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CoStar, Owner’s Counsel Addressing Liability Aspects of Marketing Green Buildings

Back in January here at GRELJ, I critiqued Andrew Burr of CoStar’s list of the top ten green building stories from 2008 by noting his lack of any reference to the green building litigation and associated risk management issues that began to emerge during the course of last year. Accordingly, I was pleased to see his recent column in Midas Letter Stock News, acknowledging some of the risks inherent with marketing green buildings, both in project-specific materials as well as securities disclosures in the stock market. In Mr. Burr’s piece, both Paul D’Arelli of Greenberg Traurig and Brian Anderson of Whyte Hirschboeck Dudek (who describes the securities issue in detail in his Understanding the Business of Green article, available via the links below), among others, note the importance of educating owners about the terminology associated with the LEED certification process and the potential legal dangers of misrepresenting a property’s green design features in terms of ultimate building performance.

Lest anyone suggest that these not practical concerns for every green construction project, I’ve compiled a series of images below of project sites here in Manhattan at various stages of completion over the course of the past six months. From left to right, I think the images speak for themselves; the first project, though pre-certified at the time under the LEED for Core and Shell system, had not formally received a LEED Gold rating from USGBC as the sidewalk bridging suggested. The second, which is currently plastered over construction fencing that covers future ground floor retail space at what will be a LEED Gold retrofit in Midtown, simply states that the space is “green” without any detail regarding exactly what “green” means. Finally, I think the third photograph demonstrates a partial best practice for green building owners: be straightforward about the project and what is attempting to accomplish – “pursuing LEED Gold certification”- without making exaggerated claims or guarantees about final certification level or how the building will perform down the line.

As Kim Ford of CresaPartners notes in the CoStar piece, “[o]ften, the people marketing LEED-registered buildings like to use the word LEED, but they’re very naive about the terminology.” Anderson also makes the excellent point that “[w]hen it’s a statement of environmental good, there’s a presumption that it might not need to be examined carefully.” Beyond terminology, Mr. Burr points out that, according to a recent study by Green World Media, between 25 and 30 percent of LEED-registered projects drop out of the process and never proceed to final certification, in part due to the expense, but also the average two-year lag between registration and formal certification. For the owner that sticks “LEED Gold Certified” on project marketing materials, in quarterly reports or other disclosures to the SEC, or in a lease term sheet with a tenant who has a corporate mandate to occupy office space in LEED Gold buildings only, the potential liability for a LEED-registered project that drops out of USGBC’s queue could be enormous.

One of the major reasons why I launched this site was to foster a “more robust,” as I called it, discussion of the liability aspects of building green amongst industry stakeholders and, again, I’m happy to see CoStar presenting some of these issues so early on in 2009. Nevertheless, I do think these issues are real and serious for every owner to consider, particularly in the type of down economy where litigation is always more pervasive.

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6 Responses to CoStar, Owner’s Counsel Addressing Liability Aspects of Marketing Green Buildings

  1. Brian Anderson February 11, 2009 at 3:03 pm #

    Great post as usual, Stephen. I think Andrew did a wonderful job intereview folks from around the country and integrating a range of issues related to LEED greenwashing. But to me, his article focused on only 1 kind of greenwashing–misstating your LEED rating. But in my experience, I’ve seen at least 3 kinds of greenwashing occuring. The first, as Andrew describes in the article, is a mistating of LEED nomenclature or LEED state or project caste. The second is whether there is an actual correlation between the LEED points achieved for a particular project and the green attributes we so often hear about–increased energy efficiency, higher lease rates, great valuation, improved health and productivity gains. Do the oft-cited studies hold up under scrutiny? Can any combination of LEED points bring these benefits? The third involves a lack of any mechanism to force ongoing green practices. (As we’ve discussed, Stephen, I’ll soon be writing an article on this topic.) Is a building still green when a bldg manager or new owner decides it’s too expensive to continue replacing those filters with the same MERV rated filters? or to turn up the thermostats or replace the lightbulbs with cheaper/mercury containing bulbs or to stop paying the green roof contractor maintaining the plants? As good as Andrew’s article is, it only deals with the first kind of greenwashing listed and implicitly assumes that if LEED certified, a project is immune to greenwashing. I remain skeptical and will be writing about a number of ways that I think we can provide incentives to eliminate such greenwashing. Best, Brian

  2. Mark Rabkin February 11, 2009 at 8:17 pm #

    To quote Ujjval Vyas from a recent conversation, LEED is not a magic wand. You can’t expect that just because you certified your project, that all your dreams of lower energy bills, higher asset value and all sorts of tax benefits will come falling out of the sky.

    As Brian points out, there are numerous ways in which the public is rushing to cash in on anything “green.” Without careful risk management with your legal counsel and risk professional, this will only lead to some pretty creative litigation pertaining to failure to achieve specific levels of certification, reduced energy costs that don’t meet the owner’s expectations, or you name it.

    Mark

  3. Andrew March 7, 2009 at 7:57 pm #

    This is a tricky issue, for sure. One of the companies we own is doing the LEED consulting on the project first mentioned in the NYT article and another one of our companies is doing the marketing. Despite carefully and repeatedly discussing with the marketing team how to advertise the project, one of our agents did post an ad with a misleading headline. Thankfully, it was properly addressed in the body of the advertisement, but it’s a perfect example of the ongoing communication struggle between technical experts and marketing experts.

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