phase-i-esa-review-memo.docx

1011-00007 · Whitfield, Barr & Calloway LLP · Analyses & Memos

phase-i-esa-review-memo.docx DOCUMENT Real Estate

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MEMORANDUM

TO: Cynthia Ho, Associate, Calderwood & Harkness LLP Angela Fontaine, Partner, Calderwood & Harkness LLP

FROM: Grace Nakamura, Associate, Calderwood & Harkness LLP

DATE: August 15, 2022

RE: Review of Phase I Environmental Site Assessment — Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (Block 24, Lot 17.04, Township of Cranbury, Middlesex County, NJ); Blackthorn Environmental Consulting, Inc. Report No. BEC-2022-0814 (dated August 5, 2022)

CLIENT: Meridian Consumer Brands LLC

MATTER NO.: 1011-00007

I. Executive Summary

Calderwood & Harkness LLP represents Meridian Consumer Brands LLC ("MCB" or "Client") in connection with the negotiation of a long-term lease for approximately 297,500 square feet of warehouse/distribution and office space at Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (the "Premises"), with Stonebridge Industrial Realty Trust, LP ("Stonebridge" or "Landlord"). The proposed transaction represents a significant operational commitment for MCB, as the Premises will serve as the consolidated hub for its East Coast distribution and fulfillment operations.

In connection with MCB's due diligence for this transaction, MCB retained Blackthorn Environmental Consulting, Inc. ("Blackthorn") to conduct a Phase I Environmental Site Assessment ("Phase I ESA" or "Report") of the Premises in accordance with ASTM Standard Practice E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process). The Report, bearing reference number BEC-2022-0814, was completed and dated August 5, 2022. This memorandum provides a detailed analysis of the Report's findings and sets forth recommendations for environmental risk allocation in the lease currently under negotiation.

Overall conclusion: The Phase I ESA identified no Recognized Environmental Conditions ("RECs") on the subject property (Block 24, Lot 17.04, Township of Cranbury, Middlesex County, New Jersey). This is a favorable result for MCB and indicates that the subject property does not present evidence of hazardous substance releases or conditions indicative of a release.

However, the Report did identify one Controlled Recognized Environmental Condition ("CREC") in connection with a historic dry-cleaning operation on an adjacent parcel — specifically, Block 24, Lot 16, located to the northeast of the subject property. That adjacent parcel has a Classification Exception Area ("CEA") established by the New Jersey Department of Environmental Protection ("NJDEP") for tetrachloroethylene ("PCE") in groundwater. Based on NJDEP records reviewed by Blackthorn, the CEA does not currently extend onto the subject property. Nonetheless, Blackthorn noted the potential for future plume migration and flagged the condition as warranting attention by the prospective tenant.

This memorandum: (a) summarizes the Report's key findings in detail; (b) assesses the environmental risks presented to MCB in the context of the proposed long-term lease; and (c) recommends specific environmental provisions for incorporation into the lease to protect MCB's interests. These recommendations include, among other things, landlord environmental representations and warranties, a broad landlord indemnification for pre-existing conditions and off-site contaminant migration, notice obligations regarding changes to the CEA boundaries, tenant rights to conduct environmental testing, vapor intrusion protections, and remediation and rent abatement provisions. Many of these provisions have been incorporated into Calderwood & Harkness's first markup of the Stonebridge lease delivered on August 12, 2022, and are expected to be a focus of upcoming negotiations with Stonebridge's counsel, Whitfield, Barr & Calloway LLP.

II. Background

A. The Property

The subject property is Building 4, Cranbury Commerce Center, located at 200 Prospect Plains Road, Cranbury, NJ 08512. The property is designated as Block 24, Lot 17.04 on the tax map of the Township of Cranbury, Middlesex County, New Jersey.

Building 4 comprises approximately 285,000 square feet of warehouse and distribution space and approximately 12,500 square feet of finished office and mezzanine space, totaling approximately 297,500 square feet of rentable area. The building was originally constructed in 2001 as a speculative industrial/distribution facility and has been used for warehouse and distribution purposes throughout its operational history.

The Cranbury Commerce Center is a 62-acre, four-building industrial park situated along Prospect Plains Road in the Township of Cranbury. The park was acquired by Stonebridge Industrial Realty Trust, LP in 2019 for approximately $78 million. Since acquisition, Stonebridge has invested in capital improvements to the park's buildings, including a full roof replacement and HVAC system upgrade for Building 4 completed in 2020. These improvements are consistent with Stonebridge's repositioning of the park for modern logistics and distribution tenants.

Stonebridge Industrial Realty Trust, LP is a Maryland limited partnership managed by its general partner, Stonebridge Industrial GP LLC, a Maryland limited liability company. Stonebridge is a privately held industrial real estate investment platform with a portfolio concentrated in the Mid-Atlantic and Northeast corridors.

B. The Proposed Transaction

MCB is negotiating a ten-year lease for the Premises with aggregate base rent of approximately $12,000,000 (pre-escalation). The letter of intent for the transaction (LOI-2022-CCC-B4) was executed on June 22, 2022, by authorized representatives of MCB and Stonebridge. Following execution of the LOI, Stonebridge's outside counsel, Whitfield, Barr & Calloway LLP, delivered the landlord's first draft of the proposed lease agreement on July 18, 2022. Calderwood & Harkness LLP prepared and delivered its first markup of the lease on August 12, 2022, which incorporated, among other revisions, the environmental provisions recommended in this memorandum.

MCB intends to use the Premises to consolidate its East Coast distribution and fulfillment operations, which are currently conducted from a leased facility at 15 Kilmer Road, Edison, NJ 08817. The existing lease at the Edison facility expires in February 2024, and MCB has targeted a commencement date for the Cranbury lease that will allow adequate time for build-out, systems installation, and operational transition from the Edison location. Given the operational significance of this relocation and the length of the proposed lease term, comprehensive environmental due diligence is warranted to ensure that MCB does not inherit or become exposed to environmental liabilities associated with the Premises or surrounding properties.

C. Scope of the Phase I ESA

The Phase I ESA was conducted by Blackthorn Environmental Consulting, Inc., a New Jersey corporation with offices at 75 Livingston Avenue, Suite 400, Roseland, NJ 07068. Blackthorn is a licensed environmental consulting firm with experience in site assessments for commercial and industrial properties in New Jersey and the broader Mid-Atlantic region. The assessment was performed under the direction of Katherine M. Ferraro, PG, LSRP, a Licensed Site Remediation Professional with the State of New Jersey.

The Report bears reference number BEC-2022-0814 and is dated August 5, 2022. The assessment was performed in accordance with ASTM Standard Practice E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process), the current edition of the industry-standard methodology for Phase I environmental due diligence. ASTM E1527-21 defines the process by which a user (here, MCB) satisfies one of the requirements of the "all appropriate inquiries" standard under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, and thereby may qualify for certain protections from CERCLA liability, including the innocent landowner, contiguous property owner, and bona fide prospective purchaser defenses.

The scope of the Phase I ESA included the following components:

(a) Records Review. Blackthorn conducted a review of federal, state, and local environmental database records, including records maintained by the United States Environmental Protection Agency ("EPA") and the NJDEP. The database search was performed by Penrose Solutions ("EDR") and encompassed the standard ASTM-prescribed search radii for each database. The databases reviewed included, among others, the EPA National Priorities List ("NPL" or "Superfund"), RCRA CORRACTS and RCRA non-CORRACTS Treatment, Storage, and Disposal Facilities, the CERCLIS/SEMS database, the NJ Known Contaminated Sites List, the NJDEP Site Remediation Program database, and various other federal and state listings.

(b) Historical Use Review. Blackthorn reviewed historical aerial photographs (dating from 1940 through 2021), Trelwick fire insurance maps (where available), city and township directories, and historical topographic maps to document the historical uses of the subject property and surrounding properties.

(c) Site Reconnaissance. Blackthorn conducted a physical inspection of the subject property and observable portions of adjacent properties on July 27, 2022. The site reconnaissance included an inspection of the building exterior and interior, loading docks, parking areas, surrounding grounds, and observable features of adjacent parcels.

(d) Interviews. Blackthorn conducted interviews with representatives of the current property owner and property manager, including Paul Osterman, Asset Manager for Stonebridge, and Lisa Chen, Property Manager for Cranbury Commerce Center, to obtain information about the property's history, current operations, and any known environmental conditions.

(e) Evaluation of Adjoining Properties. Consistent with ASTM E1527-21, Blackthorn evaluated the uses and environmental conditions of adjoining and nearby properties within the standard search radii to identify potential off-site sources of contamination that could affect the subject property.

The Report notes certain standard limitations on the Phase I ESA scope, including that the assessment did not involve subsurface investigation, sampling, or laboratory analysis of soil, groundwater, soil vapor, or building materials. The assessment also does not address certain non-ASTM scope considerations, including asbestos, lead-based paint, radon, mold, wetlands, or indoor air quality, except to the extent that such conditions were incidentally observed during the site reconnaissance.

III. Summary of Phase I ESA Findings

A. Site History and Current Use

Blackthorn's historical research confirmed that Building 4 at the Cranbury Commerce Center has been used for warehouse and distribution purposes since its original construction in 2001. The Report found no evidence that any manufacturing, chemical storage, hazardous materials handling, or other environmentally sensitive operations have been conducted on the subject property at any time based on available records. The facility's historical tenants (identified through interviews and property management records) have used the building exclusively for warehousing, logistics, and distribution activities.

Prior to development of the Cranbury Commerce Center in 2001, the subject property and the broader 62-acre park site consisted of undeveloped agricultural farmland. Historical aerial photographs from 1940 through the late 1990s consistently depict the site as open agricultural land without structures, tanks, or other improvements. No evidence of pesticide storage, mixing, or application facilities was identified in the historical record, though it should be noted that agricultural use in New Jersey during the mid-twentieth century may have involved the application of pesticides and herbicides that are now regulated substances. However, Blackthorn did not identify any evidence suggesting that such agricultural activities on this particular parcel rose to the level of a recognizable environmental condition under ASTM E1527-21.

No underground storage tanks ("USTs") or aboveground storage tanks ("ASTs") were identified on the subject property, either currently or historically. No evidence of former tank locations (such as vent pipes, fill ports, or disturbed soil consistent with tank removal) was observed during the site reconnaissance. Stonebridge representatives confirmed that no tanks have been present on the subject property during Stonebridge's period of ownership (2019 to present), and Blackthorn's review of NJDEP UST registration records did not identify any registered tanks at the subject property address.

Stonebridge's 2020 renovation of Building 4, which included a complete roof membrane replacement and HVAC system upgrade, did not involve activities that would be expected to introduce environmental contamination. The renovation was confined to the building envelope and mechanical systems and did not involve excavation, demolition, or disturbance of subsurface conditions.

B. Recognized Environmental Conditions (RECs)

Finding: No Recognized Environmental Conditions were identified on the subject property.

Blackthorn's assessment did not identify any RECs at or affecting the subject property (Block 24, Lot 17.04). Under ASTM E1527-21, a "Recognized Environmental Condition" is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (i) due to a release to the environment; (ii) under conditions indicative of a release to the environment; or (iii) under conditions that pose a material threat of a future release to the environment. The absence of RECs on the subject property indicates that Blackthorn's review of environmental records, historical information, site conditions, and adjoining property uses did not reveal evidence meeting this standard.

