Ahh, the dreaded underground oil storage tank. Its presence can wreak havoc in any home purchase transaction, especially if you don’t fully understand the issues involved.
So, what’s the problem with underground tanks anyway? The answer is simple: leaks and liability.
Oil has carcinogenic properties, so a leaking underground oil tank can mean trouble. Concerns range from soil contamination, ground water contamination, property damage, vapor hazards, fire hazards, loss of property value, and more.
To make matters worse, the responsibility for remediating any contamination caused by a leaking tank rests solely with the property owner and can be very costly depending on the size and scope of the clean-up.
Even if you had no idea there was a tank under the ground when you purchased the property, you can’t look to the Seller or any prior owners to try and offset your losses (except in rare instances when fraud or intentional misrepresentation has occurred, which is difficult to prove). Your general homeowner’s insurance policy likely won’t be of any help either, as oil tank leaks typically aren’t covered except under very limited circumstances such as when they’ve caused damage to neighboring properties or groundwater contamination.
As a Buyer, you always want to perform proper due diligence on the property you’re purchasing, and that includes inspecting the Property for the presence of an abandoned underground storage tank (UST). The first step is to hire a licensed contractor to perform a tank sweep as part of your inspections.
During the tank sweep, the contractor will utilize metal detection equipment and make other visual observations of the property (both interior and exterior) to try and determine whether a UST might be present under the ground.
The technician will look for evidence of a tank such as fuel lines or vent pipes protruding from the ground or entering the home through its foundation walls, depressions in the yard, patchwork indicating that lines or piping were previously in use and removed, areas of dead grass or landscaping caused by spillage from a fill pipe or from an active oil leak beneath the ground.
The average cost of a tank sweep in New Jersey is about $250, which is a small price to pay for some peace of mind. No tank sweep is 100% guaranteed, but compared to the considerable financial liability associated with a possible, future environmental clean-up, it’s a no-brainer that you should get one.
Plus, you can likely look to your tank sweep contractor in the event a tank was missed during the initial sweep. Reputable companies will usually work with you to remove the tank at their cost or at a discount to you.
So, anytime you’re buying a home in New Jersey on a piece of land, which is wholly owned by you, and therefore, wholly your responsibility (this excludes condos, co-ops and some townhomes), you should get a tank sweep. And this is true even if:
- the home was newly constructed or constructed recently
- the Seller has assured you that they have always had gas heat at the Property
- an above-ground oil tank is currently in use at the Property
- the Seller has assured you that they have always had an above-ground oil tank at the Property
- an underground tank was already removed from the property, and the Seller has all the proper paperwork to prove that the tank had no leaks
There have been plenty of instances all across the state where an old tank was left in the ground when a new home was constructed, or a tank was left in the ground when a prior owner decided to install an above-ground tank, or a UST was properly removed with proper permits and no issues, but a second leaking tank was found buried in a different part of the yard.
The bottom line is that you do not want to be the one left ‘holding the bag’ because a UST that you knew nothing about and had nothing to do with installing at the property has sprung a leak and caused contamination. Leave that for the Seller to handle before you become the owner.
“Metallic Object Detected”
Your tank sweep detected a metallic object in the yard. Now what? At this point, you’ll want to do further testing to investigate the area in question.
You can pay for additional tests which utilize heightened metal detection equipment and/or something known as “ground penetrating radar,” which can help the contractor or technician better determine the size and shape of the buried object and whether it has dimensions consistent with that of an underground oil storage tank. You can also perform what’s called an “exploratory dig,” where the contractor will dig out the area in question (typically by hand) until the metallic object which caused the high reading is located and identified.
Your attorney will inform the Seller’s attorney of the initial tank sweep findings and you’ll of course need to obtain the Seller’s permission to perform additional testing of any kind at the property. This is especially true if you’re going to start digging up the Seller’s yard or disturb the property in any way. Remember, you’ll also be responsible for returning the yard to the same condition as that which existed before your contractor started digging it up.
