THE CHANGING LANDSCAPE OF RESIDENTIAL REAL ESTATE ENVIRONMENTAL DUE DILIGENCE

Caution Message Representing Danger Beware Or WarningThe process of purchasing a new home can be a double-edged sword to prospective purchasers, especially first time buyers: while it is a time filled with excitement and a sense of accomplishment, it is also one of great stress and responsibility. Beyond the ordinary tasks of engaging an attorney, finding adequate mortgage financing, scheduling movers and the quandaries of interior design, the additional responsibilities being placed on prospective homebuyers through a recent Appellate Division court decision gives new emphasis to the phrase “buyer beware”. The Appellate Division has recently ruled in State Farm Fire & Casualty Co. v. Shea, 2012 N.J. Super. Unpub LEXIS 2008 (App. Div. 2012), cert. den., 213 N.J. 386 (2013) that when a buyer of residential property knew, or should have known (emphasis added), that an underground oil tank existed on its property and leaked, resulting in the contamination of an adjacent property, the buyer is liable for the proportionate share of the cleanup costs of such contamination of the neighbor’s property.

Attorneys often advise their clients to obtain thorough home inspections from a reputable company, inclusive of radon and wood destroying insect testing. In extenuating circumstances, a sweep test for an oil tank may also be suggested based on the age of the home or history of the property. (The existence of a well or septic tank and lead paint are other important hazards to be addressed in residential real estate transactions, but will not be discussed herein.) Because of the additional obligations being imposed on homebuyers in Shea, the conventional wisdom and advice of real estate practitioners may have to change.

The Appellate Division rejected Shea’s notion that the trial court imposed upon him an affirmative duty to conduct a pre-purchase environmental investigation. The record states that two pipes were actually present in Shea’s backyard: one being a fill pipe and the other a vent pipe. The court’s finding placed an affirmative obligation on Shea to further investigate the existence and purpose of the vent on his property and to take whatever measures were warranted in response thereto. Because of his failure to mitigate, the court denied Shea the benefit of the innocent purchaser status under the New Jersey Spill Compensation and Control Act (Spill Act). The liabilities pursuant to the Spill Act concerning knowledge of environmental contamination can be found in N.J.S.A. 58:10-23.11G(d)(2): “…a person must have undertaken at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property.” Shea’s failure to perform due diligence on the property he was purchasing not only resulted in environmental contamination, but also restricted any claim he may have asserted under the innocent purchaser defense.

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The landscape of residential real estate environmental due diligence is indeed changing. Although I do not believe that the findings in Shea will result in mandatory Phase I or Phase II studies on impending residential purchases, I do, however, believe that this case will place a greater burden on homebuyers to conduct more thorough environmental investigations in residential real estate transactions in New Jersey. A purchaser who opts to buy a home without the full benefits of a home inspection or an oil tank sweep do so at their own peril. Should they wish to proceed against the advice of counsel, I will have clients execute a waiver that relinquishes our firm from any and all claims resulting from their decision.

The cost of remediating a significantly contaminated area on a residential property can sometimes exceed the value of the home. I think it is important for prospective buyers to attend any and all inspections they schedule to be performed on the property – if something does not look right, bring it to the attention of your home inspector so that they make note of it in their report. Not only should real estate attorneys be aware of Shea and its potential implications, but home inspectors should also be educated about this decision so that they can adequately document home inspections more thoroughly for their clients. The cost of not doing so will prove to be very costly in the long run.

 

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Joseph M. Vigliotti, Esq.
Winne Banta Hetherington Basralian & Kahn, P.C.
Court Plaza South – East Wing
21 Main Street, Suite 101 | P.O. Box 647
Hackensack, New Jersey 07601
(201) 487-3800
jvigliotti@winnebanta.com

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