This finding is consistent with the property's history of use exclusively for warehouse and distribution operations, the absence of tanks and chemical storage or handling activities, and the relatively recent construction date of the building (2001). The finding provides a favorable environmental baseline for MCB's proposed occupancy.

C. Controlled Recognized Environmental Condition (CREC)

Finding: One Controlled Recognized Environmental Condition was identified in connection with an adjacent parcel.

The sole environmental condition of significance identified in the Report relates to a historic dry-cleaning operation on Block 24, Lot 16, Township of Cranbury, Middlesex County, New Jersey, which is located to the northeast of the subject property. The key details of this finding are as follows:

Adjacent Parcel. Block 24, Lot 16 is located immediately to the northeast of the subject property (Block 24, Lot 17.04). The two parcels share a general proximity within the Cranbury area, and the environmental conditions on Block 24, Lot 16 are within the ASTM-prescribed search radius for the subject property. It should be noted that Block 24, Lot 16 is not owned by Stonebridge and is not part of the Cranbury Commerce Center.

Historic Use. Block 24, Lot 16 was historically used as a commercial property that included a dry-cleaning operation. Based on available records reviewed by Blackthorn, the dry-cleaning facility is no longer in operation. The specific dates of operation and cessation of the dry-cleaning business were not definitively established in the Report, though Blackthorn's historical research indicates the facility was active during the 1980s and 1990s.

Contaminant of Concern. Tetrachloroethylene ("PCE," also known as perchloroethylene or "perc"), a chlorinated volatile organic compound ("CVOC") commonly associated with dry-cleaning operations, was detected in groundwater beneath Block 24, Lot 16. PCE is a widely recognized environmental contaminant that is regulated under both federal and New Jersey environmental laws. It is classified as a probable human carcinogen and is subject to stringent cleanup standards in groundwater under NJDEP regulations.

NJDEP Classification Exception Area (CEA). A Classification Exception Area has been established by the NJDEP for PCE contamination in groundwater on Block 24, Lot 16. Under NJDEP regulations, a CEA is an institutional control that designates an area of groundwater where contamination exceeds applicable groundwater quality standards. Within a CEA, the use of groundwater is restricted, and the contaminated groundwater is reclassified to allow the contamination to remain in place while natural attenuation or other long-term remedial processes occur. A CEA is typically established as part of a remedial action that has been approved by the NJDEP, where active remediation has been completed but residual contamination remains above applicable standards.

Extent of CEA. Based on NJDEP records and CEA mapping reviewed by Blackthorn, the CEA does not extend onto the subject property (Block 24, Lot 17.04). The CEA boundaries are delineated on Block 24, Lot 16 and potentially extend onto portions of intervening parcels between Lot 16 and the subject property, but the mapping reviewed by Blackthorn confirms that the subject property lies outside the delineated CEA boundary. Blackthorn verified this finding through review of the NJDEP's Geographic Information System ("GIS") data, the CEA description filed with the Middlesex County Clerk's office, and the NJDEP Site Remediation Program case file for the Block 24, Lot 16 contamination case.

Blackthorn's Assessment. Under ASTM E1527-21, a Controlled Recognized Environmental Condition is defined as a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority, with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (such as property use restrictions or engineering controls). Blackthorn characterized the PCE contamination on Block 24, Lot 16 as a CREC because the release has been addressed through a NJDEP-approved remedial action with the CEA serving as the institutional control, but residual contamination (PCE in groundwater above applicable standards) remains in place.

While the CREC relates to the adjacent parcel and not the subject property itself, Blackthorn included this finding in the Report due to the proximity of Block 24, Lot 16 to the subject property and the potential for future migration of the PCE groundwater plume. Blackthorn noted that PCE plume behavior is influenced by hydrogeological conditions, including groundwater flow direction and velocity, and that the direction and extent of plume migration could change over time. Blackthorn recommended that the user of the Report (MCB) consider this condition in its evaluation of the subject property and consult with legal counsel regarding appropriate risk allocation measures.

D. Historical Recognized Environmental Conditions (HRECs)

Finding: No Historical Recognized Environmental Conditions were identified on the subject property.

The Report did not identify any past releases of hazardous substances or petroleum products on the subject property that were subsequently investigated and remediated or otherwise addressed to the satisfaction of a regulatory authority. The absence of HRECs is consistent with the property's clean operational history and the absence of any prior environmental investigation or remediation activity at the site.

E. De Minimis Conditions and Other Observations

Blackthorn's site reconnaissance identified two minor de minimis conditions that do not rise to the level of RECs under ASTM E1527-21:

(i) Stained Concrete at Loading Dock No. 12. A small area of stained concrete was observed in the warehouse area near loading dock No. 12. The staining appeared consistent with minor hydraulic fluid leakage from forklift or other material-handling equipment operations, which is a common and expected condition in warehouse and distribution facilities. Blackthorn determined that this condition was not indicative of a release to the environment, as the staining was limited to the concrete slab surface, there was no evidence of penetration through the slab, and no free-phase liquid or sheen was observed. This condition does not constitute a REC.

(ii) Janitorial Chemical Storage. Limited quantities of janitorial and cleaning chemicals (floor cleaners, glass cleaners, and similar products) were observed in a utility closet within the office mezzanine area. The materials were properly stored in their original containers, appropriately labeled, and maintained in quantities consistent with normal building maintenance operations. The storage conditions appeared to comply with applicable regulations. This condition does not constitute a REC.

Blackthorn additionally noted that no evidence of mold, asbestos-containing materials, lead-based paint, or elevated radon levels was observed during the site reconnaissance. However, the Report emphasizes that these conditions are outside the scope of ASTM E1527-21, and Blackthorn's observations regarding these matters were incidental to the Phase I ESA and should not be relied upon as a comprehensive assessment of these non-scope considerations. The building was constructed in 2001, which post-dates the widespread use of asbestos in building materials and the 1978 federal ban on lead-based paint in residential applications, reducing the likelihood that these materials are present.

F. Regulatory Database Review

Blackthorn's review of federal, state, and local environmental database records yielded the following results relevant to the subject property and its surroundings:

Subject Property (Block 24, Lot 17.04). The subject property does not appear on any federal or state environmental database as a site with known contamination or environmental regulatory activity. Specifically, the subject property is not listed on the following databases (among others reviewed):

• EPA National Priorities List (NPL/Superfund)

• EPA RCRA CORRACTS Facilities

• EPA RCRA non-CORRACTS Treatment, Storage, and Disposal Facilities

• EPA CERCLIS/SEMS (Superfund Enterprise Management System)

• NJ Known Contaminated Sites List

• NJDEP Site Remediation Program database

• NJDEP Underground Storage Tank Registration database

• EPA Emergency Response Notification System (ERNS)

Adjacent Parcel — Block 24, Lot 16. Block 24, Lot 16 (the adjacent parcel with the former dry-cleaning operation) does appear on the NJ Known Contaminated Sites List and in the NJDEP Site Remediation Program database. The listing relates to the PCE groundwater contamination and the established CEA discussed in Section III.C above. The NJDEP case file indicates that a remedial investigation was completed, a remedial action workplan was approved, active remediation (including groundwater extraction and treatment) was conducted and subsequently discontinued upon achievement of certain performance milestones, and the CEA was established as the long-term institutional control for residual groundwater contamination. The case status in the NJDEP database indicates that the remediation is in the "post-remediation monitoring" phase, with periodic groundwater sampling required to assess plume stability and attenuation.

Other Adjacent and Nearby Properties. No other properties within the ASTM-prescribed search radii were identified on the reviewed environmental databases as having environmental conditions that would constitute RECs for the subject property. The Cranbury Commerce Center's other buildings and parcels (including Block 24, Lot 17.05 and other lots owned by Stonebridge) did not appear on environmental contamination databases.

IV. Risk Assessment and Implications for Lease Negotiations

A. Overall Environmental Risk Assessment

The absence of Recognized Environmental Conditions on the subject property is a favorable and significant finding for MCB. The Phase I ESA results indicate that the property has a clean environmental history that is consistent with its documented use as a warehouse and distribution facility since original construction in 2001, preceded by agricultural use. No releases of hazardous substances or petroleum products have been identified on the subject property, and the property does not appear on any federal or state environmental database as a contaminated site or a site subject to regulatory action.

The principal environmental risk to MCB in connection with the proposed lease relates to the Controlled Recognized Environmental Condition identified on adjacent Block 24, Lot 16 — specifically, the potential for the PCE groundwater plume originating from the former dry-cleaning operation on that parcel to migrate toward or beneath the subject property in the future. While this risk is currently characterized as a potential rather than actual condition affecting the Premises, the long-term nature of the proposed lease (ten years, with potential renewal periods) increases the significance of this risk and warrants careful attention in the lease documentation.

Additionally, the overall favorable condition of the property means that MCB has a strong negotiating position with respect to environmental provisions in the lease. MCB can credibly argue that it is entering a clean facility and should not bear the risk of any environmental conditions not of its own making.

B. PCE Plume Migration Risk

The risk of PCE plume migration from Block 24, Lot 16 toward the subject property warrants detailed consideration. Tetrachloroethylene is a dense non-aqueous phase liquid ("DNAPL") — a chlorinated solvent that is denser than water and can migrate vertically downward through the water table and laterally along the base of an aquifer or confining layer. PCE and its degradation products (including trichloroethylene, or TCE; cis-1,2-dichloroethylene; and vinyl chloride — each of which is also a regulated contaminant) are known to be persistent in the subsurface environment and can form extensive groundwater plumes that travel considerable distances from the original source area, depending on site-specific hydrogeological conditions.

The behavior of a PCE plume in groundwater is dependent on a number of hydrogeological factors, including the direction and velocity of groundwater flow, the permeability and heterogeneity of subsurface soils and aquifer materials, the presence or absence of preferential flow pathways, and the ongoing dissolution of any residual DNAPL source material. These conditions may change over time due to natural processes, changes in regional pumping patterns (e.g., nearby municipal or industrial wells), or seasonal variation in groundwater levels. Accordingly, the fact that the CEA does not currently extend onto the subject property does not provide assurance that future NJDEP monitoring or reassessment will not result in an expansion of the CEA boundaries or a finding that the plume has migrated onto the Premises.

If PCE contamination were to migrate onto the subject property — or if the CEA were expanded by NJDEP to include any portion of the subject property — the potential consequences for MCB could include:

(i) Restrictions on Groundwater Use. Although MCB's warehouse and distribution operations are expected to rely exclusively on the municipal water supply (Beaumont Partners LLC) and not on any on-site groundwater wells, the inclusion of the subject property within a CEA could impose restrictions that affect future use flexibility and could create complications in the event of any future transaction involving the property or MCB's leasehold interest.

(ii) Vapor Intrusion Concerns. PCE is a volatile organic compound that can volatilize from contaminated groundwater and migrate upward through the subsurface as soil vapor, potentially entering buildings through cracks in slabs, utility penetrations, and other pathways. This process, known as vapor intrusion, can result in indoor air concentrations of PCE that exceed NJDEP vapor intrusion screening levels and could pose health risks to building occupants. If PCE were detected in groundwater beneath the subject property, NJDEP would likely require a vapor intrusion investigation, and if a complete vapor intrusion pathway were identified, mitigation measures (such as sub-slab depressurization systems) could be required. Such requirements could disrupt MCB's operations and impose costs.

