS does not extend to:

  • areas of the property that are not within the scope of the


  • claims by private parties or the federal government;
  • discharges that occur subsequent to issuance of the

NFA; and

  • compliance in the future with applicable environmental laws and regulations.
  • Revocation of a CNS or NFA

The CNS, the NFA and the Department’s regulations all provide bases for the revocation of the CNS or NFA. It is not clear what happens to a CNS if the NFA is modifi ed or rescinded. The model CNS requires that the person who undertook the remedial action and each subsequent owner, lessee and operator shall maintain during that person or entity’s ownership or operation of the premises all applicable engineering and institutional controls and conduct periodic compliance monitoring in the manner the Department requires. The Department has the authority to revoke a CNS at any time if it determines that:

  • a person or entity with the requisite legal obligation failed to comply with any condition of an NFA;
  • a person or entity failed to comply with its legal obligation to maintain, monitor or submit biennial certifi cation reports to the NJDEP with respect to engineering controls or institutional controls (i.e., asphalt caps, soil caps, building foundation caps, fencing, deed notices or Classifi cation Exception Areas) that are part of the remedial action; or
  • the engineering controls or institutional controls no longer exist.

The NJDEP can not retroactively assert liability for any additional remediation against any former owner, tenant or operator for whom the CNS remained in effect during that person’s ownership, tenancy or operation of the property (see N.J.S.A. 58: 10B-13.1(c)). It may, however, be able to assert liability against the owner or operator of the property at the time the CNS is revoked. Therefore, before purchasing or leasing property, it is important to review the NFA, identify all conditions contained in the NFA, ensure that all of those conditions have previously been met in a timely manner and develop a program to ensure that those conditions will continue to be met in a timely manner.

NFA letters contain a number of standard provisions that may be construed as conditions and limitations impacting the release of liability under a CNS. For example, NFA letters typically state that the NJDEP is relying on:

  • the fact that the person seeking the NFA has not withheld information from the NJDEP;
  • the information contained in the NJDEP’s relevant case fi les; and
  • the certifi cations of the person performing the remediation. Presumably, the NJDEP could rescind or modify an NFA citing some inaccuracy associated with one or more of the bullet points set out above as a rationale.3

The NJDEP also has the authority to rescind or modify an NFA and require additional remediation necessary to “[f]ully implement any site remediation regulatory program” and “[p]rotect the public health and safety and the environment.” (see N.J.A.C. 7:26C-2.6(e)2i. and ii). Failure to pay any uncontested oversight costs to the NJDEP may also result in the rescission of an NFA. (see N.J.A.C. 7:26C-2.6(f)). In addition, the Department may ask for additional remediation post-NFA for an entire site or particular areas of concern if:

  • a previously unknown pre-NFA discharge is discovered after the issuance of the NFA;
  • the NJDEP adopts an amendment to a remediation standard that decreases the standard by an order of magnitude (i.e., ten times) after the issuance of the NFA; .. a previously unknown contaminant exposure pathway predating the NFA is identifi ed after the issuance of the NFA; ?? the person with the obligation to comply with the conditions of the NFA fails to do so; or ?? other unspecifi ed and undefi ned “factors” exist that demonstrate that the approved remediation is “no longer protective of public health, safety and the environment.” (see N.J.A.C. 7:26C-2.6(d)). The NJDEP’s broad power to revoke an NFA for virtually any reason to “protect public health and safety and the environment” creates some risk for current owners, tenants or operators of remediated property subject to a CNS. Would the CNS protection hold up for a current owner or operator if the underlying NFA were revoked by the NJDEP? Quite a strong argument can be made that revoking the NFA does not revoke the CNS. However, the issue has never been judicially determined. Doubtless, the individual facts that give rise to the revocation will play an important role in determining whether the current owner or operator continues to be protected. For example, is the revocation caused, in whole or in part, by the current owner or operator’s failure to comply with conditions contained in the NFA? The NJDEP and/or the court may also consider whether there has been a windfall to the current owner or operator. For example, has the NJDEP devoted signifi cant funds to remediating the property and thereby increased the value of the property? Would the CNS protection hold up for an intermediate owner or operator (a former owner or operator postdating the NFA/CNS) if the underlying NFA were revoked by the NJDEP? The CNS would almost certainly protect such an intermediate owner or operator (see N.J.S.A. 58:10B-13.1(c)). Although not refl ected in the model CNS, the underlying statute provides the Department with some fl exibility in dealing with situations involving non-compliance with NFA conditions. After notice of a failure to comply with an NFA condition, the NJDEP has the discretion to allow the responsible person or entity “a reasonable time to come into compliance with the original no further action letter.” (see N.J.S.A. 58:10B- 13.1(a)). To avoid a revocation of an NFA/CNS, the NJDEP might need to be reminded of its own statutory authority. Other CNS Limitations Any person or entity that benefi ts from a CNS is barred from making any claim for costs or damages relating to the remediation covered by the CNS against the Spill Compensation Fund, N.J.S.A. 58:10-23.11i, and the Sanitary Landfi ll Facility Contingency Fund, N.J.S.A. 13:1E-105 and N.J.A.C. 7:11-2.6 and N.J.A.C. 7:1J-2.7. Also, the CNS does not relieve any person from future compliance with any laws and regulations (see N.J.S.A. 58:10B-13.1(d)). The NJDEP reserves its right to take enforcement action for any failure to comply with any future laws and regulations. Finally, the CNS will not provide relief from liability for any discharge or spill of hazardous substances or wastes that occurs after the issuance of the NFA/CNS. Conclusion The CNS is a potentially valuable asset. It is worth trying to structure a transaction to ensure that you or your client secures the benefi t of a CNS. However, it is important to remember that a CNS is limited in scope. Moreover, the conditions of the underlying NFA approval must be met by any new owner, tenant or operator at a property. If not, the NJDEP may be in a position to revoke the NFA/CNS. As an important part of your due diligence, before purchasing property in New Jersey always do the following: ?? Locate, review and evaluate every NFA issued with respect to the property. ?? Identify every condition contained in the NFA, make sure that every condition has been met at all times since the issuance of the NFA, and develop a program to ensure that every NFA condition will be met in the future. ?? Make sure that no NFA issued with respect to the property has been revoked. ?? Make sure that a CNS is in effect for the property (before January 6, 1998, a CNS was not required to be issued with an NFA). ?? Try to take title to the property or execute a lease only after an NFA/CNS has been issued for the entire property. If this is not possible, attempt to convince the NJDEP to issue an NFA/CNS for those portions of the property, if any, that have been remediated to the NJDEP’s satisfaction. ?? Assure yourself that there has been no release of a hazardous substance since the NFA/CNS was issued. ?? Make sure that there are no unpaid NJDEP oversight costs relating to the property. ?? Develop a program to document that there is no discharge of any hazardous substance at the property after you take title or come onto the property to maximize your ability to segregate any new discharge from the historic contamination covered by the CNS. The CNS is only one part of a sound strategy to minimize your environmental liability risks in New Jersey. Understanding the benefi ts and limitations of the CNS is a good start in developing your New Jersey property acquisition strategy.