If the Seller agrees to allow the additional investigation, you’ll schedule a time with your contractor that works for all parties. If your contractor plans on performing an exploratory dig, they’ll first order utility mark-outs at the property from the proper utility companies to ensure that they don’t accidentally dig in an area where there are underground electric, gas, water and/or sewer lines servicing the property or neighboring parcels.
Depending on your bargaining power in the deal, you can sometimes negotiate for the Seller to pay for a portion of the additional testing. However, given that the cost of all inspections typically rests with the Buyer, and you’re generally already protected under the Contract by your inspection contingency right to walk away from the deal, it might be difficult to find a Seller willing to agree to pay for this next level of investigation on your behalf.
Oftentimes, during this next round of UST investigation, rather than finding a buried tank, the technician or contractor finds a stray piece of metal construction debris, a manhole cover, a piece of gutter, a section of fencing, iron rebar, or something else which is not a buried tank but caused a high metallic reading to be detected.
If that’s the case, then your problem is solved once that “something else” is found, and you can happily move on to your other inspection issues (after restoring the property to its pre-investigation condition). If, on the other hand, that’s not the case and a UST is in fact discovered, then you have more decisions to make and more negotiations will need to take place with the Seller before you can move forward in the transaction.
If an abandoned UST is actually found in the ground, the next step is to negotiate with the Seller for the removal of the tank by a licensed tank removal contractor. Again, your attorney will inform the Seller of the findings and request that the Seller properly remove the tank, at Seller’s own cost, and with all proper permits in place and delivered to you prior to the Closing.
Note: It is important to remember that it’s extremely risky and not advisable that you take on the risk of a UST removal post-closing, even if the Seller gives you a credit towards the purchase price for doing so. You have a lot of bargaining power in a situation where a tank is detected, as compared with the Seller, so stick to your guns and make sure the Seller bears this risk.
If Seller does not agree to properly remove the tank at its own cost, or the work is unable to be completed in a timely manner, then you can invoke your rights under the Contract, which will typically allow you to walk away from the deal pursuant to the inspection contingency and/or a provision specifically addressing the parties rights in the even an oil tank is discovered.
In New Jersey residential real estate transactions, if a tank is found in the ground during inspections, the Seller will almost always agree to remove it. The Seller knows that any and every Buyer will request removal of that tank, and now that the Seller knows about it, they have a legal obligation to disclose the existence of the UST to every potential future Buyer. In effect, the home will become unsellable until the UST is removed, so it is in the Seller’s best interests to take care of it now while they still have you under Contract.
The Seller’s agreement to take on the tank removal, at its own cost, is the first step in the right direction. The Seller will then need to hire a licensed, NJ Department of Environmental Protection (NJDEP)-certified tank removal contractor of which there are many to choose from. That contractor will need to apply for a tank removal permit with the building department in the town or municipality where the property is located. The average cost of a UST removal is about $1,750, plus the cost of the permit.
Once the permit has been paid for and issued, the actual removal work can begin. When the tank is removed, the tank itself and the ground in and around the area from where the tank was unearthed will be inspected carefully. The tank will be visually inspected for cracks, pinholes and openings of any kind and the surrounding area will be inspected for the visual presence and/or smell of oil.
An official from the building department will also perform an independent inspection on-site when the tank is removed and before that tank may be hauled away for disposal or the hole back-filled.
If the contractor and the township official are both satisfied with their inspection, that is the best-case scenario. That would mean it was a run-of-the-mill UST removal, with no leak of contamination detected. At that point, the tank removal permit with the building department can be properly closed out, and the closed permit (or “Certificate of Approval”) confirming that there was no leak, will be delivered to you for your records at or prior to the Closing.
Tank Fails Inspection: “No Further Action” Letter Now Required
If the visual inspection of the removed tank reveals the presence of cracks, holes or other openings in the tank, or if oil is seen or smelled at the time of the removal, then under New Jersey law, the findings must be immediately reported to the NJDEP, which will assign the property a case number, and the site must then be further evaluated and remediated as needed, in accordance with governmental regulations.