(iii) Property Stigma. The association of the Premises with a groundwater contamination plume — even one originating from an off-site source — could negatively affect the perceived value and utility of MCB's leasehold interest, potentially impairing MCB's ability to assign the lease or sublet portions of the Premises in the future. Property stigma related to environmental contamination is a well-recognized phenomenon in commercial real estate transactions.

(iv) Regulatory Requirements. If contamination is identified on or beneath the Premises, MCB could become subject to regulatory inquiries, reporting obligations, or other requirements imposed by NJDEP, even though MCB would not be responsible for the contamination. Under the New Jersey Spill Compensation and Control Act, any person who is "in any way responsible" for a discharge of a hazardous substance can be held liable, though innocent tenants generally have defenses available. Nonetheless, regulatory engagement can be costly and disruptive to business operations.

These risks, while not certain to materialize, are sufficiently foreseeable over the ten-year term of the proposed lease that they should be addressed through robust environmental provisions in the lease agreement.

C. Landlord's Knowledge and Disclosure Obligations

Given that Stonebridge owns the entire Cranbury Commerce Center, including parcels in close proximity to Block 24, Lot 16, Stonebridge is likely to have knowledge of the environmental conditions on the adjacent parcel and the existence of the CEA. Indeed, Stonebridge's acquisition due diligence for its 2019 purchase of the Cranbury Commerce Center for approximately $78 million would, in the ordinary course, have included environmental assessments that identified the adjacent parcel conditions.

The lease should require Stonebridge to represent and warrant its knowledge of existing environmental conditions on the subject property and on adjacent parcels that Stonebridge owns or controls within the Cranbury Commerce Center. Stonebridge should be specifically required to confirm its awareness of the CEA on Block 24, Lot 16, to disclose all environmental reports, assessments, and correspondence with regulatory authorities in its possession relating to the Premises and the Commerce Center, and to provide ongoing disclosure of any new environmental information that comes to its attention during the lease term. If Stonebridge is aware of any monitoring data, groundwater sampling results, or communications with NJDEP regarding the PCE plume that were not available to Blackthorn during the Phase I ESA process, such information should be requested and reviewed before lease execution.

V. Recommended Lease Provisions — Environmental Risk Allocation

Based on the findings of the Phase I ESA and the risk assessment set forth above, the following environmental provisions are recommended for incorporation into the lease. As noted, many of these provisions have been included in Calderwood & Harkness's first markup of the lease delivered on August 12, 2022, and will be the subject of negotiation with Stonebridge's counsel.

A. Environmental Representations and Warranties by Landlord

The lease should include affirmative environmental representations and warranties by Stonebridge, including the following:

(i) To the best of landlord's knowledge, no hazardous substances (as defined by applicable environmental laws, including CERCLA, the New Jersey Spill Compensation and Control Act, and the regulations promulgated thereunder) have been released, discharged, or disposed of on, in, or under the Premises, except as disclosed in the Phase I ESA or otherwise disclosed in writing to tenant.

(ii) The Premises are not subject to any pending or, to landlord's knowledge, threatened environmental claims, suits, actions, proceedings, investigations, liens, or regulatory actions by any governmental authority or third party.

(iii) Landlord has disclosed to tenant all environmental reports, investigations, assessments, correspondence with regulatory authorities, and other environmental documents in landlord's possession, custody, or control relating to the Premises and the Cranbury Commerce Center, including but not limited to any Phase I or Phase II environmental site assessments obtained in connection with landlord's acquisition of the Commerce Center in 2019.

(iv) Landlord is aware of the Classification Exception Area established by NJDEP for PCE contamination in groundwater on Block 24, Lot 16, Township of Cranbury, Middlesex County, New Jersey, and confirms that, to landlord's knowledge and based on available NJDEP records, the CEA does not extend onto the Premises (Block 24, Lot 17.04) as of the lease commencement date.

These representations and warranties should survive the commencement of the lease term and should be deemed to be remade as of the commencement date. Any material breach of these representations should give rise to tenant remedies, including indemnification and, in the case of a materially misleading representation, a right to terminate.

B. Landlord's Environmental Indemnity

The lease should include a broad environmental indemnity from Stonebridge in favor of MCB. The indemnity should cover the following categories of environmental liabilities:

(i) Pre-Existing Contamination. Any environmental contamination on, in, or under the Premises that existed prior to the commencement of MCB's occupancy, or that arises from conditions predating MCB's occupancy, whether known or unknown as of the commencement date. This includes, without limitation, any contamination that may be discovered in the future but that is attributable to activities or conditions predating the lease term.

(ii) Off-Site Migration. Any contamination that migrates onto, in, or under the Premises from off-site sources at any time during the lease term, specifically including but not limited to the PCE contamination originating from the former dry-cleaning operation on Block 24, Lot 16, and any degradation products thereof (including trichloroethylene, cis-1,2-dichloroethylene, vinyl chloride, and any other related compounds).

(iii) Indemnified Losses. All costs, liabilities, damages, claims, suits, actions, judgments, fines, penalties, remediation expenses (including investigation, assessment, removal, and remedial action costs), monitoring costs, attorney's fees and expenses, consultant fees and expenses, and other losses and expenses arising from or related to the conditions described in clauses (i) and (ii) above.

The landlord's environmental indemnity should expressly survive the expiration or earlier termination of the lease for a period to be negotiated (we recommend an unlimited survival period, though Stonebridge may seek to limit survival to a period of years). We further recommend that the landlord's indemnity be absolute — that is, it should not be qualified by a "to landlord's knowledge" limitation. The rationale is straightforward: pre-existing contamination and off-site migration are conditions within the landlord's sphere of responsibility as the property owner, and the tenant should not bear the risk of unknown pre-existing conditions or contamination caused by neighboring parcels. The landlord is better positioned to assess and control these risks through its ownership of the Premises and the broader Commerce Center.

C. Tenant's Environmental Obligations and Covenants

MCB should affirmatively covenant in the lease that it will not use, store, generate, treat, dispose of, or release hazardous substances on, in, or under the Premises, except in compliance with all applicable federal, state, and local environmental laws, regulations, and ordinances, and only in quantities and types customary for warehouse and distribution operations. Permitted uses would include, for example, the storage and use of janitorial and cleaning supplies, limited quantities of maintenance chemicals (e.g., lubricants for material-handling equipment), and other de minimis quantities of materials incidental to warehouse operations, provided that all such materials are properly stored, labeled, handled, and disposed of in accordance with applicable law.

MCB should provide a reciprocal indemnity to Stonebridge covering environmental contamination caused solely by MCB's own operations on the Premises during the lease term. This tenant indemnity should be appropriately scoped to cover only contamination that is directly attributable to MCB's activities and should expressly exclude any liability for pre-existing contamination, off-site migration, or conditions not caused by MCB. The clear delineation between landlord and tenant environmental responsibilities is essential to avoiding disputes during or after the lease term.

D. Landlord's Notice Obligations Regarding CEA Changes

Given the significance of the CEA on adjacent Block 24, Lot 16 and the potential for changes to the CEA that could affect the Premises, the lease should include a robust affirmative notice covenant by Stonebridge. Specifically, Stonebridge should be required to promptly notify MCB in writing of each of the following events or circumstances:

(i) Any change in the boundaries of the CEA on Block 24, Lot 16, including without limitation any expansion of the CEA that would encompass any portion of the Premises, the Cranbury Commerce Center, or parcels adjacent to or underlying the Premises.

(ii) Any new environmental investigation, remediation activity, or regulatory action affecting the Premises, the Cranbury Commerce Center, or adjacent parcels owned or controlled by Stonebridge, including but not limited to any activity conducted by NJDEP, the responsible party for the Block 24, Lot 16 contamination, or any other governmental or private entity.

(iii) Any discovery of hazardous substances on, in, or under the Premises that was not previously known or disclosed, including any discovery made during construction, renovation, maintenance, or other activities on the Premises or the Commerce Center.

(iv) Any communication, correspondence, notice, order, directive, or other document received by Stonebridge from NJDEP or any other federal, state, or local regulatory authority concerning the PCE contamination on Block 24, Lot 16, the CEA, or any environmental condition that relates to or could reasonably be expected to affect the Premises.

This ongoing notice obligation should be a continuing covenant throughout the lease term and any renewal or extension periods. Failure to provide timely notice should constitute a default under the lease, entitling MCB to exercise its remedies, including, at a minimum, the right to conduct its own investigation and to seek reimbursement from Stonebridge for the costs thereof.

E. Tenant's Right to Conduct Environmental Testing

The lease should reserve to MCB the right — but not the obligation — to conduct environmental testing on the Premises at any time during the lease term. This right should include, without limitation, the right to:

(a) Conduct Phase II environmental site assessments, including soil sampling, groundwater sampling, and soil vapor/sub-slab vapor sampling;

(b) Conduct vapor intrusion assessments, including indoor air sampling and sub-slab vapor sampling;

(d) Engage environmental consultants, drilling contractors, and laboratories of MCB's choosing to perform the foregoing activities.

Environmental testing conducted by MCB should be at MCB's expense, subject to the following qualification: if any such testing reveals the presence of hazardous substances or contamination on, in, or under the Premises that was not caused by MCB's operations, the costs of such testing and all subsequent investigation and remediation costs attributable to such contamination should be borne by Stonebridge under the environmental indemnity provisions described in Section V.B above.

MCB should be required to provide Stonebridge with reasonable prior written notice (e.g., ten business days) before commencing any invasive testing activities (e.g., drilling or sampling) on the Premises, and MCB should be required to restore any disturbed areas to their pre-testing condition. Stonebridge's consent to such testing should not be unreasonably withheld, conditioned, or delayed.

F. Remediation Obligations

The lease should clearly and unambiguously allocate responsibility for environmental remediation as follows:

Landlord's Remediation Obligations. Stonebridge shall be solely responsible for the investigation, remediation, and closure of: (a) any pre-existing environmental contamination on, in, or under the Premises; and (b) any contamination migrating onto, in, or under the Premises from off-site sources, including without limitation the PCE plume originating from Block 24, Lot 16. All remediation shall be conducted in accordance with applicable NJDEP standards and regulations, at landlord's sole cost and expense, and in a manner that minimizes disruption to tenant's operations.

Tenant's Remediation Obligations. MCB shall be solely responsible for the investigation, remediation, and closure of any environmental contamination on, in, or under the Premises that arises from MCB's own operations during the lease term.

In the event that remediation activities are required on the Premises due to the PCE plume or other off-site contamination migration, and such remediation activities materially interfere with MCB's use, occupancy, or enjoyment of all or a substantial portion of the Premises, the lease should provide MCB with the following protections:

(a) Rent Abatement. MCB shall be entitled to an equitable abatement of base rent and additional rent during the period in which the remediation activities materially interfere with MCB's operations. The abatement should be proportional to the portion of the Premises rendered unusable or materially impaired by the remediation activities.

(b) Termination Right. If the material interference with MCB's use and occupancy continues for a period exceeding one hundred eighty (180) consecutive days, MCB shall have the right to terminate the lease upon written notice to Stonebridge, without penalty, liability, or obligation to pay any early termination fee or damages. Upon such termination, Stonebridge's indemnity obligations shall survive and MCB shall be entitled to recover all costs, expenses, and damages incurred as a result of the environmental condition and the resulting disruption, including relocation costs.

