Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

The questions that arise with nearly all new legislation are: (1) when will the law go into effect and (2) who will be required to adhere to the newly promulgated rules and regulations. The Bill as written will contain a four month grace period after its enactment. Therefore, a shopping center constructed prior to the expiration of the grace period will not be obligated to comply with the Bill. The Bill also exempts developers who have filed a site plan application with the applicable municipality prior to the expiration of the grace period. Developers should be aware that the site plan application need only be filed, not approved prior to the expiration of the grace period.

Non-compliance with the Bill will result in penalties to a shopping center owner in an amount of $500 for the first offense and $1000 for all subsequent offenses. The enforcing agency is intended at this time to be the New Jersey Division of Taxation who will have the power to file an action for injunction in the Superior Court to restrain the operations of a shopping center in the event the shopping center owner habitually violates the provisions of the Bill.

The Bill will require developers to evaluate the cost of such “electric vehicle charging stations,” which are defined as an “electric recharging point complete with electric vehicle supply equipment that is capable of providing level 2 charging for plug-in electric motor vehicles,” in connection with their overall budgets for their project. Level 2 equipment which provides charging through a 240 V, AC plug, can take 3 to 8 hours to reach a full charge, adding about 25 miles of range per hour of charging time, depending on the vehicle. Moreover, municipalities, professional planners and land use attorneys may be faced with the issue of whether the Bill impacts municipal parking ordinances and how they are interpreted by local land use boards. For example, if five (5%) of a shopping center’s parking area must be dedicated to EVs, it is conceivable that a municipality may require a developer to provide additional parking spaces for non-electric vehicles to compensate for the lost spaces.

Some other issues that may arise from the Bill are as follows:

• Developers will need to account for the charging stations in overall square footage of the property in terms of what can be utilized for retail space versus parking and ancillary uses/structures.
• Traffic experts may have to opine before local land use boards with respect to the impact the charging stations will have on trip generation at the property as vehicles that may not have entered the shopping center in the ordinary course may now enter the site for the purpose of charging their vehicle.
• The definition of “shopping center development” is fairly vague and simply states that the property be a commercial development with a building or series of buildings with 100 or more parking spaces. Depending on the definition of “commercial development” within a municipality’s zoning ordinance, an argument could be made that the Bill applies to more than just the ordinary retail shopping center, but also to office and/or other commercial developments that normally would not be categorized as a shopping center.

After introduction of the Bill by Senator Linda R. Greenstein (D) of New Jersey Legislative District 14 on March 21, 2011, the Bill was referred to the Senate Environment and Energy Committee. It will be interesting to see if the Bill will move forward as proposed, require amendments, or lack the requisite votes to be passed into law. However, it does seem to be part of a growing “green” trend. Google recently added the location of EV charging stations to its maps and is testing wireless charging stations at its own headquarters in California. The Department of Energy has created a data center on the locations for alternative fuels, including charging stations to serve the plug-in community.

* Photo courtesy of Paul Martin Eldridge - freedigitalphotos.net.

Jason R. Tuvel is an Associate in the Gibbons Real Property & Environmental Department.

Although this statute may seem clear on its face, it does raise some questions for land use attorneys and developers.

• First, what if a property satisfies the acreage and ownership requirements, does the sole use contemplated for the property need to be a renewable energy facility (i.e. a solar farm)?
• Second, can a renewable energy facility be deemed an accessory use or structure to a principal use that is pre-existing on the subject property?
• Third, does the renewable energy facility have to produce energy to a certain amount of users or can it be for a single user?

All of these questions remain unanswered as the development of renewable energy facilities in New Jersey remains in its infancy. This land use attorney foresees litigation over these unanswered questions on the horizon as local land use boards and zoning officials will have to make critical determinations on whether “use variances” are required despite the fact that the MLUL has been amended to facilitate the development of these types of projects.

Land use attorneys should be aware of this recent amendment to the MLUL because it supersedes municipal zoning laws which may not expressly permit renewable energy facilities in the zone where the subject property is located. Developers seeking out properties for their next solar project should always keep in mind that if a property satisfies the criteria set forth in N.J.S.A. 40:55D-66.11, the land use approval process may become a lot easier and possibly more resistant to challenges on an appeal of the approval by a third-party objector.

Jason R. Tuvel is an Associate in the Gibbons Real Property and Environmental Department.

