Legal Considerations When Building Green

With growing public concern over global warming, it seems as though everyone wants to know what can be done to be environmentally responsible. For those in the construction industry, the answer is simple - BUILD GREEN. "Green Building" is the design, construction and management of facilities with the focus on a healthy indoor environment, maximum energy efficiency, and the conservative, intelligent use of natural resources.1 In the United States, buildings account for 38 percent of carbon dioxide emissions with approximately 15 million new buildings projected to be constructed by 2015.2 Fortunately, Green Building is on the rise. However, building Green presents new legal challenges. To confront these challenges, careful consideration must be given to Green construction contracts to limit any potential risk involved in this exciting and vital trend in construction.

In 1998, the U.S. Green Building Council (the "USGBC"), a nonprofit coalition of building industry leaders, launched the Leadership in Energy and Environmental Design ("LEED") voluntary Green building rating system. LEED establishes criteria for sustainable buildings by evaluating the location, design, construction and operational aspects of buildings. The LEED rating system offers four potential categories for certification which include: LEED Certified; LEED Silver; LEED Gold; and LEED Platinum.

The original Green building participants generally paid little or no attention to the fact that Green projects raise unique legal issues not addressed in typical construction agreements. Many of the early Green projects were built by passionate pioneers and innovators with a common belief that there is a moral imperative to pursue a sustainable design in construction. Accordingly, all those involved agreed to work together to "do the right thing" without regard to the legal responsibility concerning the Green character of their project.

In addition to ethical reasons, today there are many emerging factors for seeking LEED certification. Building Green is not only beneficial for the environment by resulting in significant energy savings, water conservation, and healthy indoor air quality, but LEED certification is translating into financial benefits to building owners. According to the USGBC, a recent California study determined that Green improvements pay for themselves in three years.5 Other studies show that LEED certified buildings equate to less employee absenteeism and a more productive workforce.6 Furthermore, recent findings demonstrate that Green buildings are more profitable and valuable than conventional buildings. Insurers are offering Green building discounts on policies, State and Federal governments are providing financial incentives, Green buildings are commanding higher rents, and creating marketing and public relation opportunities for developers.7 Moreover, the Green building industry is expanding at an incredible rate. To date, in New Jersey there are eighteen (18) LEED certified projects with another one hundred and fifty (150) Green projects registered with the USGBC for prospective certification.8 In the near future, these numbers will likely increase dramatically when the USGBC in early 2008 expands its LEED rating system to apply to all residential construction including land development, multifamily homes and remodeling.

Clearly, Green building represents the future of the construction industry and widespread litigation is inevitable if the special issues that affect Green building are not addressed in carefully drafted construction contracts. Some of the major questions include the following:

• Who is responsible for preparing, collecting, coordinating and compiling the documents for submission to the USGBC as a part of the LEED review process?
• Who is responsible if LEED related design criteria reviewed by the designer and the contractor for constructability and design integrity results in a construction failure?
• Who is responsible for a failure to achieve a LEED certified goal?

These issues must be discussed, negotiated and resolved during contract negotiations because of the potential for serious economic consequences. For example, possible damage claims for not achieving LEED goals could include, among other things, the loss of government incentives; breach of prospective tenant lease agreements; rescission of donations on University and hospital projects; and penalties on public jobs that have Green mandates. In addition, because much of the technology and "Green Building Elements" incorporated into the buildings are new and virtually untested, there is exposure to claims based on long-term performance issues. Thus, as with all construction agreements, the parties must contractually account for these concerns by creating realistic performance requirements that are equitably balanced and clearly communicated to all parties. Without an understanding of the division of responsibility and how the inherent risks are to be shared, the parties will have no choice but to seek legal recourse in the event damages occur.

The American Institute of Architects (the "AIA") has attempted to deal with some of these issues in its Standard Form of Architect's Services Agreement for LEED Certification. AIA Document B214, released in 2004, provides the architect's scope of services for LEED certification that can be modified to suit the needs of a Green project. The AIA document is a reasonable place to start when entering into an owner/architect agreement for a LEED project. However, the document has severe limitations. Most notably, B214 does not identify the consequences for failing to meet LEED certification goals. Moreover, the AIA has not yet produced any other form agreements that would relate to the other parties on the Green project team which would obviously include the contractor, subcontractors, and sometimes a construction manager.

Certain governmental entities have also found it necessary to develop specific contract provisions to be inserted in their Green building contracts to address some of these concerns. In Alameda, California, the County requires retainage to be withheld from the contractor after substantial completion and until the Green building standards have been met. Kings County, Washington, has also developed contract language that defines certain environmental products and policies when building Green.

In conclusion, because building Green exposes project participants to risks different from those in conventional building, a properly drafted construction contract is paramount to a successful project. Therefore, BUILD GREEN with the advice, guidance and counsel of Green construction professionals, and join in "the next industrial revolution."

BY: Harry E. McLellan