PFAS Update — Now Coming to Your Tap.
Back in April, 2020, we featured an article in this newsletter on perfluoroalkyl substances (PFAS) — man-made chemicals that are causing a host of environmental and health-related issues in groundwater and drinking water across the country (cancer, immune system suppression and the like). That article explained in detail the what, why and where of PFAS chemicals, so we won't rehash same — if you want to revisit that piece — or read it for the first time , click here.
However, in New Jersey, there have been significant updates on PFAS for the regulated community:
As of June 1, 2020, the New Jersey Department of Environmental Protection (NJDEP) has formally adopted drinking water standards for two of the most common and studied PFAS-family compounds: perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) — New Jersey is one of only a handful of states to adopt such standards (New Hampshire and Vermont have as well);
The NJDEP standard for PFOA is 14 parts per trillion (ppt); the standard for PFOS is 13 ppt;
A third common PFAS-family compound, perfluorononanoic acid (PFNA) has been regulated by the NJDEP since September, 2018, at a level of 14 ppt;
Public water supply systems in New Jersey have to start testing for PFOA and PFOS by the first quarter of 2021 (although more than a 1,000 such public water system operators have voluntarily started early testing);
Private potable wells on individual parcels have to start testing for PFOA, PFOS, and PFNA by December 1, 2021 under conditions detailed in the Private Well Testing Act (PWTA); and
Ongoing environmental remedial projects in New Jersey supervised under the NJDEP Site Remediation Program (SRP) must currently include PFOA and PFOS testing as part of their assessment regime, if said chemicals are suspected to have been used onsite.
For comparison purposes, the United States Environmental Protection Agency (EPA) does not have any PFOA, PFOS, and PFNA standards; they simply have PFOA and PFOS 'health advisory levels', at 70 ppt, which are five times higher than the standards adopted by New Jersey.
Okay, let's dissect these recent New Jersey rules a bit.
SRP Sites.
For the regulated community in New Jersey, the fact that PFAS compounds must now be assessed and included in any SRP sites is a very big deal, because:
PFAS compounds are ubiquitous in the environment (there are very few businesses who could say, definitively, that they have never used, stored, handled or the like PFAS compounds during the course of normal operations — these 'non-stick' compounds were, and still are, included in most everyday products used at businesses and homes all over the world);
Have extremely low cleanup levels in groundwater (and no corresponding soil standards);
Are labeled 'forever chemicals' because they are extremely resistant to breaking down, and are thus very difficult (and expensive) to remediate (most times they are simply 'corralled and monitored' versus remediated, which leads to costly, long-term monitoring programs for responsible parties).
To that end, if you are a RP, or a potential RP, you may want to strategize as best you can to eliminate, or, to the extent defensible, limit PFAS testing, because once you possess data above standard, you must deal with the consequences, regardless of the added time and cost involved. This PFAS issue has the potential to seriously affect environmental set-off and negotiated escrow situations in real estate and financing transactions.
PWRA Testing — Private Potable Wells.
With regard to mandatory testing for PFOA, PFOS and PFNA during PWTA testing beginning in about 18 months, in December, 2021, this requirement will add a further environmental liability and cost wrinkle in real estate and financing transactions; namely:
Who will pay for treatment if elevated PFAS levels are found in the drinking well (which is expected to commonly occur, due to the standards being so strict, in the part per trillion range);
What will be the method of treatment (likely an in-line, granular activated carbon filter); and
For how long will the treatment method payment be calculated (since these compounds tend to persist for years/decades).
These issues will likely result in a whole new round of standard real estate contract and financing clauses, and will need to be negotiated on a project-specific basis. The answers aren't easy, and parties should start thinking about how to best capture and address these questions in standard purchase and sales agreement (PSA) contractual clauses and loan document forms.
PFAS Testing as Part of Standard Due Diligence.
For sites that are not in the SRP program (i.e., sites that are not presently known to be contaminated), but are being assessed during due diligence as part of a real estate transaction or financing round, the subject of pursuing, or allowing, PFAS testing voluntarily is a bit like playing with a loaded gun. There is no regulatory obligation to sample, or allow sampling, but once damning PFAS data is recorded, how is it handled, and who gets to know? These are perhaps the trickiest projects currently in play; and all players, on all sides of a business transaction, need to be aware of this PFAS issue, how it could play out, and how it might affect your interested party, be it buyer, seller, bank, insurance provider, landlord, tenant, or the like — most of which have conflicting goals.
So, what’s the latest PFAS takeaway in New Jersey?
For existing remedial sites, assessment of PFAS compounds must become part of the assessment discussion, and, if found, may represent a significant cost and time factor that has not previously been worked into existing budgets and work plans;
For future real estate (purchase/sale, financing, and leasing) projects with potable wells and PWTA testing requirements, the potential for PFAS impacts, and how to address same, will have to be factored into the transactional and financing equation within the next 18 months;
For property sales and purchases, financing and leasing on sites not known to be contaminated, but subject to standard due diligence work, testing for PFAS will need to be carefully assessed and managed by all parties, who usually have conflicting goals — not an easy task.
Like the forever chemicals they are, PFAS issues during transactions and financing, especially in New Jersey, are not likely to go away anytime soon. We recommend working the issue into the transactional or financing equation as early in the process as possible, to avoid delays and costly surprises.