Wal-Mart’s 2009 development application for the renovation of the existing store was approved by the Planning Board. Thereafter, an objecting third-party appealed the Planning Board’s decision to the Superior Court claiming that the approval was invalid because the applicant did not apply for, and the Planning Board did not grant, a bulk variance authorizing the pre-existing parking area setback non-conformity that would remain in existence at the site. The Superior Court upheld the Planning Board’s decision.

Judge Skillman’s opinion in Cortesini leaves no doubt that a subdivision or site plan approval may be challenged if an applicant fails to obtain a necessary variance. However, as the Court points out, the initial approvals that failed to properly identify and grant the parking area setback variance were not challenged on this issue within the 45-day period following publication of notice of the decision under New Jersey Court Rule 4:69-6.

The third-party objector attempted to circumvent the 45-day appeal period that had long ago lapsed on the 2001 and 2002 approvals by arguing that since Wal-Mart applied for amended site plan approval in 2009 the issue was re-opened. In support of such argument, the objector noted that Wal-Mart was required to obtain a variance authorizing the continuation of the non-conformity of its existing parking lot based on the parking area setback requirement.

The Court’s ultimate rejection of the objector’s argument is predicated on several key facts:

•  The location of the 46 new parking spaces proposed by Wal-Mart’s 2009 site plan application will not violate the parking area setback requirement;
• The existing parking spaces that fail to conform with the parking area setback requirement are all located a substantial distance from the parts of the store where the renovations authorized by the amended site plan approval will be constructed;
• In 2001, the Planning Board noted in its resolution of approval that the layout of the parking area was “consistent with good site design and layout, proper planning, and efficient land use utilization”; and
• The Planning Board’s resolution of approval in 2009 in connection with the development application supported the findings in the 2001 resolution of approval by stating that the existing parking area, including the nonconformity with the setback requirement is “an existing condition that is functioning well and will not have any detrimental impact to the zone plan.”

Based on these facts, the Court made the following conclusions of law:

• There is no basis for arguing that a variance is required because the improvements proposed are not within the vicinity of the parking area setback violation and therefore the existing non-conformity will not be enhanced or affected by the 2009 development application;
• The findings in the Planning Board’s 2001 and 2009 resolutions of approval lead the Court to infer that had the applicant applied for a variance for violating the parking area setback requirement, the Planning Board would have granted the variance; and
• The objector’s claim that a variance is required authorizing the continuation of the non-conformity of the existing parking lot with the parking area setback requirement constitutes a collateral attack on the 2001 and 2009 development approvals.

The outcome of the Cortesini case provides some clarity to developers and land use attorneys on the grey area of how to deal with pre-existing non-conformities and variance conditions that should have been addressed by prior land use applications.

In this land use attorney’s view, the case stands for the proposition that, so long as the proposed development does not impact the pre-existing condition, the applicant need not apply and obtain a variance for its continuation. However, it would be prudent to ensure that the record at the land use board level clearly covers this point through expert witness testimony. Doing so will allow a court reviewing the record de novo to have factual evidence to support a determination that a variance was not required in connection with the new application.

What should a developer take away from this case? - The importance of zoning due diligence. Zoning due diligence and the review of prior land use approvals will most likely uncover the existence of a pre-existing non-conforming condition. Such knowledge will facilitate not only the presentation of a new land use application, but can be significant in negotiating the value of the subject property because a pre-existing non-conformity can have a negative impact on future development.

Jason R. Tuvel is an Associate in the Gibbons Real Property and Environmental Department.

The pricing of the loan sale undoubtedly will take into account the risk and hassle likely to be associated with collecting the loan, which will be significantly impacted by the availability of a deep pocket to pay the loan.

