Last week, Canada’s Daily Commercial News and Construction Record published an article suggesting that Canada’s green building experience to date has largely avoided any legal repercussions arising out of green building projects. The article’s conclusions rest on the fact that, at least according to a Toronto-based green building consultant, there are no construction-related green building insurance or surety products that “specifically target” projects seeking LEED certification.

According to the Record,

“[t]o date, no Canadian projects have failed to achieve the LEED status they were aiming for, either due to contractor or project team errors. But south of the border, several lawsuits have been launched against builders and developers because green features allegedly failed to perform as promised, or because a project failed to achieve the level of LEED certification the owners expected. “

Here, the Record appears to be referring to the Gidumal litigation in Battery Park City, as well as some of the insurance claims that were reported back in 2007 by Victor Schinnerer’s Frank Musica. What the article misses, though, are the issues that were raised by the Toronto Star earlier this year in its two-part piece about Ontario’s regulation of the local green building industry. As you’ll recall, that series included a discussion of a pending lawsuit in the Ontario courts against a developer who had converted a century-old building in downtown Toronto into a 4-unit, mixed-use building that was touted as one of the city’s top green building projects in 2006 by Now magazine. The developer is currently defending a suit for fraud brought by the purchasers of the units, who are seeking over $900,000 in damages for the project’s alleged failure to satisfy certain Ontario building codes, including those for its geothermal system.

(Also, and just for the record once again, if one of the suits the Record is referring to here is Shaw Development, the allegations there were not that the project failed to earn an anticipated level of LEED certification, but that it failed to capture state-level green building tax credits by receiving a certificate of occupancy by a certain fixed date under the program).

I mention this because I think it’s important to note that the liability issues associated with green building extend beyond LEED – and could ultimately be far more broad. Indeed, just because there are no insurance products currently available for purchase on the Canadian markets does not mean that there is no risk. In fact, what’s most interesting about the article is that it fails to even mention two major sources of risk that could result in LEED-related liability: the LEED 2009 Minimum Program Requirements and individual prerequisites under the various LEED rating systems. (For example, the lynchpin of the appellants’ allegations in the Northland Pines challenge was that the high school had failed to satisfy IEQ Prerequisite 1 and EA Prerequisite 2 of LEED NC version 2.1.)

Nevertheless, one of the reasons why Ian Theaker, the consultant quoted in the article, believes there have not been any Canadian insurance products released to date is that “the LEED process has been specifically set up to make planning decisions that avoid problems down the road.” According to Mr. Theaker, “the best insurance to achieve LEED certification is to actually overshoot the LEED guidelines by a few points. You can’t guarantee any particular number of points will be recognized by the CaGBC, so if you shoot higher than your goal, you can afford to miss one or two points along the way.”

While this may be true, I think these remarks miss the broader impact of the Northland Pines proceeding. Although we have yet to see a rash of litigation over projects’ failure to earn third-party certification on account of missing targeted credits, and although translating third-party goals will continue to remain a critical design and construction contract consideration, Northland Pines suggests that the more imminent risks may arise out of challenges that projects have failed to satisfy applicable LEED prerequisites and/or Minimum Program Requirements. Although it’s unclear after Northland Pines whether GBCI/USGBC will ever decertify a project, that risk still exists, particularly because there appears to be no limitation on who has standing to initiate a certification challenge under GBCI’s Certification Challenge Policy.

 These types of risks need to be fully vetted before the insurance industry – in Canada or elsewhere – can fully assess them. The Record quotes Mr. Theaker as stating that “insurance companies may find it initially challenging to evaluate the risk associated with novel building materials and building techniques, but that the market soon catches up as they become mainstream.” As Northland Pines suggests, considering novel building materials and techniques is only one small slice of a comprehensive green building risk management strategy.