G. Vapor Intrusion Provisions

Given the proximity of the PCE groundwater plume on Block 24, Lot 16 and the potential for plume migration toward the subject property, vapor intrusion risk should be specifically addressed in the lease. Vapor intrusion — the migration of volatile organic compounds from contaminated soil and/or groundwater into overlying buildings through cracks, joints, and penetrations in the building slab and foundation — is a recognized exposure pathway for PCE and its degradation products.

We recommend the following vapor intrusion provisions:

(i) Landlord Representation. Stonebridge should represent that, to the best of its knowledge, no vapor intrusion pathway has been identified on the Premises, no vapor intrusion investigation has been conducted on the Premises, and no regulatory authority has required or recommended a vapor intrusion assessment for the Premises.

(ii) Landlord Covenant — Vapor Mitigation. If, at any time during the lease term, a vapor intrusion pathway is identified on the Premises — whether through environmental testing conducted by MCB, testing conducted by Stonebridge, or a directive issued by NJDEP or any other regulatory authority — Stonebridge shall, at its sole cost and expense, promptly design, install, and maintain a vapor mitigation system (such as a sub-slab depressurization system or other system approved by NJDEP) sufficient to eliminate the vapor intrusion pathway and protect the health and safety of building occupants.

(iii) Cooperation. MCB shall reasonably cooperate with Stonebridge in the installation and maintenance of any vapor mitigation system, including by providing access to the Premises during reasonable business hours and upon reasonable notice. However, Stonebridge shall schedule installation and maintenance activities so as to minimize disruption to MCB's operations, and any costs incurred by MCB as a result of such disruption shall be reimbursable under the landlord's indemnity provisions.

H. Compliance with Environmental Laws

The lease should include a standard mutual covenant by both parties to comply with all applicable federal, state, and local environmental laws, rules, regulations, ordinances, orders, and directives, including but not limited to the following:

• The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), 42 U.S.C. § 9601 et seq.;

• The Resource Conservation and Recovery Act, as amended ("RCRA"), 42 U.S.C. § 6901 et seq.;

• The Clean Water Act, 33 U.S.C. § 1251 et seq.;

• The Clean Air Act, 42 U.S.C. § 7401 et seq.;

• The New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq.;

• The New Jersey Industrial Site Recovery Act ("ISRA"), N.J.S.A. 13:1K-6 et seq.;

• The New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq.; and

• All regulations promulgated under any of the foregoing statutes.

ISRA Applicability. The applicability of the New Jersey Industrial Site Recovery Act to the proposed lease and to operations on the Premises should be addressed as a distinct provision in the lease. ISRA may be triggered by certain events, including a change in ownership of an "industrial establishment," a cessation of operations at an industrial establishment, or a change in use that constitutes a closure or transfer. If a triggering event occurs during the lease term — for example, if MCB ceases operations at the Premises or if Stonebridge sells the Cranbury Commerce Center — the responsible party must comply with ISRA's requirements, which may include conducting a preliminary assessment, site investigation, and remediation as required by NJDEP.

The lease should allocate ISRA compliance obligations as follows: Stonebridge, as property owner, should bear responsibility for ISRA compliance with respect to any conditions predating MCB's occupancy or arising from activities of prior tenants or the landlord. MCB should bear responsibility for ISRA compliance with respect to conditions arising from MCB's own operations during the lease term. The lease should also address the practical and financial obligations associated with ISRA compliance, including posting of financial assurance, if required by NJDEP, and the allocation of costs for preliminary assessments and site investigations triggered by lease expiration or assignment.

VI. Additional Recommendations

A. Phase II Environmental Site Assessment

Although the Phase I ESA did not identify any Recognized Environmental Conditions on the subject property, we recommend that MCB give serious consideration to commissioning a limited Phase II Environmental Site Assessment before execution of the lease. The purpose of a limited Phase II ESA would be to establish a pre-occupancy environmental baseline and to confirm, through direct sampling, the current absence of PCE migration onto the subject property from the adjacent Block 24, Lot 16 plume.

Specifically, we recommend that a limited Phase II ESA focus on the following scope:

(a) Groundwater Sampling. Installation and sampling of one or more temporary or permanent groundwater monitoring wells along the eastern boundary of the Premises — the boundary closest to Block 24, Lot 16 — to test for the presence of PCE and its degradation products (TCE, cis-1,2-DCE, vinyl chloride) in groundwater beneath the subject property.

(b) Sub-Slab Vapor Sampling. Collection and analysis of sub-slab soil vapor samples from beneath the building slab, particularly in the eastern portion of the building closest to Block 24, Lot 16, to assess whether volatile organic compounds associated with the PCE plume are present in soil vapor beneath the building at concentrations that could indicate a vapor intrusion risk.

A pre-lease baseline Phase II ESA would serve two important purposes. First, it would provide MCB with direct analytical data confirming the absence (or presence) of PCE in groundwater and soil vapor on the subject property, supplementing the record-review-based conclusions of the Phase I ESA. Second, if the baseline results confirm the absence of PCE on the Premises, those results would be highly valuable evidence in any future dispute regarding the source and timing of any contamination subsequently discovered on the property — supporting MCB's position that any such contamination was not caused by its operations.

The decision on whether to pursue a Phase II ESA should be made by Kevin Driscoll and Martin Solberg, in consultation with Angela Fontaine, considering the estimated cost (which Blackthorn may be able to provide upon request), the timing implications for the lease execution schedule, and the landlord's likely response. As a practical matter, landlord consent for invasive testing (drilling, well installation) on the Premises will likely need to be negotiated as a condition of the lease or pursuant to a separate access agreement. If Stonebridge resists granting consent for pre-lease Phase II testing, MCB's right to conduct testing during the lease term (as discussed in Section V.E above) becomes all the more important as a contractual safeguard.

B. Insurance Considerations

MCB's insurance program should be reviewed to confirm that it provides adequate coverage for environmental liabilities that may arise in connection with the Premises. MCB's current insurance is placed with Ridgeline Mutual Insurance Company, and we recommend coordinating with MCB's insurance broker and risk management team to evaluate the following:

(a) Commercial General Liability ("CGL") Policy. Standard CGL policies typically contain a "pollution exclusion" that excludes coverage for bodily injury, property damage, or cleanup costs arising from the release, discharge, or escape of pollutants. MCB should confirm the scope of the pollution exclusion in its current CGL policy and assess whether any coverage is available for environmental claims, including third-party claims related to contamination from off-site sources.

(b) Pollution Legal Liability ("PLL") Insurance. Given the proximity of the PCE plume on Block 24, Lot 16, MCB may wish to consider procuring a pollution legal liability insurance policy for the Premises. PLL policies are designed to cover environmental cleanup costs, third-party claims for bodily injury or property damage arising from pollution conditions, and in some cases, business interruption losses related to environmental events. A PLL policy could provide an additional layer of protection beyond the contractual indemnity from Stonebridge, particularly in the event that Stonebridge is unable or unwilling to honor its indemnification obligations.

(c) Landlord's Insurance. The lease should require Stonebridge to maintain environmental insurance covering its remediation and indemnity obligations, or at a minimum, to demonstrate financial capacity sufficient to satisfy those obligations.

We recommend that the insurance review be completed before lease execution and that any necessary policy endorsements or new policy placements be in effect as of the lease commencement date.

C. Title and Survey Review Coordination

The CEA on Block 24, Lot 16 may be reflected in certain title and survey records for the adjacent parcel and potentially for the subject property. A CEA is an institutional control that is filed as a deed notice with the county recording office (in this case, the Middlesex County Clerk's office) and may appear as a notation on surveys, title reports, or subdivision maps for adjacent parcels.

We should coordinate with any ongoing title review for the subject property to confirm the following:

(a) No environmental liens, deed restrictions, or institutional controls (including CEAs) encumber the subject property (Block 24, Lot 17.04).

(b) No notice of contamination or cleanup obligation has been filed against the subject property in the county recording office.

(c) If any environmental conditions affecting adjacent parcels are noted in the title report or survey for the subject property, those notations are consistent with the findings of the Phase I ESA and do not suggest environmental conditions more adverse than those described in the Report.

Additionally, if the CEA on Block 24, Lot 16 is modified or expanded in the future, any amended filing in the county recording office should be monitored to the extent practicable during the lease term.

VII. Conclusion

The results of the Phase I Environmental Site Assessment conducted by Blackthorn Environmental Consulting, Inc. (Report No. BEC-2022-0814, dated August 5, 2022) are generally favorable for MCB's proposed long-term lease of the Premises. No Recognized Environmental Conditions were identified on the subject property (Block 24, Lot 17.04), and the property appears to have a clean environmental history consistent with its use as a warehouse and distribution facility since construction in 2001.

The single Controlled Recognized Environmental Condition identified in the Report relates to a historic dry-cleaning operation on an adjacent parcel (Block 24, Lot 16), where a NJDEP-approved remedial action has resulted in the establishment of a Classification Exception Area for PCE in groundwater. The CEA does not currently extend onto the subject property. Nonetheless, the potential for future PCE plume migration represents a foreseeable environmental risk that should be addressed through appropriate contractual protections in the lease.

The primary environmental risk — potential PCE plume migration from Block 24, Lot 16 — is manageable through robust environmental lease provisions that allocate liability to the landlord for pre-existing and off-site environmental conditions. Specifically, we recommend (and have incorporated into the August 12, 2022 markup of the lease) the following key provisions:

• Environmental representations and warranties by the landlord;

• A broad, survival-protected environmental indemnity from the landlord covering pre-existing contamination and off-site migration;

• Landlord notice obligations regarding changes to the CEA and environmental conditions affecting the Premises;

• Tenant's right to conduct environmental testing at any time during the lease term;

• Clear allocation of remediation obligations, with rent abatement and termination rights if remediation materially disrupts MCB's operations;

• Vapor intrusion protections, including a landlord covenant to install mitigation systems if needed; and

• Mutual environmental compliance covenants, with specific ISRA compliance allocation.

These provisions remain subject to negotiation with Whitfield, Barr & Calloway LLP on behalf of Stonebridge. We anticipate that the environmental indemnity scope, the knowledge qualifiers on landlord representations, and the termination triggers may be contested, and we are prepared to support the negotiation with the findings of this memorandum and the Phase I ESA Report.

We additionally recommend that MCB consider commissioning a limited Phase II ESA focused on groundwater and sub-slab vapor sampling at the eastern boundary of the Premises, review its insurance program for adequacy of environmental coverage, and coordinate with any title and survey review to confirm the absence of environmental encumbrances on the subject property.

We are available to discuss these findings and recommendations at your convenience and look forward to your direction on next steps.

Attachment

Blackthorn Environmental Consulting, Inc., Phase I Environmental Site Assessment, Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (Block 24, Lot 17.04, Township of Cranbury, Middlesex County, NJ), Report No. BEC-2022-0814 (dated August 5, 2022). Full report maintained in the matter file, Calderwood & Harkness LLP, Matter No. 1011-00007.

This memorandum is a privileged and confidential attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of the client, Meridian Consumer Brands LLC, and authorized firm personnel. This memorandum does not constitute legal advice to any other party and may not be relied upon by any person or entity other than the named recipients without the prior written consent of Calderwood & Harkness LLP. Distribution, reproduction, or disclosure of this memorandum is strictly prohibited except as authorized by the firm.