1. What is the reputation of the borrower and any guarantors? Is there a competent management team in place? You will want to run judgment and lien searches, bankruptcy and litigation searches, credit and other investigations to determine the ability of a borrower to repay the obligations.
2. Determine the nature and extent of personal liability for the loan. The borrower may have personal liability if the loan is recourse or even if it is non-recourse, to the extent of the carve outs, discussed below. However, most borrowers are single asset entities owning only the mortgaged premises, so the borrower’s personal liability is not giving the lender much of anything beyond what the lender already has by virtue of its mortgage collateral.
3. You may also have recourse under personal guaranties. Personal guaranties run the gamut from full recourse for the entire amount of the loan, partial recourse for a portion of the loan amount, recourse for completing construction in the case of a construction loan, recourse for environmental liabilities of the borrower and recourse for carve outs. You will scrutinize any personal guaranties to make sure they contain all the usual waivers of defenses and the like, and be particularly careful of partial guaranties to make sure the scope of liability is clear and unambiguous, which sometimes becomes an issue if not well drafted. For example, is a guaranty of fifty percent of the “loan” extinguished when half the loan is repaid, or does it remain outstanding for half of the unpaid principal balance until the loan is paid in full? As noted above, you will want to run judgment and lien searches, bankruptcy and litigation searches, credit and other investigations to determine the ability of a guarantor to repay the guaranteed obligations.
4. Few loans are completely non-recourse. Most so-called non-recourse loans have carve outs, i.e., exceptions to the non-recourse terms listing events that will result in personal liability of the borrower which, in turn, may be guaranteed by one or more guarantors. The carve outs can be very important if the borrower’s liability for breaching them is personally guaranteed, or in the unlikely event that the borrower has assets over and above the real estate collateral. Bankruptcy of the borrower is one of the most valuable carve outs if there is a deep pocket guarantor who most likely controls the borrower to a significant degree, because it reduces the likelihood of the borrower filing bankruptcy. Other carve outs similarly may be important, especially if and to the extent they impose liability for the full unpaid amount of the loan and not just for the actual losses resulting from breach of the carve outs.

B. Loan Status

The status of the loan, i.e., whether it is in default or not, and the stage to which it has progressed and the route taken to get there, is a consideration as critical as any others.

1. Is the loan in default? If so, how? Is the default material? What default notices are required by the loan documents? Have they been sent as required by the loan documents and do they conform with the requirements of the loan documents? Have notices been sent to guarantors? Has the lender elected to accelerate?
2. Are there other mortgage loans on the property? Are there intercreditor agreements? Mezzanine loans? Participants with the lender? What is the status of the foregoing?
3. Is the loan cross collateralized or cross defaulted with other loans? What is their status?
4. Have the lender and borrower entered into a pre-workout agreement? Have there been workout discussions?
5. Has the lender started exercising rights against the collateral? Does the lender collect or control rents?
6. Review the lender’s credit file, including internal memoranda. Review the loan administration history. Will loan officers be available as witnesses?
7. Is there any evidence that the borrower might be able to assert defenses to repayment? Has the lender exercised undue control over the borrower’s business or management? Has the lender agreed to forebear or conveyed a false sense of security to the borrower? The list of possible foreclosure defenses and lender liability claims is too long to enumerate here. It will be difficult at best to determine if any valid defenses or claims might exist based on a review of lender’s files, but you will want to be on the lookout for any evidence in the way of letters or notes that might suggest a problem.

Summary

In summary, due diligence on a distressed mortgage asset is akin to a doctor doing a physical on a patient. You may not have time to examine everything, you will not be able to get all the information that would be available when a loan is originated, you need focus on what is important first and report on issues. This is a diagnostic exercise; you cannot cure defects at this stage but you can evaluate them.

To the greatest extent you need to understand the status of the loan, the collateral, the borrower and any guarantors. You will then be able to assist your client effectively in strategizing how the asset can be dealt with if and when it is acquired and, bottom line, determining if the asset is worth buying at the price the lender is demanding or can obtain.

* Photo courtesy of Flickr.

Russell B. Bershad is a Director in the Gibbons Real Property & Environmental Department.

Additionally, due diligence proceeds in most deals without the cooperation or participation of the property owner; indeed, in many instances without the property owner’s knowledge that the loan is being sold. The inability to interview the property owner, its tenants and in some cases access the property itself obviously constrains due diligence significantly. Moreover, due diligence in connection with acquiring distressed debt requires evaluating the performing status of the loan, the likelihood of being able to reach workout terms with the borrower, the status of pending litigation between the lender and borrower and, in general, envisioning a strategy that will enable the loan purchaser to recover its investment in acquiring the loan and realize a substantial profit.

If there is pending litigation, then, in addition to the areas noted below, litigators will need to review the litigation file. Aside from the litigation file, due diligence can be divided generally into several areas:

• The loan documents;
• The loan collateral;
• The borrower and guarantors; and
• The loan status.

In this article we discuss due diligence related to the first two items, the loan documents and the loan collateral.