Finally, notwithstanding a perceived lack of Canadian green building risks, the Record also reports that Chartis intends to introduce its Green Reputation Coverage product – which covers legal costs and crisis consulting to manage the adverse publicity that may arise if a building fails to earn third-party green building certification – to Canadian markets sometime in the near future. This is a product which we have not discussed previously here at GRELJ, but would “cover the legal cost of defending a lawsuit in which the insured’s reputation would be damaged for failing to achieve a promised green standard,” according to Chartis vice president Joseph Fobert.

So, does the Canadian construction industry face a lower risk profile when building green? If so, why? I look forward to your thoughts in the comments.

First, here’s the language from Mr. Carson’s article which appears to have generated the controversy:

“As reported by the Villas County News-Review, a group of Wisconsin residents filed a 125-page complaint with the USGBC challenging the award of the LEED Gold certification to Northland Pines, which is generally credited as the first certified LEED Gold high school. The challenge was based on a little discussed provision in LEED 2009, which reserves the USGBC’s ability to revoke certification a project that fails to meet the program’s ‘Minimum Program Requirements,’ which include requirements for minimum occupancy rates, site boundaries, and information-sharing about the project’s energy and water usage for five years after certification. It was reported that the USGBC sent independent examiners to Wisconsin to conduct on-site tests at Northland Pines to determine the project’s qualifications for LEED, and that a final determination on the school’s eligibility for LEED would be decided in early 2010.”

Note the bold language (my emphasis) which is not correct; the challenge is not based on any provision in LEED 2009’s Minimum Program Requirements. Rather, the Northland Pines High School was certified under LEED Version 2.1; unlike LEED Version 2.0, the former version required projects for the first time to satisfy every prerequisite of each credit category in order to earn certification. (Previously, under Version 2.0, projects could still earn certification even if they did not satisfy the prerequisite for each individual credit category). The appellants’ specific allegations relate to the project design’s alleged failure to satisfy certain Energy & Atmosphere prerequisites, which, if accurate, would be grounds for USGBC/GBCI to revoke the school’s Gold certification. In early February, a USGBC spokesperson responded to Mr. Carson’s article with some very general clarifications in an insert in Engineering News-Record (which stated, among other items, that Mr. Carson’s piece contained “several inaccuracies, causing unnecessary anxiety in the marketplace”).

In the Multifamily Executive article, which dates from last month, USGBC’s Scot Horst further responded to Mr. Carson’s article as follows:

“‘The idea that there is this new thing call decertification is inaccurate,’ says Scot Horst, USGBC’s senior vice president for LEED. ‘The way LEED works is we have a rating system; you send us information about your project, and we certify to that. But let’s say that there was someone out there who lied about the prerequisite information or unintentionally provided inaccurate information. We have always had a policy to go back and say this wasn’t what it was represented to be. That is nothing new.’”  (emphasis added).

As far as decertification is concerned, USGBC and GBCI have clearly reserved the right to revoke certification from projects that fail to satisfy the Minimum Program Requirements. While that may not be any different from what the organization has been doing all along (hence the question mark in the title to this article), the introduction to the LEED 2009 MPR Supplemental Guidance document (Version 1.0, November 2009) clearly states on page 3 that “[i]f it becomes known that a LEED project is or was in violation of an MPR, certification may be revoked, or the certification process may be halted. These situations will be handled on a case by case basis according to GBCI’s challenge policy.”  However, it appears that the confusion over “decertification” stems from a conflation of a LEED project owner’s failure to report performance data with LEED buildings that actually perform poorly. Consider these remarks from Multifamily Executive:

“The fear of decertification likely stems from one of the Minimum Program Requirements (MPRs) of LEED 2009. The MPRs, which apply only to projects seeking certification under LEED 2009, list the basic characteristics that a project must possess to be eligible for certification under the LEED 2009 rating systems. Requirement No. 6 states that “all certified projects must commit to sharing with USGBC and/or GBCI [Green Building Certification Institute] all available actual whole-project energy and water usage data for a period of at least five years.”

But the information collected under MPR6 is for research purposes only and won’t be used to penalize project teams with buildings that do not perform as well as intended, according to the LEED 2009 Supplemental Guidance document published in November 2009.