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared by counsel at Calderwood & Harkness LLP and constitutes attorney work product. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and any other applicable privilege or immunity. This memorandum is intended solely for the use of the named recipients and may not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Cynthia Ho, Associate, Calderwood & Harkness LLP Angela Fontaine, Partner, Calderwood & Harkness LLP
FROM: Grace Nakamura, Associate, Calderwood & Harkness LLP
DATE: August 15, 2022
RE: Review of Phase I Environmental Site Assessment — Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (Block 24, Lot 17.04, Township of Cranbury, Middlesex County, NJ); Blackthorn Environmental Consulting, Inc. Report No. BEC-2022-0814 (dated August 5, 2022)
CLIENT: Meridian Consumer Brands LLC
MATTER NO.: 1011-00007
I. Executive Summary
Calderwood & Harkness LLP represents Meridian Consumer Brands LLC ("MCB" or "Client") in connection with the negotiation of a long-term lease for approximately 297,500 square feet of warehouse/distribution and office space at Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (the "Premises"), with Stonebridge Industrial Realty Trust, LP ("Stonebridge" or "Landlord"). The proposed transaction represents a significant operational commitment for MCB, as the Premises will serve as the consolidated hub for its East Coast distribution and fulfillment operations.
In connection with MCB's due diligence for this transaction, MCB retained Blackthorn Environmental Consulting, Inc. ("Blackthorn") to conduct a Phase I Environmental Site Assessment ("Phase I ESA" or "Report") of the Premises in accordance with ASTM Standard Practice E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process). The Report, bearing reference number BEC-2022-0814, was completed and dated August 5, 2022. This memorandum provides a detailed analysis of the Report's findings and sets forth recommendations for environmental risk allocation in the lease currently under negotiation.
Overall conclusion: The Phase I ESA identified no Recognized Environmental Conditions ("RECs") on the subject property (Block 24, Lot 17.04, Township of Cranbury, Middlesex County, New Jersey). This is a favorable result for MCB and indicates that the subject property does not present evidence of hazardous substance releases or conditions indicative of a release.
However, the Report did identify one Controlled Recognized Environmental Condition ("CREC") in connection with a historic dry-cleaning operation on an adjacent parcel — specifically, Block 24, Lot 16, located to the northeast of the subject property. That adjacent parcel has a Classification Exception Area ("CEA") established by the New Jersey Department of Environmental Protection ("NJDEP") for tetrachloroethylene ("PCE") in groundwater. Based on NJDEP records reviewed by Blackthorn, the CEA does not currently extend onto the subject property. Nonetheless, Blackthorn noted the potential for future plume migration and flagged the condition as warranting attention by the prospective tenant.
This memorandum: (a) summarizes the Report's key findings in detail; (b) assesses the environmental risks presented to MCB in the context of the proposed long-term lease; and (c) recommends specific environmental provisions for incorporation into the lease to protect MCB's interests. These recommendations include, among other things, landlord environmental representations and warranties, a broad landlord indemnification for pre-existing conditions and off-site contaminant migration, notice obligations regarding changes to the CEA boundaries, tenant rights to conduct environmental testing, vapor intrusion protections, and remediation and rent abatement provisions. Many of these provisions have been incorporated into Calderwood & Harkness's first markup of the Stonebridge lease delivered on August 12, 2022, and are expected to be a focus of upcoming negotiations with Stonebridge's counsel, Whitfield, Barr & Calloway LLP.
II. Background
A. The Property
The subject property is Building 4, Cranbury Commerce Center, located at 200 Prospect Plains Road, Cranbury, NJ 08512. The property is designated as Block 24, Lot 17.04 on the tax map of the Township of Cranbury, Middlesex County, New Jersey.
Building 4 comprises approximately 285,000 square feet of warehouse and distribution space and approximately 12,500 square feet of finished office and mezzanine space, totaling approximately 297,500 square feet of rentable area. The building was originally constructed in 2001 as a speculative industrial/distribution facility and has been used for warehouse and distribution purposes throughout its operational history.
The Cranbury Commerce Center is a 62-acre, four-building industrial park situated along Prospect Plains Road in the Township of Cranbury. The park was acquired by Stonebridge Industrial Realty Trust, LP in 2019 for approximately $78 million. Since acquisition, Stonebridge has invested in capital improvements to the park's buildings, including a full roof replacement and HVAC system upgrade for Building 4 completed in 2020. These improvements are consistent with Stonebridge's repositioning of the park for modern logistics and distribution tenants.
Stonebridge Industrial Realty Trust, LP is a Maryland limited partnership managed by its general partner, Stonebridge Industrial GP LLC, a Maryland limited liability company. Stonebridge is a privately held industrial real estate investment platform with a portfolio concentrated in the Mid-Atlantic and Northeast corridors.
B. The Proposed Transaction
MCB is negotiating a ten-year lease for the Premises with aggregate base rent of approximately $12,000,000 (pre-escalation). The letter of intent for the transaction (LOI-2022-CCC-B4) was executed on June 22, 2022, by authorized representatives of MCB and Stonebridge. Following execution of the LOI, Stonebridge's outside counsel, Whitfield, Barr & Calloway LLP, delivered the landlord's first draft of the proposed lease agreement on July 18, 2022. Calderwood & Harkness LLP prepared and delivered its first markup of the lease on August 12, 2022, which incorporated, among other revisions, the environmental provisions recommended in this memorandum.
MCB intends to use the Premises to consolidate its East Coast distribution and fulfillment operations, which are currently conducted from a leased facility at 15 Kilmer Road, Edison, NJ 08817. The existing lease at the Edison facility expires in February 2024, and MCB has targeted a commencement date for the Cranbury lease that will allow adequate time for build-out, systems installation, and operational transition from the Edison location. Given the operational significance of this relocation and the length of the proposed lease term, comprehensive environmental due diligence is warranted to ensure that MCB does not inherit or become exposed to environmental liabilities associated with the Premises or surrounding properties.
C. Scope of the Phase I ESA
The Phase I ESA was conducted by Blackthorn Environmental Consulting, Inc., a New Jersey corporation with offices at 75 Livingston Avenue, Suite 400, Roseland, NJ 07068. Blackthorn is a licensed environmental consulting firm with experience in site assessments for commercial and industrial properties in New Jersey and the broader Mid-Atlantic region. The assessment was performed under the direction of Katherine M. Ferraro, PG, LSRP, a Licensed Site Remediation Professional with the State of New Jersey.
The Report bears reference number BEC-2022-0814 and is dated August 5, 2022. The assessment was performed in accordance with ASTM Standard Practice E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process), the current edition of the industry-standard methodology for Phase I environmental due diligence. ASTM E1527-21 defines the process by which a user (here, MCB) satisfies one of the requirements of the "all appropriate inquiries" standard under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, and thereby may qualify for certain protections from CERCLA liability, including the innocent landowner, contiguous property owner, and bona fide prospective purchaser defenses.
The scope of the Phase I ESA included the following components:
(a) Records Review. Blackthorn conducted a review of federal, state, and local environmental database records, including records maintained by the United States Environmental Protection Agency ("EPA") and the NJDEP. The database search was performed by Penrose Solutions ("EDR") and encompassed the standard ASTM-prescribed search radii for each database. The databases reviewed included, among others, the EPA National Priorities List ("NPL" or "Superfund"), RCRA CORRACTS and RCRA non-CORRACTS Treatment, Storage, and Disposal Facilities, the CERCLIS/SEMS database, the NJ Known Contaminated Sites List, the NJDEP Site Remediation Program database, and various other federal and state listings.
(b) Historical Use Review. Blackthorn reviewed historical aerial photographs (dating from 1940 through 2021), Trelwick fire insurance maps (where available), city and township directories, and historical topographic maps to document the historical uses of the subject property and surrounding properties.
(c) Site Reconnaissance. Blackthorn conducted a physical inspection of the subject property and observable portions of adjacent properties on July 27, 2022. The site reconnaissance included an inspection of the building exterior and interior, loading docks, parking areas, surrounding grounds, and observable features of adjacent parcels.
(d) Interviews. Blackthorn conducted interviews with representatives of the current property owner and property manager, including Paul Osterman, Asset Manager for Stonebridge, and Lisa Chen, Property Manager for Cranbury Commerce Center, to obtain information about the property's history, current operations, and any known environmental conditions.
(e) Evaluation of Adjoining Properties. Consistent with ASTM E1527-21, Blackthorn evaluated the uses and environmental conditions of adjoining and nearby properties within the standard search radii to identify potential off-site sources of contamination that could affect the subject property.
The Report notes certain standard limitations on the Phase I ESA scope, including that the assessment did not involve subsurface investigation, sampling, or laboratory analysis of soil, groundwater, soil vapor, or building materials. The assessment also does not address certain non-ASTM scope considerations, including asbestos, lead-based paint, radon, mold, wetlands, or indoor air quality, except to the extent that such conditions were incidentally observed during the site reconnaissance.
III. Summary of Phase I ESA Findings
A. Site History and Current Use
Blackthorn's historical research confirmed that Building 4 at the Cranbury Commerce Center has been used for warehouse and distribution purposes since its original construction in 2001. The Report found no evidence that any manufacturing, chemical storage, hazardous materials handling, or other environmentally sensitive operations have been conducted on the subject property at any time based on available records. The facility's historical tenants (identified through interviews and property management records) have used the building exclusively for warehousing, logistics, and distribution activities.
Prior to development of the Cranbury Commerce Center in 2001, the subject property and the broader 62-acre park site consisted of undeveloped agricultural farmland. Historical aerial photographs from 1940 through the late 1990s consistently depict the site as open agricultural land without structures, tanks, or other improvements. No evidence of pesticide storage, mixing, or application facilities was identified in the historical record, though it should be noted that agricultural use in New Jersey during the mid-twentieth century may have involved the application of pesticides and herbicides that are now regulated substances. However, Blackthorn did not identify any evidence suggesting that such agricultural activities on this particular parcel rose to the level of a recognizable environmental condition under ASTM E1527-21.
No underground storage tanks ("USTs") or aboveground storage tanks ("ASTs") were identified on the subject property, either currently or historically. No evidence of former tank locations (such as vent pipes, fill ports, or disturbed soil consistent with tank removal) was observed during the site reconnaissance. Stonebridge representatives confirmed that no tanks have been present on the subject property during Stonebridge's period of ownership (2019 to present), and Blackthorn's review of NJDEP UST registration records did not identify any registered tanks at the subject property address.
Stonebridge's 2020 renovation of Building 4, which included a complete roof membrane replacement and HVAC system upgrade, did not involve activities that would be expected to introduce environmental contamination. The renovation was confined to the building envelope and mechanical systems and did not involve excavation, demolition, or disturbance of subsurface conditions.
B. Recognized Environmental Conditions (RECs)
Finding: No Recognized Environmental Conditions were identified on the subject property.
Blackthorn's assessment did not identify any RECs at or affecting the subject property (Block 24, Lot 17.04). Under ASTM E1527-21, a "Recognized Environmental Condition" is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (i) due to a release to the environment; (ii) under conditions indicative of a release to the environment; or (iii) under conditions that pose a material threat of a future release to the environment. The absence of RECs on the subject property indicates that Blackthorn's review of environmental records, historical information, site conditions, and adjoining property uses did not reveal evidence meeting this standard.
This finding is consistent with the property's history of use exclusively for warehouse and distribution operations, the absence of tanks and chemical storage or handling activities, and the relatively recent construction date of the building (2001). The finding provides a favorable environmental baseline for MCB's proposed occupancy.