A. Loan Documents

Obviously, the loan documents must be reviewed. Some of the material considerations include:

1. First and foremost, determine if you have all the documents. Make sure they are complete, properly executed and, if applicable, acknowledged. It is not rare to find missing pages or portions of documents. Are originals available? Does the loan package include all the documents you would expect including the promissory note, mortgage, lease assignments, UCCs, guaranties, environmental indemnification agreement, adequate legal opinion and all loan amendments and modifications?
2. Analyze the quality of the documents. Many, if not most, loan documents contain similar provisions but some are more comprehensive than others. You want to make sure your documents contain all customary terms. Your antenna should be up for unusual terms which may tell you about issues that were of particular concern to the lender when the loan was closed, which may appear in many ways including by way of escrow agreements or the like. What are the events of default, notice and cure periods? What are the due on sale and due on encumbrance provisions? Are the terms clear and unambiguous?
3. Pay particular attention to the business terms. Scrutinize the business terms of the loan, make sure there is no room for alternative interpretations of the terms. Are provisions for late charges and other charges clear and likely to be enforceable? Is the loan full or partial recourse, or non-recourse? Are there guaranties, full or partial, payment or completion? If the loan is non-recourse, are there carve outs? Are they typical? Is there personal recourse if the borrower files bankruptcy? Can the loan can be prepaid and if so, under what circumstances?
4. You are buying debt and regardless of whether your client is paying a fixed price or paying a percentage of the outstanding indebtedness, you need to confirm that the amount the lender has stated to be the outstanding indebtedness is consistent with the loan documents. This is critical because you can be fairly certain that at some point the borrower will scrutinize and be prepared to challenge any calculation of its indebtedness with which it disagrees. Bear in mind that it will be a rare circumstance when you will be able to get a loan estoppel statement from the borrower before you close the loan acquisition, and certainly not if the loan is in litigation or on its way there. You also have to focus on escrows held by the lender and their accounting because the borrower can be expected to do so.
5. Determine if funds remain to be loaned and, if so, how much and the conditions to further funding. If the loan is in default, it is very likely that the loan documents will not require the lender to continue funding although practical realities may impel the lender to do so in order for the real estate to have value or to maintain its value.

B. Loan Collateral

Nothing matters more than making sure, to the greatest extent possible, that the loan is properly collateralized, the collateral is not impaired and the lender owns the loan.

Issues regarding title, survey and lien priority are common to every deal. However, other issues relating to the physical assets vary significantly depending on the nature of the asset, whether raw land, property under development, single or multi-tenanted, condominium, multi-family or other commercial.

1. Review the title insurance policy issued when the loan was made, and any endorsements or subsequent policies if the loan was modified. Make sure the mortgage was insured as a first priority lien (assuming your client is buying a first mortgage). Do not rely solely on title insurance; confirm for yourself that the mortgage and all modifications were properly recorded and that the mortgage constitutes a perfected lien.
2. Confirm that the encumbered real estate covers all the property that should be covered including appurtenant easements that may be critical for the proper operation and functioning of the property (for example, easements for parking on, or crossing, adjacent property) and look to see if all necessary and desirable title endorsements were issued. Also, if applicable, see if a construction loan policy was issued and has an expiration date.
3. Review the survey. See if the survey is for the as-built project. Is the legal description in the mortgage and title policy the same as the legal description in the survey? Does the survey show material encroachments from or onto the encumbered property? Are there access issues? Has the property changed?
4. Check to make sure the amount of the title insurance policy is the same as the maximum loan amount.
5. Order title updates including property searches, tax searches and judgment searches on borrower and guarantors. Determine, as soon as possible, if the property has been transferred, if there are subordinate liens against the borrower or guarantors, and, of course, confirm that the lender hold the loan free and clear.
6. You will probably request the title insurer to issue an ALTA 10.1 endorsement at closing of the loan transfer. This endorsement insures the validity of the loan assignment and the continued priority of the mortgage.
7. Check to see if there a separate assignment of leases and rents, and that it is properly recorded. Have UCCs been properly filed?
8. Review the status of development, building and zoning permits and approvals as reflected by the loan file. The scope of this review may vary widely depending, for example, on whether or not the loan was closed on a fully developed and approved project, or one that was to be built. In any event, has zoning changed so that the project and its use no are no longer conforming?
9. Are there other material development related approvals or agreements, for example, a financial agreement with the municipality exempting the improvements from realty taxes and requiring payment in lieu of taxes? If so, you will want to know the status of the tax exemption, determine if all annual reports have been filed, if there is an audit underway by the municipality, if there are any issues with the municipality. If the project has been developed as a condominium, has it been registered with the Department of Community Affairs, have annual reports been filed, are any enforcement actions pending?
10. Is the property leased? Does the lender have current rent roll information, copies of leases? Does the information on the rent roll match the leases themselves? Are the leases subordinate? Has the lender entered into, or will it be obligated by the loan documents, to enter into non-disturbance agreements with some or all the tenants? Is there evidence of any tenant defaults? Are the tenants open for business?
11. Does the loan file include environmental reports? Were any issues uncovered by the reports? Is there evidence of ISRA compliance, if applicable? Is the property being used in a manner that could raise environmental concerns?
12. Does the file contain evidence that all required insurance policies and certificates have been issued, renewed and remain in full force and effect, for the benefit of the lender? Is the coverage acceptable in scope and dollar amount? Is the insurer acceptable?
13. Have the borrower and, if applicable, guarantors, complied with financial reporting requirements under the loan documents? Are the financial reports in the loan file up to date and is the information in the reports acceptable?
14. Review with a critical eye the property appraisal that the lender received when the loan was made and any updates.
15. The loan file should contain other material information regarding the property such as engineering and physical condition reports, material contracts and agreements.
16. Is there a property manager? Is the management agreement subordinate to the mortgage or otherwise terminable on relatively short notice? Can you evaluate the manager and its capabilities?

