All in the Family: N.J. Appellate Division Holds That Status of Pre-1983 Purchaser as “Innocent Party” Applied to Current Owner Despite Property Transfers Among Family Members Via Trusts

Reversing the denial of an application for an “innocent party” grant, the New Jersey Appellate Division recently held in an unpublished opinion, Cedar Knolls 2006, LLC v. New Jersey Department of Environmental Protection, that property transfers among family members, even through the use of trusts, are not “changes of ownership.” Thus, a corporation that acquired a parcel of land in 2006 was eligible to seek an “innocent party” grant that is available only to pre-1983 transferees because the property had remained within the same family since its original acquisition in 1977.

The property at issue was originally acquired in 1977 by Robert Higginson, well before the December 31, 1983 cutoff for eligibility as an “innocent party” under New Jersey law. Upon his death 16 years later, he bequeathed the property to his wife through two 50% shares placed into separate trusts. His wife then assigned her shares in the property to two new trusts. The interests of those trusts in the property were subsequently transferred to their son, who created a new entity, Cedar Knolls 2006, LLC, to which he transferred the two 50% shares, making Cedar Knolls the sole owner of the property. Nine years later, Cedar Knolls applied for an innocent party grant to cover the costs of remediating the property. NJDEP denied the application, reasoning that Cedar Knolls was not the person that acquired the property prior to December 31, 1983.

On appeal by Cedar Knolls 2006, the Appellate Division reviewed the legislative history of innocent party grants, and specifically looked at what constitutes a “change in ownership” under the Industrial Site Recovery Act (“ISRA”), which was amended by the same 1993 legislation that created innocent party grants. Under ISRA, a “change in ownership” does not include “a transfer where the transferor is the sibling, spouse, child, parent, grandparent, child of a sibling, or sibling of a parent of the transferee.” Under NJDEP’s reasoning, a transfer of property solely among parents and a child through the vehicle of trusts would constitute a change in ownership, rendering the current owner ineligible for an innocent party grant. The Appellate Division concluded that such an interpretation was contrary to the purpose of innocent party grants, which was to help owners of contaminated property defray the costs of remediation if they are not responsible for that contamination, and if they acquired the property prior to the enactment of the statute in 1983. The court concluded that the legislature was “more concerned with the substance of ownership and continuity than the technicalities of the legal form.” Accordingly, the court held that Cedar Knolls was eligible to receive an innocent party grant to remediate the property.

Adam C. Arnold is an Associate in the Gibbons Real Property & Environmental Department.
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