C. Controlled Recognized Environmental Condition (CREC)
Finding: One Controlled Recognized Environmental Condition was identified in connection with an adjacent parcel.
The sole environmental condition of significance identified in the Report relates to a historic dry-cleaning operation on Block 24, Lot 16, Township of Cranbury, Middlesex County, New Jersey, which is located to the northeast of the subject property. The key details of this finding are as follows:
Adjacent Parcel. Block 24, Lot 16 is located immediately to the northeast of the subject property (Block 24, Lot 17.04). The two parcels share a general proximity within the Cranbury area, and the environmental conditions on Block 24, Lot 16 are within the ASTM-prescribed search radius for the subject property. It should be noted that Block 24, Lot 16 is not owned by Stonebridge and is not part of the Cranbury Commerce Center.
Historic Use. Block 24, Lot 16 was historically used as a commercial property that included a dry-cleaning operation. Based on available records reviewed by Blackthorn, the dry-cleaning facility is no longer in operation. The specific dates of operation and cessation of the dry-cleaning business were not definitively established in the Report, though Blackthorn's historical research indicates the facility was active during the 1980s and 1990s.
Contaminant of Concern. Tetrachloroethylene ("PCE," also known as perchloroethylene or "perc"), a chlorinated volatile organic compound ("CVOC") commonly associated with dry-cleaning operations, was detected in groundwater beneath Block 24, Lot 16. PCE is a widely recognized environmental contaminant that is regulated under both federal and New Jersey environmental laws. It is classified as a probable human carcinogen and is subject to stringent cleanup standards in groundwater under NJDEP regulations.
NJDEP Classification Exception Area (CEA). A Classification Exception Area has been established by the NJDEP for PCE contamination in groundwater on Block 24, Lot 16. Under NJDEP regulations, a CEA is an institutional control that designates an area of groundwater where contamination exceeds applicable groundwater quality standards. Within a CEA, the use of groundwater is restricted, and the contaminated groundwater is reclassified to allow the contamination to remain in place while natural attenuation or other long-term remedial processes occur. A CEA is typically established as part of a remedial action that has been approved by the NJDEP, where active remediation has been completed but residual contamination remains above applicable standards.
Extent of CEA. Based on NJDEP records and CEA mapping reviewed by Blackthorn, the CEA does not extend onto the subject property (Block 24, Lot 17.04). The CEA boundaries are delineated on Block 24, Lot 16 and potentially extend onto portions of intervening parcels between Lot 16 and the subject property, but the mapping reviewed by Blackthorn confirms that the subject property lies outside the delineated CEA boundary. Blackthorn verified this finding through review of the NJDEP's Geographic Information System ("GIS") data, the CEA description filed with the Middlesex County Clerk's office, and the NJDEP Site Remediation Program case file for the Block 24, Lot 16 contamination case.
Blackthorn's Assessment. Under ASTM E1527-21, a Controlled Recognized Environmental Condition is defined as a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority, with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (such as property use restrictions or engineering controls). Blackthorn characterized the PCE contamination on Block 24, Lot 16 as a CREC because the release has been addressed through a NJDEP-approved remedial action with the CEA serving as the institutional control, but residual contamination (PCE in groundwater above applicable standards) remains in place.
While the CREC relates to the adjacent parcel and not the subject property itself, Blackthorn included this finding in the Report due to the proximity of Block 24, Lot 16 to the subject property and the potential for future migration of the PCE groundwater plume. Blackthorn noted that PCE plume behavior is influenced by hydrogeological conditions, including groundwater flow direction and velocity, and that the direction and extent of plume migration could change over time. Blackthorn recommended that the user of the Report (MCB) consider this condition in its evaluation of the subject property and consult with legal counsel regarding appropriate risk allocation measures.
D. Historical Recognized Environmental Conditions (HRECs)
Finding: No Historical Recognized Environmental Conditions were identified on the subject property.
The Report did not identify any past releases of hazardous substances or petroleum products on the subject property that were subsequently investigated and remediated or otherwise addressed to the satisfaction of a regulatory authority. The absence of HRECs is consistent with the property's clean operational history and the absence of any prior environmental investigation or remediation activity at the site.
E. De Minimis Conditions and Other Observations
Blackthorn's site reconnaissance identified two minor de minimis conditions that do not rise to the level of RECs under ASTM E1527-21:
(i) Stained Concrete at Loading Dock No. 12. A small area of stained concrete was observed in the warehouse area near loading dock No. 12. The staining appeared consistent with minor hydraulic fluid leakage from forklift or other material-handling equipment operations, which is a common and expected condition in warehouse and distribution facilities. Blackthorn determined that this condition was not indicative of a release to the environment, as the staining was limited to the concrete slab surface, there was no evidence of penetration through the slab, and no free-phase liquid or sheen was observed. This condition does not constitute a REC.
(ii) Janitorial Chemical Storage. Limited quantities of janitorial and cleaning chemicals (floor cleaners, glass cleaners, and similar products) were observed in a utility closet within the office mezzanine area. The materials were properly stored in their original containers, appropriately labeled, and maintained in quantities consistent with normal building maintenance operations. The storage conditions appeared to comply with applicable regulations. This condition does not constitute a REC.
Blackthorn additionally noted that no evidence of mold, asbestos-containing materials, lead-based paint, or elevated radon levels was observed during the site reconnaissance. However, the Report emphasizes that these conditions are outside the scope of ASTM E1527-21, and Blackthorn's observations regarding these matters were incidental to the Phase I ESA and should not be relied upon as a comprehensive assessment of these non-scope considerations. The building was constructed in 2001, which post-dates the widespread use of asbestos in building materials and the 1978 federal ban on lead-based paint in residential applications, reducing the likelihood that these materials are present.
F. Regulatory Database Review
Blackthorn's review of federal, state, and local environmental database records yielded the following results relevant to the subject property and its surroundings:
Subject Property (Block 24, Lot 17.04). The subject property does not appear on any federal or state environmental database as a site with known contamination or environmental regulatory activity. Specifically, the subject property is not listed on the following databases (among others reviewed):
• EPA National Priorities List (NPL/Superfund)
• EPA RCRA CORRACTS Facilities
• EPA RCRA non-CORRACTS Treatment, Storage, and Disposal Facilities
• EPA CERCLIS/SEMS (Superfund Enterprise Management System)
• NJ Known Contaminated Sites List
• NJDEP Site Remediation Program database
• NJDEP Underground Storage Tank Registration database
• EPA Emergency Response Notification System (ERNS)
Adjacent Parcel — Block 24, Lot 16. Block 24, Lot 16 (the adjacent parcel with the former dry-cleaning operation) does appear on the NJ Known Contaminated Sites List and in the NJDEP Site Remediation Program database. The listing relates to the PCE groundwater contamination and the established CEA discussed in Section III.C above. The NJDEP case file indicates that a remedial investigation was completed, a remedial action workplan was approved, active remediation (including groundwater extraction and treatment) was conducted and subsequently discontinued upon achievement of certain performance milestones, and the CEA was established as the long-term institutional control for residual groundwater contamination. The case status in the NJDEP database indicates that the remediation is in the "post-remediation monitoring" phase, with periodic groundwater sampling required to assess plume stability and attenuation.
Other Adjacent and Nearby Properties. No other properties within the ASTM-prescribed search radii were identified on the reviewed environmental databases as having environmental conditions that would constitute RECs for the subject property. The Cranbury Commerce Center's other buildings and parcels (including Block 24, Lot 17.05 and other lots owned by Stonebridge) did not appear on environmental contamination databases.
IV. Risk Assessment and Implications for Lease Negotiations
A. Overall Environmental Risk Assessment
The absence of Recognized Environmental Conditions on the subject property is a favorable and significant finding for MCB. The Phase I ESA results indicate that the property has a clean environmental history that is consistent with its documented use as a warehouse and distribution facility since original construction in 2001, preceded by agricultural use. No releases of hazardous substances or petroleum products have been identified on the subject property, and the property does not appear on any federal or state environmental database as a contaminated site or a site subject to regulatory action.
The principal environmental risk to MCB in connection with the proposed lease relates to the Controlled Recognized Environmental Condition identified on adjacent Block 24, Lot 16 — specifically, the potential for the PCE groundwater plume originating from the former dry-cleaning operation on that parcel to migrate toward or beneath the subject property in the future. While this risk is currently characterized as a potential rather than actual condition affecting the Premises, the long-term nature of the proposed lease (ten years, with potential renewal periods) increases the significance of this risk and warrants careful attention in the lease documentation.
Additionally, the overall favorable condition of the property means that MCB has a strong negotiating position with respect to environmental provisions in the lease. MCB can credibly argue that it is entering a clean facility and should not bear the risk of any environmental conditions not of its own making.
B. PCE Plume Migration Risk
The risk of PCE plume migration from Block 24, Lot 16 toward the subject property warrants detailed consideration. Tetrachloroethylene is a dense non-aqueous phase liquid ("DNAPL") — a chlorinated solvent that is denser than water and can migrate vertically downward through the water table and laterally along the base of an aquifer or confining layer. PCE and its degradation products (including trichloroethylene, or TCE; cis-1,2-dichloroethylene; and vinyl chloride — each of which is also a regulated contaminant) are known to be persistent in the subsurface environment and can form extensive groundwater plumes that travel considerable distances from the original source area, depending on site-specific hydrogeological conditions.
The behavior of a PCE plume in groundwater is dependent on a number of hydrogeological factors, including the direction and velocity of groundwater flow, the permeability and heterogeneity of subsurface soils and aquifer materials, the presence or absence of preferential flow pathways, and the ongoing dissolution of any residual DNAPL source material. These conditions may change over time due to natural processes, changes in regional pumping patterns (e.g., nearby municipal or industrial wells), or seasonal variation in groundwater levels. Accordingly, the fact that the CEA does not currently extend onto the subject property does not provide assurance that future NJDEP monitoring or reassessment will not result in an expansion of the CEA boundaries or a finding that the plume has migrated onto the Premises.
If PCE contamination were to migrate onto the subject property — or if the CEA were expanded by NJDEP to include any portion of the subject property — the potential consequences for MCB could include:
(i) Restrictions on Groundwater Use. Although MCB's warehouse and distribution operations are expected to rely exclusively on the municipal water supply (Beaumont Partners LLC) and not on any on-site groundwater wells, the inclusion of the subject property within a CEA could impose restrictions that affect future use flexibility and could create complications in the event of any future transaction involving the property or MCB's leasehold interest.
(ii) Vapor Intrusion Concerns. PCE is a volatile organic compound that can volatilize from contaminated groundwater and migrate upward through the subsurface as soil vapor, potentially entering buildings through cracks in slabs, utility penetrations, and other pathways. This process, known as vapor intrusion, can result in indoor air concentrations of PCE that exceed NJDEP vapor intrusion screening levels and could pose health risks to building occupants. If PCE were detected in groundwater beneath the subject property, NJDEP would likely require a vapor intrusion investigation, and if a complete vapor intrusion pathway were identified, mitigation measures (such as sub-slab depressurization systems) could be required. Such requirements could disrupt MCB's operations and impose costs.