In our next article we will discuss due diligence regarding the borrower and any loan guarantors, and the loan status.

* Photo courtesy of Flickr.

Russell B. Bershad is a Director in the Gibbons Real Property & Environmental Department.

The feasibility review focuses on the ability of the property to function in a manner that will effectively and efficiently serve the Buyer’s needs now and in the future. Attention should be paid, at a minimum, to:

• Access to roadways
• Sufficiency and location of utilities
• Available building area

An environmental review of the property is also essential with a Phase I analysis and, where indicated, a Phase II study being conducted by a reputable consultant.

An understanding of the zoning regulations affecting the property is critical, as those restrictions dictate how the property can be used and developed. Included in the documents that the Buyer should review are:

• The municipal zoning code and map
• The local zoning file for the property
• Prior approvals for the property

The Buyer can also request a zoning compliance letter from the municipality, although the willingness to issue those letters and the level of detail contained in them varies depending on the municipality.

A study of the structural fitness of existing buildings on the property and/or geotechnical studies may also be warranted, depending on the nature of the transaction and the Buyer’s plans for the site.

Other property related items that a Buyer should consider reviewing during the due diligence period include:

• Leases (including subleases, if any) and rent rolls
• Brokerage agreements
• Casualty insurance policies
• Environmental insurance policies
• Service contracts that do not terminate as of closing
• Prior engineering and feasibility studies or reports prepared by the Seller
• Governmental permits and licenses
• Notices of violations
• Third party licenses

Like a used car, every property is unique, with its own individual history, nicks and scratches. There is no “one-size fits all” formula or approach to performing the due diligence on a property. Reps and warranties, title review and property investigation give a buyer the tools to determine whether the property is one which it should acquire. The thoughtful use of those tools is the key to a successful due diligence investigation and deciding whether to drive that car off the lot or look for a different one.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.

In analyzing the adequacy of the notice, the court stated that the mention of the building being located in an historic district amounted to “basic information that would help an ordinary person determine whether to object to the application or seek additional information.”

Another fact that the court relied upon in its decision was that the Planning Board of Hillsborough Township did not know that the building was located in a historic district until after taking action to approve the application for site plan approval to construct a 6,700 sq. ft. office building where a single family home built in 1897 currently exists. The Planning Board learned of the historic district issue only when debating the language of the approving resolution.

This case raises some very notable issues for land use attorneys and developers.

• First, must the zoning district and possibly a historic overlay district (or any overlay district for that matter) be included in the notice for the public hearing?
• Second, is it the applicant’s responsibility, either through its lawyer or design professional, to alert and educate the municipality of its own zoning information?

The key take-away for this case is that an applicant should always err on the side of caution when drafting its public notice. It is better to be overly inclusive than omit a piece of information that may come back to invalidate the entire proceeding after a time consuming and expensive litigation process. In addition, that over-inclusiveness may at times require the applicant to bring certain zoning issues to a land use board’s attention even where the board’s own professionals have failed to identify the issue. Doing this may save the applicant a lot of time and money in the long run, and could prevent an appeal by an objector.

Jason R. Tuvel is an Associate in the Gibbons Real Property and Environmental Department.

