You have just bought yourself an old, dilapidated building that you intend to remodel for both commercial and residential use. Having done your homework, you have found that there are both marketing and financial benefits to being able to label your building a "green building." Such a designation will, in many locations, allow you to take certain tax breaks, lower the long-term operation and maintenance costs for your building and allow you to receive a certain approved designation that will enhance the marketability of the project. You sit down with your lender, your architect, your lawyer and your contractor and tell them that, in honor of the fortieth anniversary of Earth Day, you want a "green building." At that point, everyone in the process should think carefully about what it means to "go green."
If you go to http://www.gbci.org/, you will go to the website for the Green Building Certification Institute (GCBI). The GBCI provides third-party project certification and professional credentials recognizing excellence in green building performance and practice. GBCI wears two hats: (1) it administers project certification for commercial and institutional buildings and tenant spaces under the Leadership in Energy and Environmental Design (LEED) green building rating system that addresses new construction and ongoing operations; and (2) GBCI also manages the professional credentialing programs based upon the LEED Rating Systems including the LEED Green Associate and LEED Accredited Professional and LEED AP Fellow.
In early 2009, GBCI assumed responsibility for administering the lead certification program under which more than 25,000 commercial projects now await certification. For new construction, the certification process may award up to one hundred points anchored in five different categories: (1) whether you have a "sustainable site;" (2) water efficiency; (3) energy and atmosphere; (4) materials and resources; and (5) indoor environmental quality. LEED certification is divided into four ratings, based upon the number of points you earn in the categories listed above. The four classifications are: (1) Certified (40 or more points); (2) Silver (50 or more points); (3) Gold (60 or more points); and (4) Platinum (80 or more points).
What if your lender is not so much interested in the level of your LEED certification, as it is in your obtaining certain tax credits that enable you to pay back the loan? Then a place for you to start is by checking to see what rebates are available under the American Recovery and Reinvestment Act which is providing cash rebates for solar and wind energy systems. These rebates are available to small businesses, nonprofit groups and households. Also, go to http://www.energystar.gov/. The United States Environmental Protection Agency and the United States Department of Energy have established Energy Star to certify the energy efficiency elements of buildings. Under the Energy Star program and this is separate from LEED certification), new construction is not eligible, but upgrades of existing homes do qualify for tax credits. If you are trying to possibly entice a governmental tenant into your commercial space, you need to find out what specific green building standards your governmental tenant has mandated in order for it to utilize rented space. (For example, the city of Minneapolis, Minnesota requires all new construction or major renovations of municipal projects over 5,000 square feet to achieve LEED Silver certification.)
As you can see, going green can be a complicated process that requires specialized knowledge in order to obtain all of the potential benefits that are available to a property owner from a green building. Going green involves more than just building to code, it involves a holistic process that includes everything from site design, to construction processes, to material and product selection, to energy and water use, to the operation of the building and to its eventual demolition and recycling of its components. Going Green presents substantial upside benefits and substantial risks.
Documenting the Green Goals
Older standard form agreements between owners and contractors or owner and design professionals may not incorporate necessary language to ensure the appropriate construction of a green building. Contract documents for the construction of a green building need to identify and assign certification responsibilities (under LEED or some other certification process). The responsibility for registering the project, the certification level, who will apply for certification, who will respond to requests for additional information, Who will appeal if certification is denied, and who might be responsible for re-certification of the project should be identified in the contract documents. Without such clearly delineated goals and responsibilities, you are asking for trouble.
In Shaw Dev. v. Southern Builders, a condominium building project was to be performed in a green fashion so as to achieve a LEED Silver rating and, therefore, earn the owner a Maryland state income tax credit equal to 8 percent of the project cost. When the contractor failed to obtain the LEED Silver certificate of occupancy within the time required under Maryland's green building tax program, the owner forfeited more than $600,000 in tax credits.
The case settled out of court and, therefore, does not provide precedent or guidance on how courts will allocate responsibility for such problems. What the case does demonstrate, however, is that the parties did not have contract documents which addressed green building aspects of the project. According to those familiar with the case, the parties in Shaw Development entered an AIA A101-1997 "Standard Form of Agreement between Owner and Contractor" as their general contract. This particular agreement does not include green building requirements. A separate project manual incorporated additional requirements and made specific reference to green building certification: the project is "designed to comply with a Silver Certification Level" according to the LEED rating system. (Quoted in Maura K. Anderson, James K. Bidgood, Eugene J. Heady, Hidden Legal Risks of Green Building, 84 Fla. B.J. 35, 36 (March 2010)).
