Critical Issues: The ISRA Mouse That Roared

[IMGCAP(1)]A letter from a state regulatory agency confirming that a certain statute does not apply to a particular real estate or corporate transaction may seem like a minor bureaucratic event. But when it comes to transactions involving commercial or industrial property in New Jersey, the Department of Environmental Protection’s (NJDEP) now-discontinued practice of issuing Letters of Non-Applicability (LNAs) under the state’s Industrial Site Recovery Act, N.J.S.A. § 13:1K-6 et seq. (ISRA) is anything but.

While not technically required under ISRA, LNAs have come to be a familiar and much relied-on punch list item in most transactions involving commercial and industrial real estate in New Jersey. Purchasers, landlords and lenders have come to rely heavily on them as a way of obtaining assurances, backed by the NJDEP’s official imprimatur and the certification of LNA applicants (made under penalty of perjury), that a given purchase transaction or tenant’s cessation of operations will not trigger ISRA’s requirements.

But with the NJDEP’s recent announcement that as of May 1, 2008, it will no longer issue Letters of Non-Applicability (“LNAs”) as it seeks to cut costs in the midst of a statewide budget crisis, parties to thousands of transactions across the state are scrambling to find acceptable substitutes for the heretofore ubiquitous LNA. The NJDEP announced it was taking the action because LNAs are not required under ISRA for transactions that do not trigger the requirements of the statute, and the Department prefers instead to focus its scarce financial resources on programs that involve mandatory compliance obligations.