When drafting the title provision in the Agreement, consider the following:

• Buyer should require that Seller provide “good and marketable title.”
• Marketable title is “one that is free from liens and encumbrances and ‘which a reasonable purchaser, well informed as to the facts and their legal bearings, willing and ready to perform his contract, would, in the exercise of that prudence which businessmen ordinarily bring to bear upon such transactions, be willing to accept and ought to accept.’” Barter v. Palmerton Area School District, 18 Pa Super 16, 20 (1990).
• Buyer should never agree to take title “subject to encumbrances and other matters of record” because there will invariably be something recorded against the property, and until the Buyer obtains a title commitment, reads the exceptions and reviews those exceptions against the survey, the Buyer will not understand how those encumbrances impact the property or the Buyer’s intended use.
• As a compromise, Buyer could agree to take title subject to encumbrances of record which do not materially adversely affect the Buyer’s intended use of the property.

What title documents should a Buyer review? All of them.

• Review the vesting deed.
• Review the title exceptions in the commitment, both on Schedule B-1 and Schedule B-2.
• Understand what information Buyer will need to provide to the title company in order for it to insure title.
• Read ALL of the title back-up documents.
• Understand how the recorded encumbrances will affect the permitted use and development of the property.
• Buyer should send a title objection letter requiring the Seller to cure title issues to the extent curable.

A complete review of title cannot occur without also reviewing a current survey of the property.

• ALWAYS get a survey.
• The survey will allow you to confirm that the title exceptions do (or don’t) encumber the property.
• The survey will locate the encumbrances on the property.
• The survey will show encroachments onto both the property and the adjoining properties.
• A new survey is always preferable, but sometimes having the surveyor recertify a recent survey which he prepared will be sufficient.
• • The survey should contain a certification from the surveyor in favor of the Buyer, title company and Buyer’s lender, permitting them to rely on the accuracy of the survey. This certification will permit the title company to remove the standard survey exception from the policy.
• Surveys could be a long lead time item so set the length of the Agreement’s due diligence period accordingly.

There are a multitude of issues to consider when it comes to title review, and this post only scratches the surface. Above all, it is imperative to remember that the title history of each property, like the history of every car, is unique. Careful attention must be paid during title review to ensure that the Buyer is not getting a clunker when he thinks he is buying a coupe.

The last post in this series will deal with the actual property investigation.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.

I will address each of those areas over the course of three postings, beginning with this one.

The negotiation of the representations and warranties during the preparation of the Agreement of Sale is essentially the first form of due diligence for the Buyer. Think of it as a kind of discovery. It allows the Buyer to flag issues before the execution of the Agreement.

Here are just a few things to consider as you negotiate the reps and warranties for the Buyer:

• The reps and warranties that Buyer requests from Seller should be as expansive as possible. The Seller’s refusal to provide certain reps, or its inability to give certain reps without qualification, help the Buyer learn more about the property (and whether it wants to continue to pursue the Agreement).
• In PA, reps and warranties will merge into the Deed at closing unless the parties agree that they will survive for a specific period of time after closing. This is known as the “Doctrine of Merger.” It is common for a Buyer to seek a survival period of 6 months to a year at a minimum.
• The Buyer will often require that the Seller execute a Restatement of Representations and Warranties at Closing that also restates the survival period as additional guard against the Doctrine of Merger.
• A Seller will look to limit the scope of its representations by qualifying them as to “Knowledge,” with “Knowledge” being defined as the “actual knowledge, without investigation or inquiry, of [a specific person or persons]”. This helps to prevent the Seller from being imputed to have the knowledge of all of its employees, and also avoids Seller having to expend funds to perform an investigation as to its representations.

The negotiation of the Seller’s representations and warranties is a fantastic (and relatively inexpensive) way for the Buyer to identify issues with the property and to drill down on those items before committing to move forward with the transaction and to perform more in depth and costly analyses. Buyer’s counsel should take full advantage of this opportunity on behalf of their client.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.

With brownfields property, the greatest difficulty is obtaining funds. Often the purchaser is interested in obtaining the property and having it cleaned up, but not in funding it. This holding restricts who can actually get grants. Grants defray, but do not cover the costs of cleanup. Owners who may have held property for over 27 years must continue to hold it until the application is granted and cannot have the benefit of the sales proceeds until the sale is consummated. It frequently takes years to get a grant approved.

This ruling will undoubtedly limit the number of eligible grantees. Indeed, that seems to be the point. As NJDEP and NJEDA asserted in their successful argument for reversal, “the Appellate Division’s holding would create a financial strain on the State and on the HDSRF [Hazardous Discharge Site Remediation Fund] by expanding eligibility for grants to a broader array of applicants.”

John H. Klock is a Director in the Gibbons Real Property & Environmental Department.