(iii) Property Stigma. The association of the Premises with a groundwater contamination plume — even one originating from an off-site source — could negatively affect the perceived value and utility of MCB's leasehold interest, potentially impairing MCB's ability to assign the lease or sublet portions of the Premises in the future. Property stigma related to environmental contamination is a well-recognized phenomenon in commercial real estate transactions.
(iv) Regulatory Requirements. If contamination is identified on or beneath the Premises, MCB could become subject to regulatory inquiries, reporting obligations, or other requirements imposed by NJDEP, even though MCB would not be responsible for the contamination. Under the New Jersey Spill Compensation and Control Act, any person who is "in any way responsible" for a discharge of a hazardous substance can be held liable, though innocent tenants generally have defenses available. Nonetheless, regulatory engagement can be costly and disruptive to business operations.
These risks, while not certain to materialize, are sufficiently foreseeable over the ten-year term of the proposed lease that they should be addressed through robust environmental provisions in the lease agreement.
C. Landlord's Knowledge and Disclosure Obligations
Given that Stonebridge owns the entire Cranbury Commerce Center, including parcels in close proximity to Block 24, Lot 16, Stonebridge is likely to have knowledge of the environmental conditions on the adjacent parcel and the existence of the CEA. Indeed, Stonebridge's acquisition due diligence for its 2019 purchase of the Cranbury Commerce Center for approximately $78 million would, in the ordinary course, have included environmental assessments that identified the adjacent parcel conditions.
The lease should require Stonebridge to represent and warrant its knowledge of existing environmental conditions on the subject property and on adjacent parcels that Stonebridge owns or controls within the Cranbury Commerce Center. Stonebridge should be specifically required to confirm its awareness of the CEA on Block 24, Lot 16, to disclose all environmental reports, assessments, and correspondence with regulatory authorities in its possession relating to the Premises and the Commerce Center, and to provide ongoing disclosure of any new environmental information that comes to its attention during the lease term. If Stonebridge is aware of any monitoring data, groundwater sampling results, or communications with NJDEP regarding the PCE plume that were not available to Blackthorn during the Phase I ESA process, such information should be requested and reviewed before lease execution.
V. Recommended Lease Provisions — Environmental Risk Allocation
Based on the findings of the Phase I ESA and the risk assessment set forth above, the following environmental provisions are recommended for incorporation into the lease. As noted, many of these provisions have been included in Calderwood & Harkness's first markup of the lease delivered on August 12, 2022, and will be the subject of negotiation with Stonebridge's counsel.
A. Environmental Representations and Warranties by Landlord
The lease should include affirmative environmental representations and warranties by Stonebridge, including the following:
(i) To the best of landlord's knowledge, no hazardous substances (as defined by applicable environmental laws, including CERCLA, the New Jersey Spill Compensation and Control Act, and the regulations promulgated thereunder) have been released, discharged, or disposed of on, in, or under the Premises, except as disclosed in the Phase I ESA or otherwise disclosed in writing to tenant.
(ii) The Premises are not subject to any pending or, to landlord's knowledge, threatened environmental claims, suits, actions, proceedings, investigations, liens, or regulatory actions by any governmental authority or third party.
(iii) Landlord has disclosed to tenant all environmental reports, investigations, assessments, correspondence with regulatory authorities, and other environmental documents in landlord's possession, custody, or control relating to the Premises and the Cranbury Commerce Center, including but not limited to any Phase I or Phase II environmental site assessments obtained in connection with landlord's acquisition of the Commerce Center in 2019.
(iv) Landlord is aware of the Classification Exception Area established by NJDEP for PCE contamination in groundwater on Block 24, Lot 16, Township of Cranbury, Middlesex County, New Jersey, and confirms that, to landlord's knowledge and based on available NJDEP records, the CEA does not extend onto the Premises (Block 24, Lot 17.04) as of the lease commencement date.
These representations and warranties should survive the commencement of the lease term and should be deemed to be remade as of the commencement date. Any material breach of these representations should give rise to tenant remedies, including indemnification and, in the case of a materially misleading representation, a right to terminate.
B. Landlord's Environmental Indemnity
The lease should include a broad environmental indemnity from Stonebridge in favor of MCB. The indemnity should cover the following categories of environmental liabilities:
(i) Pre-Existing Contamination. Any environmental contamination on, in, or under the Premises that existed prior to the commencement of MCB's occupancy, or that arises from conditions predating MCB's occupancy, whether known or unknown as of the commencement date. This includes, without limitation, any contamination that may be discovered in the future but that is attributable to activities or conditions predating the lease term.
(ii) Off-Site Migration. Any contamination that migrates onto, in, or under the Premises from off-site sources at any time during the lease term, specifically including but not limited to the PCE contamination originating from the former dry-cleaning operation on Block 24, Lot 16, and any degradation products thereof (including trichloroethylene, cis-1,2-dichloroethylene, vinyl chloride, and any other related compounds).
(iii) Indemnified Losses. All costs, liabilities, damages, claims, suits, actions, judgments, fines, penalties, remediation expenses (including investigation, assessment, removal, and remedial action costs), monitoring costs, attorney's fees and expenses, consultant fees and expenses, and other losses and expenses arising from or related to the conditions described in clauses (i) and (ii) above.
The landlord's environmental indemnity should expressly survive the expiration or earlier termination of the lease for a period to be negotiated (we recommend an unlimited survival period, though Stonebridge may seek to limit survival to a period of years). We further recommend that the landlord's indemnity be absolute — that is, it should not be qualified by a "to landlord's knowledge" limitation. The rationale is straightforward: pre-existing contamination and off-site migration are conditions within the landlord's sphere of responsibility as the property owner, and the tenant should not bear the risk of unknown pre-existing conditions or contamination caused by neighboring parcels. The landlord is better positioned to assess and control these risks through its ownership of the Premises and the broader Commerce Center.
C. Tenant's Environmental Obligations and Covenants
MCB should affirmatively covenant in the lease that it will not use, store, generate, treat, dispose of, or release hazardous substances on, in, or under the Premises, except in compliance with all applicable federal, state, and local environmental laws, regulations, and ordinances, and only in quantities and types customary for warehouse and distribution operations. Permitted uses would include, for example, the storage and use of janitorial and cleaning supplies, limited quantities of maintenance chemicals (e.g., lubricants for material-handling equipment), and other de minimis quantities of materials incidental to warehouse operations, provided that all such materials are properly stored, labeled, handled, and disposed of in accordance with applicable law.
MCB should provide a reciprocal indemnity to Stonebridge covering environmental contamination caused solely by MCB's own operations on the Premises during the lease term. This tenant indemnity should be appropriately scoped to cover only contamination that is directly attributable to MCB's activities and should expressly exclude any liability for pre-existing contamination, off-site migration, or conditions not caused by MCB. The clear delineation between landlord and tenant environmental responsibilities is essential to avoiding disputes during or after the lease term.
D. Landlord's Notice Obligations Regarding CEA Changes
Given the significance of the CEA on adjacent Block 24, Lot 16 and the potential for changes to the CEA that could affect the Premises, the lease should include a robust affirmative notice covenant by Stonebridge. Specifically, Stonebridge should be required to promptly notify MCB in writing of each of the following events or circumstances:
(i) Any change in the boundaries of the CEA on Block 24, Lot 16, including without limitation any expansion of the CEA that would encompass any portion of the Premises, the Cranbury Commerce Center, or parcels adjacent to or underlying the Premises.
(ii) Any new environmental investigation, remediation activity, or regulatory action affecting the Premises, the Cranbury Commerce Center, or adjacent parcels owned or controlled by Stonebridge, including but not limited to any activity conducted by NJDEP, the responsible party for the Block 24, Lot 16 contamination, or any other governmental or private entity.
(iii) Any discovery of hazardous substances on, in, or under the Premises that was not previously known or disclosed, including any discovery made during construction, renovation, maintenance, or other activities on the Premises or the Commerce Center.
(iv) Any communication, correspondence, notice, order, directive, or other document received by Stonebridge from NJDEP or any other federal, state, or local regulatory authority concerning the PCE contamination on Block 24, Lot 16, the CEA, or any environmental condition that relates to or could reasonably be expected to affect the Premises.
This ongoing notice obligation should be a continuing covenant throughout the lease term and any renewal or extension periods. Failure to provide timely notice should constitute a default under the lease, entitling MCB to exercise its remedies, including, at a minimum, the right to conduct its own investigation and to seek reimbursement from Stonebridge for the costs thereof.
E. Tenant's Right to Conduct Environmental Testing
The lease should reserve to MCB the right — but not the obligation — to conduct environmental testing on the Premises at any time during the lease term. This right should include, without limitation, the right to:
(a) Conduct Phase II environmental site assessments, including soil sampling, groundwater sampling, and soil vapor/sub-slab vapor sampling;
(b) Conduct vapor intrusion assessments, including indoor air sampling and sub-slab vapor sampling;
(c) Install groundwater monitoring wells or soil vapor monitoring points on the Premises; and
(d) Engage environmental consultants, drilling contractors, and laboratories of MCB's choosing to perform the foregoing activities.
Environmental testing conducted by MCB should be at MCB's expense, subject to the following qualification: if any such testing reveals the presence of hazardous substances or contamination on, in, or under the Premises that was not caused by MCB's operations, the costs of such testing and all subsequent investigation and remediation costs attributable to such contamination should be borne by Stonebridge under the environmental indemnity provisions described in Section V.B above.
MCB should be required to provide Stonebridge with reasonable prior written notice (e.g., ten business days) before commencing any invasive testing activities (e.g., drilling or sampling) on the Premises, and MCB should be required to restore any disturbed areas to their pre-testing condition. Stonebridge's consent to such testing should not be unreasonably withheld, conditioned, or delayed.
F. Remediation Obligations
The lease should clearly and unambiguously allocate responsibility for environmental remediation as follows:
Landlord's Remediation Obligations. Stonebridge shall be solely responsible for the investigation, remediation, and closure of: (a) any pre-existing environmental contamination on, in, or under the Premises; and (b) any contamination migrating onto, in, or under the Premises from off-site sources, including without limitation the PCE plume originating from Block 24, Lot 16. All remediation shall be conducted in accordance with applicable NJDEP standards and regulations, at landlord's sole cost and expense, and in a manner that minimizes disruption to tenant's operations.
Tenant's Remediation Obligations. MCB shall be solely responsible for the investigation, remediation, and closure of any environmental contamination on, in, or under the Premises that arises from MCB's own operations during the lease term.
In the event that remediation activities are required on the Premises due to the PCE plume or other off-site contamination migration, and such remediation activities materially interfere with MCB's use, occupancy, or enjoyment of all or a substantial portion of the Premises, the lease should provide MCB with the following protections:
(a) Rent Abatement. MCB shall be entitled to an equitable abatement of base rent and additional rent during the period in which the remediation activities materially interfere with MCB's operations. The abatement should be proportional to the portion of the Premises rendered unusable or materially impaired by the remediation activities.
(b) Termination Right. If the material interference with MCB's use and occupancy continues for a period exceeding one hundred eighty (180) consecutive days, MCB shall have the right to terminate the lease upon written notice to Stonebridge, without penalty, liability, or obligation to pay any early termination fee or damages. Upon such termination, Stonebridge's indemnity obligations shall survive and MCB shall be entitled to recover all costs, expenses, and damages incurred as a result of the environmental condition and the resulting disruption, including relocation costs.
