The purpose of this alert is to identify a few peculiar issues in New Jersey for out-of-state investors, lenders, and their counsel to consider when doing business in this great state of ours. The following is not a comprehensive list, but rather a descriptive one to address the more common issues asked by non-New Jerseyans:

1. Flood Risk Disclosure Law

The risk of flooding in the State of New Jersey is increasing due to climate change. In response to this growing concern, on July 3, 2023, the New Jersey Flood Risk Disclosure Law was enacted. Beginning on March 20, 2024, every seller of real property, both residential and non-residential, must disclose the property’s flood risk information to the purchaser before the purchaser is obligated under any purchase agreement. As such, sellers of real property are required to complete questions 109-117 of the Seller’s Property Condition Disclosure Statement provided by the New Jersey Division of Consumer Affairs. Failure to comply with this new law is a violation under the Consumer Fraud Act (Act), which can result in a penalty of up to $10,000 for the first offense and up to $20,000 for the second and subsequent offenses. If the violation is found to be part of a scheme, plan, or course of conduct directed at senior citizens or persons with disabilities, this can result in a penalty of up to $30,000. Sellers who violate the Act may also have to restore the property or refund money to the buyer. And if such a violation was perpetrated against a senior citizen, the amounts may be doubled.

2. Bulk Sales

The New Jersey Division of Taxation (Division) defines a bulk sale as “the sale (or transfer or assignment) of an individual’s or company’s business assets, in whole or in part, outside of the ordinary course of business.” Business assets include tangible personal property, real property, and intangible assets. When such a sale is anticipated, the Division is to be notified to ensure the collection of any taxes owed. The penalty for failure to notify the Division is the buyer can be liable for any outstanding tax obligations of the seller connected to the transferred business assets. Such notification includes an executed copy of the purchase and sale agreement, plus a completed Form C-9600. The notification is the responsibility of the buyer to submit to the Division and must be received by the Division at least 10 business days prior to the closing of the sale. The Division has 10 business days to respond once it has received all required information. The Division can respond in several ways, including (i) an escrow letter stating the amount of taxes owed; (ii) a letter listing the returns that must be filed and the amount of the taxes that must be paid; (iii) a clearance letter stating that the bulk sales case is closed, no funds are to held in escrow, and the purchaser will not by responsible for any obligation of the seller; (iv) that the notification was incomplete; or (v) that the requirements were not met and purchaser could now be held responsible for any of the seller’s tax liabilities. If the Division fails to respond within 10 business days of a bulk sales notification, the buyer will not be liable for any tax obligations of the seller.

3. The Industrial Site Recovery Act – ISRA

The Industrial Site Recovery Act, (ISRA) is a unique environmental law that requires the remediation of certain industrial or commercial properties before they can be sold, transferred, or when business operations at a property cease. Compliance with ISRA begins at the time of specified triggering events, such as the sale of property, the sale of a business, or the cessation of operations. A property that is classified as industrial is not automatically subject to ISRA – rather, it must meet three requirements: (i) the business conducted on the property must have a covered NAICS classification; (ii) the business must have operated in New Jersey on or after December 31, 1983; and (iii) the business must use or store hazardous substances as defined in N.J.A.C. 7:1E. To determine if ISRA applies to the subject property or business, it is highly recommended that you review ISRA (N.J.S.A. 13:1K)  or the ISRA Rules found at N.J.A.C. 7:26B. If the property in question meets the three criteria listed above and is the subject of a triggering event, the seller must notify the New Jersey Department of Environmental Protection (NJDEP) by filing a General Information Notice with the assistance of a Licensed Site Remediation Professional. In most instances, the triggering event will be placed on hold until the property is remediated. However, there are instances where the NJDEP will allow the transaction to proceed before all the ISRA requirements are completed.

4. Real Property Transfer Fees

The State of New Jersey imposes several types of additional fees or taxes when real property is traded. One type is the Realty Transfer Fee (RTF), which is a fee that a seller of real property pays for recording a deed in connection with a sale. The RTF is calculated based on either the consideration cited in the deed or, in certain instances, the assessed value of the property. The formulas to calculate the fee can be found in N.J.S.A. 46:15-7. A second tax that is imposed upon a transaction is called the “mansion tax”.  The mansion tax is a supplement to the RTF, and it is a 1% tax that is paid by the buyer in connection with the sale or transfer of (i) homes with a sales price of $1 million dollars or more, (ii) residences of up to four families, including condos, and (iii) income-producing commercial properties (other than industrial uses or apartments). And third, the non-deed transfer fee is a 1% fee imposed upon the sale of a controlling interest in an entity which possess, directly or indirectly, a controlling interest in the real property. This fee is imposed on transactions in excess of $1 million and is paid by the buyer of the controlling interest and must be remitted on or before the last day of the month following the month in which the sale occurs by filing a return with the Director of the Division with accompanying payment.

5. Transfer Certificates for Changes in Occupancy/Ownership or a Certificate of Continued Occupancy

Prior to transferring ownership of a commercial property, in certain municipalities, a seller must receive a transfer certificate. These may be termed a transfer certificate, a new certificate of occupancy, a certificate of continued occupancy, certificate of habitability, smoke detector certification, certificate of authority, or other similar inspection or certificate. The purpose of the transfer certificate is to ensure compliance with local codes and ordinances. Before a certificate can be issued, the property must be inspected by a municipal inspector(s) from a municipal department(s), typically for life and safety issues. The local township ordinances should be consulted to determine if a transfer certificate is required and, if required, whether there is a fee. The purchase agreement should address who will apply for, obtain, and pay for the costs related to the transfer certificate, receipt of which should be a condition precedent to closing.

The contents of this article are for informational purposes only and none of these materials is offered, nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.

For more information, contact Rachel S. Dichter, Esquire at 856.355.2937 or by email at dichter@hylandlevin.com.