What the parties did not have in Shaw, were contract documents that expressly assigned LEED certification responsibilities to a party or parties. Under the contract documents, the contractor was only responsible for building according to the drawings and specifications, but nothing else. Id.
Doing it Right
Green building projects are going to require greater planning and communication between owners, design professionals, contractors and possibly, attorneys. (A LEED certified attorney is probably familiar with those lending institutions who give special incentives for green construction, e.g., Wells Fargo, which has made loans totalling over $2 billion to green building project owners). Additionally, an attorney familiar with green building should have a knowledge and familiarity with state or local government mandates and incentives that could impact the construction project. Information which the project team (owner, design professionals, contractors and lawyers) should assemble includes: identify any government mandates regarding building requirements; equally important, identify any government incentives through tax credits, zoning codes and building codes that encourage owners to incorporate green building techniques or products into their projects; identify any tax credits and abatements which are available under either state or federal government provisions; identify any changes or modifications to existing building codes which mandate particular changes in order to encourage green building; finally, examine changes to building codes or building specification requirements that have been made to encourage green building to make sure they are legal and not too onerous.
Conclusion and References
In the April 17th Saturday/Sunday edition of the Wall Street Journal, there appeared a special section commemorating the fortieth anniversary of Earth Day. William Ruckelshaus, the first administrator of the Environmental Protection Agency, wrote a piece for this section in which he noted that our environmental statutes have done a pretty good job at combating the major point source pollution problems. The challenge for today and tomorrow, is curbing the non-point source pollution emitters : you and me and our businesses and our neighborhoods. This challenge will be, in Ruckelshaus' opinion, a bottom up type of battle, not won by a top down strategy.
"Going green" is not simple, but it is an example of citizen collaboration that is the exemplar of the bottom up strategy. At the present time, it presents a variety of difficulties and choices which must be carefully analyzed. If you are an owner, make certain your contract documents identify the green responsibilities necessary to complete the project to your satisfaction. If you are a design professional, be careful of guaranteeing LEED certification in the contract documents, because most Errors & Omissions insurance policies usually contain a policy exclusion for contractually assumed liability. If you are a contractor, review the construction documents to make sure there is no confusion between performance specifications and design specifications. If the design specifications direct the contractor to use a particular product (one that might have been approved by one of the certification agencies for green building) and the contractor substitutes what the contractor believes is a comparable product, it could affect certification and the contractor's liability.
A way to navigate through green building perils is to put together a team of professionals who are "green smart." This means lawyers who can take the older construction documents, which may not be sufficient for a green building project, and amend those to address allocation of responsibility, design and performance requirements. Utilize LEED certified architects and contractors who will be familiar with the building requirement that will maximize your investment. Make sure your design team selects materials in building systems that will satisfy LEED certification requirements or other green building requirements. Work with insurance professionals who are familiar with the new first party insurance provisions that have been developed specifically for Green construction projects. Finally, encourage the team to inform each other and you of applicable federal, state or local green building regulations, incentives or tax credits. Build Green and be part of the solution.
From the great state of Utah, whose Legislature believes global warming is a conspiracy to implement population control, this is Gary L. Johnson, Managing Attorney, RBMN.
To help you pursue your green building project, the following resource materials will come in handy:
http://www.energystar.gov/
http://www.usbgc.org/ (Green Building Council)
http://www.greenerbuildings.com/
The following materials served as references for this discussion:
Edward J. Ozog, Developments in Green Building Insurance, 26 Prac. Rel. Est. Liw. 29 (2010);
Dale E. Ahern, Jeffrey Geoffrey M. White, and Frost Brown Todd, Negotiating and Structuring Construction Contracts Leading Lawyers on Protecting Client Interests, Managing Risks, and Understanding Recent Trends and Developments, 2009 WL 1339225 (ASPATORE);
Mark A. Anderson, James K. Bidgood, Eugene J. Heady, Hidden Legal Risks of Green Building, 84 Fla. B.J. (March 2010);
Edward Keegan, Actionably Eco? Architect, July 2009 at p. 19.
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