G. Vapor Intrusion Provisions
Given the proximity of the PCE groundwater plume on Block 24, Lot 16 and the potential for plume migration toward the subject property, vapor intrusion risk should be specifically addressed in the lease. Vapor intrusion — the migration of volatile organic compounds from contaminated soil and/or groundwater into overlying buildings through cracks, joints, and penetrations in the building slab and foundation — is a recognized exposure pathway for PCE and its degradation products.
We recommend the following vapor intrusion provisions:
(i) Landlord Representation. Stonebridge should represent that, to the best of its knowledge, no vapor intrusion pathway has been identified on the Premises, no vapor intrusion investigation has been conducted on the Premises, and no regulatory authority has required or recommended a vapor intrusion assessment for the Premises.
(ii) Landlord Covenant — Vapor Mitigation. If, at any time during the lease term, a vapor intrusion pathway is identified on the Premises — whether through environmental testing conducted by MCB, testing conducted by Stonebridge, or a directive issued by NJDEP or any other regulatory authority — Stonebridge shall, at its sole cost and expense, promptly design, install, and maintain a vapor mitigation system (such as a sub-slab depressurization system or other system approved by NJDEP) sufficient to eliminate the vapor intrusion pathway and protect the health and safety of building occupants.
(iii) Cooperation. MCB shall reasonably cooperate with Stonebridge in the installation and maintenance of any vapor mitigation system, including by providing access to the Premises during reasonable business hours and upon reasonable notice. However, Stonebridge shall schedule installation and maintenance activities so as to minimize disruption to MCB's operations, and any costs incurred by MCB as a result of such disruption shall be reimbursable under the landlord's indemnity provisions.
H. Compliance with Environmental Laws
The lease should include a standard mutual covenant by both parties to comply with all applicable federal, state, and local environmental laws, rules, regulations, ordinances, orders, and directives, including but not limited to the following:
• The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), 42 U.S.C. § 9601 et seq.;
• The Resource Conservation and Recovery Act, as amended ("RCRA"), 42 U.S.C. § 6901 et seq.;
• The Clean Water Act, 33 U.S.C. § 1251 et seq.;
• The Clean Air Act, 42 U.S.C. § 7401 et seq.;
• The New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq.;
• The New Jersey Industrial Site Recovery Act ("ISRA"), N.J.S.A. 13:1K-6 et seq.;
• The New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq.; and
• All regulations promulgated under any of the foregoing statutes.
ISRA Applicability. The applicability of the New Jersey Industrial Site Recovery Act to the proposed lease and to operations on the Premises should be addressed as a distinct provision in the lease. ISRA may be triggered by certain events, including a change in ownership of an "industrial establishment," a cessation of operations at an industrial establishment, or a change in use that constitutes a closure or transfer. If a triggering event occurs during the lease term — for example, if MCB ceases operations at the Premises or if Stonebridge sells the Cranbury Commerce Center — the responsible party must comply with ISRA's requirements, which may include conducting a preliminary assessment, site investigation, and remediation as required by NJDEP.
The lease should allocate ISRA compliance obligations as follows: Stonebridge, as property owner, should bear responsibility for ISRA compliance with respect to any conditions predating MCB's occupancy or arising from activities of prior tenants or the landlord. MCB should bear responsibility for ISRA compliance with respect to conditions arising from MCB's own operations during the lease term. The lease should also address the practical and financial obligations associated with ISRA compliance, including posting of financial assurance, if required by NJDEP, and the allocation of costs for preliminary assessments and site investigations triggered by lease expiration or assignment.
VI. Additional Recommendations
A. Phase II Environmental Site Assessment
Although the Phase I ESA did not identify any Recognized Environmental Conditions on the subject property, we recommend that MCB give serious consideration to commissioning a limited Phase II Environmental Site Assessment before execution of the lease. The purpose of a limited Phase II ESA would be to establish a pre-occupancy environmental baseline and to confirm, through direct sampling, the current absence of PCE migration onto the subject property from the adjacent Block 24, Lot 16 plume.
Specifically, we recommend that a limited Phase II ESA focus on the following scope:
(a) Groundwater Sampling. Installation and sampling of one or more temporary or permanent groundwater monitoring wells along the eastern boundary of the Premises — the boundary closest to Block 24, Lot 16 — to test for the presence of PCE and its degradation products (TCE, cis-1,2-DCE, vinyl chloride) in groundwater beneath the subject property.
(b) Sub-Slab Vapor Sampling. Collection and analysis of sub-slab soil vapor samples from beneath the building slab, particularly in the eastern portion of the building closest to Block 24, Lot 16, to assess whether volatile organic compounds associated with the PCE plume are present in soil vapor beneath the building at concentrations that could indicate a vapor intrusion risk.
A pre-lease baseline Phase II ESA would serve two important purposes. First, it would provide MCB with direct analytical data confirming the absence (or presence) of PCE in groundwater and soil vapor on the subject property, supplementing the record-review-based conclusions of the Phase I ESA. Second, if the baseline results confirm the absence of PCE on the Premises, those results would be highly valuable evidence in any future dispute regarding the source and timing of any contamination subsequently discovered on the property — supporting MCB's position that any such contamination was not caused by its operations.
The decision on whether to pursue a Phase II ESA should be made by Kevin Driscoll and Martin Solberg, in consultation with Angela Fontaine, considering the estimated cost (which Blackthorn may be able to provide upon request), the timing implications for the lease execution schedule, and the landlord's likely response. As a practical matter, landlord consent for invasive testing (drilling, well installation) on the Premises will likely need to be negotiated as a condition of the lease or pursuant to a separate access agreement. If Stonebridge resists granting consent for pre-lease Phase II testing, MCB's right to conduct testing during the lease term (as discussed in Section V.E above) becomes all the more important as a contractual safeguard.
B. Insurance Considerations
MCB's insurance program should be reviewed to confirm that it provides adequate coverage for environmental liabilities that may arise in connection with the Premises. MCB's current insurance is placed with Ridgeline Mutual Insurance Company, and we recommend coordinating with MCB's insurance broker and risk management team to evaluate the following:
(a) Commercial General Liability ("CGL") Policy. Standard CGL policies typically contain a "pollution exclusion" that excludes coverage for bodily injury, property damage, or cleanup costs arising from the release, discharge, or escape of pollutants. MCB should confirm the scope of the pollution exclusion in its current CGL policy and assess whether any coverage is available for environmental claims, including third-party claims related to contamination from off-site sources.
(b) Pollution Legal Liability ("PLL") Insurance. Given the proximity of the PCE plume on Block 24, Lot 16, MCB may wish to consider procuring a pollution legal liability insurance policy for the Premises. PLL policies are designed to cover environmental cleanup costs, third-party claims for bodily injury or property damage arising from pollution conditions, and in some cases, business interruption losses related to environmental events. A PLL policy could provide an additional layer of protection beyond the contractual indemnity from Stonebridge, particularly in the event that Stonebridge is unable or unwilling to honor its indemnification obligations.
(c) Landlord's Insurance. The lease should require Stonebridge to maintain environmental insurance covering its remediation and indemnity obligations, or at a minimum, to demonstrate financial capacity sufficient to satisfy those obligations.
We recommend that the insurance review be completed before lease execution and that any necessary policy endorsements or new policy placements be in effect as of the lease commencement date.
C. Title and Survey Review Coordination
The CEA on Block 24, Lot 16 may be reflected in certain title and survey records for the adjacent parcel and potentially for the subject property. A CEA is an institutional control that is filed as a deed notice with the county recording office (in this case, the Middlesex County Clerk's office) and may appear as a notation on surveys, title reports, or subdivision maps for adjacent parcels.
We should coordinate with any ongoing title review for the subject property to confirm the following:
(a) No environmental liens, deed restrictions, or institutional controls (including CEAs) encumber the subject property (Block 24, Lot 17.04).
(b) No notice of contamination or cleanup obligation has been filed against the subject property in the county recording office.
(c) If any environmental conditions affecting adjacent parcels are noted in the title report or survey for the subject property, those notations are consistent with the findings of the Phase I ESA and do not suggest environmental conditions more adverse than those described in the Report.
Additionally, if the CEA on Block 24, Lot 16 is modified or expanded in the future, any amended filing in the county recording office should be monitored to the extent practicable during the lease term.
VII. Conclusion
The results of the Phase I Environmental Site Assessment conducted by Blackthorn Environmental Consulting, Inc. (Report No. BEC-2022-0814, dated August 5, 2022) are generally favorable for MCB's proposed long-term lease of the Premises. No Recognized Environmental Conditions were identified on the subject property (Block 24, Lot 17.04), and the property appears to have a clean environmental history consistent with its use as a warehouse and distribution facility since construction in 2001.
The single Controlled Recognized Environmental Condition identified in the Report relates to a historic dry-cleaning operation on an adjacent parcel (Block 24, Lot 16), where a NJDEP-approved remedial action has resulted in the establishment of a Classification Exception Area for PCE in groundwater. The CEA does not currently extend onto the subject property. Nonetheless, the potential for future PCE plume migration represents a foreseeable environmental risk that should be addressed through appropriate contractual protections in the lease.
The primary environmental risk — potential PCE plume migration from Block 24, Lot 16 — is manageable through robust environmental lease provisions that allocate liability to the landlord for pre-existing and off-site environmental conditions. Specifically, we recommend (and have incorporated into the August 12, 2022 markup of the lease) the following key provisions:
• Environmental representations and warranties by the landlord;
• A broad, survival-protected environmental indemnity from the landlord covering pre-existing contamination and off-site migration;
• Landlord notice obligations regarding changes to the CEA and environmental conditions affecting the Premises;
• Tenant's right to conduct environmental testing at any time during the lease term;
• Clear allocation of remediation obligations, with rent abatement and termination rights if remediation materially disrupts MCB's operations;
• Vapor intrusion protections, including a landlord covenant to install mitigation systems if needed; and
• Mutual environmental compliance covenants, with specific ISRA compliance allocation.
These provisions remain subject to negotiation with Whitfield, Barr & Calloway LLP on behalf of Stonebridge. We anticipate that the environmental indemnity scope, the knowledge qualifiers on landlord representations, and the termination triggers may be contested, and we are prepared to support the negotiation with the findings of this memorandum and the Phase I ESA Report.
We additionally recommend that MCB consider commissioning a limited Phase II ESA focused on groundwater and sub-slab vapor sampling at the eastern boundary of the Premises, review its insurance program for adequacy of environmental coverage, and coordinate with any title and survey review to confirm the absence of environmental encumbrances on the subject property.
We are available to discuss these findings and recommendations at your convenience and look forward to your direction on next steps.
Attachment
Blackthorn Environmental Consulting, Inc., Phase I Environmental Site Assessment, Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (Block 24, Lot 17.04, Township of Cranbury, Middlesex County, NJ), Report No. BEC-2022-0814 (dated August 5, 2022). Full report maintained in the matter file, Calderwood & Harkness LLP, Matter No. 1011-00007.
This memorandum is a privileged and confidential attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of the client, Meridian Consumer Brands LLC, and authorized firm personnel. This memorandum does not constitute legal advice to any other party and may not be relied upon by any person or entity other than the named recipients without the prior written consent of Calderwood & Harkness LLP. Distribution, reproduction, or disclosure of this memorandum is strictly prohibited except as authorized by the firm.

MEMORANDUM

MATTER NO.: 1011-00007

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