Soil samples will be collected (at a cost of about $500) and sent to a lab for analysis to determine the concentration of petro-chemicalsl, if any, in the soil. If the concentration exceeds legal threshold levels, physical remediation of the soil by a certified contractor will be necessary. This means the soil will be removed from the property and replaced with clean fill, and additional soil samples will be collected and tested to confirm the soil is clean. Once the remediation has been completed, the contractor will prepare and submit a “remedial action report” to the NJDEP, detailing the remediation findings and results. The NJDEP will review the report and, if everything checks out, they’ll issue what’s called a “No Further Action” letter (or “NFA”) to the Seller and close the case file.
The NFA will serve as proof that the Seller has satisfied the steps required by the state to further evaluate and remediate the property, such that the state promises that it will take “no further action” against the property owner (or future owners) for liability involving this particular oil discharge/contamination.
The NFA letter will describe the environmental findings of the tank removal and how any contamination was cleaned up and remediated, and it will absolve you of future clean-up liability. It is what protects you, as a Buyer, going forward, and the following cannot be understated: you should not close without the NFA letter in hand.
If everything moves along quickly and efficiently on both sides of the transaction, the entire process can take 4-6 weeks from tank removal to issuance of the NFA. If problems are uncovered during the UST removal and/or remediation, such as contamination of the groundwater or damage to third party properties, then the process can drag on for months or even years. So it’s critical that both parties move as swiftly as possible with respect to any UST-related investigations and remediations.
The UST has been decommissioned in place. Even if the underground tank was decommissioned in place, meaning that the homeowner hired a licensed contractor and obtained proper permits, to pump the oil out of the tank and backfill it with sand to “decommission” it, that UST should now be removed.
Most tanks cannot be completely pumped of all oil and even a small amount of oil which eventually leaks out can cause environmental contamination and the need for a clean-up. A lot of homeowners left tanks in the ground via proper channels, but the reality is that any tank beneath the ground poses a risk of uncertainty to all future owners of the property until it is properly removed.
The home is currently heated with oil. Sometimes you know going into a purchase that there’s an underground oil tank because the home is heated with oil which is stored in an underground tank.
While oil heat is not the preferred method of heating a home due to the potential for oil tanks to leak, there are plenty of NJ homes that are still heated with oil. If the home you’re buying is one of them, you’ll want to take some important steps to evaluate the existing tank and system to better protect yourself going forward:
- Make sure you perform a tank assessment, including a tank integrity or tightness test
- Consider performing an Environmental Site Assessment of the property
- Review the Seller’s oil heating bills for the past several months. This helps you understand the costs and timeline associated with purchasing oil and having it delivered, and also, allows you to ensure there has been no recent uptick in the amount of oil being used, which could be an indication of a leak
- Have a good tank insurance policy in place at the time of closing, which will protect you against liability from leaks
I don’t want this house anymore. What if you don’t want the house anymore as soon as a UST is discovered? Your ability to walk away from the deal at any point will depend on how your attorney negotiated and ultimately amended the Contract on your behalf during the attorney review period.
However, keep in mind that every negotiation is a two-way street. While every buyer’s attorney would love to give an “out” to his or her client as soon as a UST is discovered, every Seller’s attorney would likely not agree to it. So, it is highly doubtful that you’ll have an absolute right to walk away from your deal simply because a tank is found since most USTs can be properly removed without issue and done in a timely manner before closing.
What if you don’t want the house anymore now that a potential leaking tank has been discovered and the Seller has to deliver an NFA? During the attorney review period, your attorney should have preserved your right to walk away in the event a UST leak is detected and/or remediation and issuance of an NFA is required. The UST provision in the Contract and the way in which it is negotiated and modified is one of the more important provisions to discuss with your attorney given the potential liability involved. Don’t be shy about asking your attorney how you’ll be protected.
Not every tank is a leaker, but because every tank has the potential to leak, you always have to inspect for USTs and ensure that the Seller is the one who bears the risks and burdens of any UST removal.