Conceived to become the only privately funded LEED Silver-certified space anywhere in the state of Oregon, green building features at the 6-story, mixed-use Elements Building in downtown Corvallis were the subject of a recent proceeding – and written judicial opinion – in Oregon Tax Court.
In CLP Elements LLC v. Benton County Assessor, TC-MD 100662D (May 10, 2011), the owner – and recent purchaser – of the building challenged its real market value as assessed by Oregon’s Benton County. The 6-story building features 3 floors of spa space, 1 floor of office space, and a 2-floor restaurant/bar. Like many commercial properties across the country, the Elements Building lost a tenant during the economic downturn. However, only the office floor was vacant at the time the county assessed the disputed valuation.
But that lone tenant was Hewlett Packard. So the owner’s appraiser made an economic obsolescence adjustment (dropping the building’s value by 52 percent) which the county assessor challenged during the proceeding. The assessor testified that “the subject property was substantially progressed in the process to LEED Silver certification prior to completion of the project, however there is no evidence that the structure has been officially certified.” He also identified the building’s “green roof, efficient energy systems, and re-used materials throughout,” and argued that “those features add value through efficient ventilation and heating and energy savings.” To counter this line of the assessor’s testimony, the owner simply claimed that the building “will never be certified at any level.”
The opinion itself – which is available for download here – is, frankly, not all that interesting in terms of novel green building judicial language. But I do think it’s important to consider that LEED and green building continue to intersect traditional real property issues in novel ways. For example, this is the first reported decision in which a property’s pursuit of LEED certification and supporting green design features were used to buttress an argument that those features make real property worth more. This line of argument is similar to the logic applied by the Appellate Division for the Fourth Department here in New York in Destiny USA Holdings, LLC v. Citigroup Global Markets Realty Corp., 889 N.Y.S.2d 793 (App. Div., 4th Dep’t 2009). There, the Appellate Division required Destiny’s construction lender to continue funding Destiny’s construction loan on the basis that the project’s green financing was “revolutionary” and “unique.” (Of course, that financing is now under scrutiny).
While the handful of written opinions that we have been able to identify to date would hardly make up a new green real estate law hornbook, they are of import for the green building industry at large. The benefits of LEED certification and green building generally must always be articulated clearly and objectively. The possibility that they may raise legal issues down the road is a real one that must be considered up front as part of every firm’s overall risk management strategy.