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The Top 5 Legal Issues to Consider on Green Construction Projects

I had the opportunity last week to attend an excellent CLE that was offered by American Land. The program focused on the legal issues that attorneys must remain particularly mindful of when advising clients on green real estate projects. Accordingly, here are gbNYC’s top five legal issues that green construction projects may present to participants. While parts of the following list were offered by one of the lecturers, I’ve augmented it and included links to pertinent posts here at gbNYC that expound on each where appropriate.

#1: Negotiate and draft contracts that reflect each project stakeholder’s role in earning the desired level of LEED or Green Globes certification and allocate that responsibility accordingly.

Strong contract language is critical for a number of reasons. First, with respect to obtaining certification pursuant to any green building rating system, which party will be responsible for tracking, collecting, assembling, and submitting the supporting documentation? Second, design professionals must be careful that, by signing credit submittal templates, they do not trigger an exclusion in their professional liability policy (the standard exclusion in such policies states that the policy “does not apply to warranties and guarantees and any claim(s) based upon or arising out of express warranties and guarantees.”) Architects and engineers should thus insist on contract language that clearly indicates their signing of credit submittal templates is solely for the purpose of satisfying the given rating system credit and does not constitute any type of warranty or guarantee.

#2: Select design professionals and consultants that have participated on other green projects and are familiar with sustainable design, green building rating systems, and the corresponding certification process.

Obviously the best way to avoid legal problems down the road is to head them off at the pass up front. Sophisticated designers, contractors, and consultants that have extensive green experience are limited in number, but their ranks continue to grow as more owners are demanding sustainability. Due diligence by those owners in order to engage a green-savvy project team is critical to executing a successful project that achieves the desired sustainable result- whether that’s certification under LEED or Green Globes or some other quantifiable measure of building performance- both on time and on budget.

#3: Contract for a design that requires specific green materials, systems, and products whose ability to deliver the necessary level of green performance can be verified.

For example, we wrote previously about a scenario where an architect was “impressed” with promotional materials from a green product manufacturer and the owner agreed to use it on the project. However, the product was not readily in stock and project delays ensued. The owner sued the architect on the grounds that the delays stemmed from its failure to inform the owner that delayed delivery was a possibility. This scenario becomes increasingly nefarious where such delays impact any financial incentives for a project that are keyed to it achieving a certain certification level.

#4: Accurately survey existing state and local legislation, applying to both public and private sector construction, either mandating green building standards or offering incentives for compliant projects.

We’ve written extensively here at gbNYC about state and local legislation that mandates compliance with LEED or Green Globes in both the public and private sectors. Understanding what your project needs to do in order to receive a certificate of occupancy or earn tax credits, expedited permitting, or a density bonus is obviously a critical consideration.

#5: Green design implicates new and non-traditional challenges for construction project stakeholders.

It goes without saying that the construction process on even the most benign of traditional projects is fraught with the potential for complications and litigation. Green project stakeholders should obviously be mindful of this, and treat the project’s sustainable elements as adding an extra layer of complexity to the process. Accordingly, budgeting extra time and dollars, where possible, makes sense, and stakeholders should be even more scrupulous when evaluating proposed schedules and budgets and negotiating the terms of their contracts.

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8 Responses to The Top 5 Legal Issues to Consider on Green Construction Projects

  1. Jon Levin November 1, 2007 at 5:56 pm #

    Just wanted to say great job with this article, I think it will be very useful to those who are considering or just actively pursuing building green.

  2. Stephen November 2, 2007 at 4:13 pm #

    Thanks for stopping by and commenting, Jon. These are just a brief overview of some of the legal implications of building green. Some might be pretty obvious, others not so much. Either way, it’s definitely important to at least consider how traditional construction law principles may change in the green context.

  3. Lisa Galley November 4, 2007 at 5:50 pm #

    This is a very timely article. The day before you published it, I was at lunch with two real estate attorneys representing a new green practice here in the Bay Area, and we were going through exactly these issues from several perspectives.

    As I’ve gone through putting together green real estate deals, have had conversations with attorneys who have said that the green aspects of a commercial real estate deal really don’t impact them at all. I could not disagree more.

    Your Point #1 is an area I’m focusing on intensely right now. #2 & #3 affect lenders indirectly; part of the project due diligence should include a review of whether/how the borrower has gone about those processes. #4 & #5 are other related areas which can have a great outcome on the success of the green real estate deal.

    Thanks again and I’ll be sending this one around.

  4. Brian November 5, 2007 at 3:35 am #

    Do density bonuses only exist in residential construction? What I’ve read only speaks to additional units. Do “units” translate to commercial construction? If so, how?

  5. Stephen November 7, 2007 at 3:44 pm #

    Arlington, Virginia, for example, has a program that allows commercial developers to exceed the allowable FAR (Floor Area Ratio- http://www.carfree.com/far.html) under the local zoning ordinance if they meet LEED Silver. This is a powerful incentive because it creates income and increased value for the owner during the lifetime of the property.

  6. Anna Hackman January 29, 2008 at 2:21 pm #

    Stephen, great article. As a fellow real estate lawyer and someone who built green a couple of years, this area is prime for ligitation. I have to agree with Lisa. The legal aspect of green residential and commerical bulding is very different than regular building.

    I found that amazingly interesting about the FAR allowance. Enough of an incentive to build green. Anna http://www.green-talk.com

  7. steve jenings April 28, 2008 at 5:18 am #

    Very good article for those forward thinking to initiate green projects.

  8. hani February 8, 2011 at 11:19 am #

    im still confuse about the issue green construction in construction process…
    it is same with a green building?

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