‘MPR6 specifically is an exercise to improve the future iterations of LEED rather than to strip the certification from prior program participants and all information remains confidential,’ says USGBC communications manager Ashley Katz. ‘LEED certification is granted based on a building’s design and construction at the time certification is sought. LEED certification does not evaluate the ongoing operation or maintenance of a building—there are too many factors that have to do with how the building is operated.’”  (emphasis added).

I think it’s also worth repeating here that there is absolutely no connection between the Northland Pines proceeding and the Minimum Program Requirements that generated the initial buzz about decertification last summer. (However, it is important to note that the Northland Pines certification challenge appears to be taking place under the GBCI Certification Challenge Policy, which did not exist at the time the high school earned LEED Gold. The general lack of transparency about this process is troubling, but I am willing to give USGBC/GBCI the benefit of the doubt until we get a decision on the challenge before passing final judgment.  For example, will the organizations make certification challenge materials available to the public for third party review? If not, what about down the line in jurisdictions where public money is funding LEED projects whose certifications may be challenged? If for no other reason, the Northland Pines proceeding is critical for practitioners to keep an eye on from a procedural, legal perspective, as it appears USGBC and GBCI have not previously confronted such a serious challenge.)

Also, note that the LEED 2009 MPR Supplemental Guidance document states on page 27 with respect to MPR No. 6 that “this MPR does not intend to penalize project teams with buildings that do not perform as well as intended or create insurmountable technical or legal barriers to registering a LEED project.” (emphasis added).

With respect to this latter point, you will recall that MPR No. 6’s requirements to share whole-building performance data “must carry forward if the building or space changes ownership or lessee.” Page 27 of the Supplemental Guidance document (under “Specific Allowed Exceptions”) notes that

“[t]o own a LEED certified project is to participate in the ongoing evolution of the green building movement. In that spirit, and in keeping with the intent of this MPR, the owner’s commitment to provide whole-building energy and usage data is expected to carry forward to the next owner if all or part of a LEED certified project is sold, re-assigned, or otherwise transferred. However, it is recognized that this may not always be possible, and GBCI will respect the realities of situations in which reasonable efforts to maintain the commitment are not successful. In this situation, the initial building owner will no longer be required to provide the data or access to the data.”

So, although the concept of USGBC/GBCI policing their buildings for MPR enforcement will remain an issue, and practitioners will still need to understand and translate MPR requirements into contract documents and leases, some of the initial concerns about LEED 2009 decertification raised both here at GRELJ and elsewhere may turn out to be unwarranted.

Finally, here’s what Horst had to say in Multifamily Executive about Northland Pines:

So what’s the deal with the LEED Gold-certified Northland Pines High School in Wisconsin referenced in the Business Journal as potentially facing decertification? “We are reviewing the project to make sure that what was represented in the [LEED] documentation was accurate,” Horst says. “That is consistent with what a good certification program would do.” He declined to comment on who brought the project to the USGBC’s attention for review.

As far as the current status of the Northland Pines proceeding goes, I am told that the complaint (which was filed in late 2008, according to USGBC as quoted in ENR) is still being evaluated by USGBC, GBCI, and their technical consultants.

As always, we’ll continue to update you on this critical story.

To date, the potential for increased risks of bodily injury to the construction workers who prosecute green building projects has been generally unremarked upon by commentators, but a recent article that was forwarded to me by my colleague (and frequent GRELJ commenter) Brian Anderson, as well as some recent client work related to the subject, has me thinking about the intersection of green construction practices with these types of actions.

In addition to the additional learning curve which certain types of green building installations may present to workers, some specific green building-related risks that project teams should consider and address in their site safety plans are as follows:

• Demands – driven by owners and third-party rating systems – for designs that provide increased interior natural daylight and translate into additional skylight penetrations or other openings may increase the risk that workers will fall on the job. (For example, consider IEQ Credit 8.1: Daylight and Views: Daylight under LEED Version 3.0 for New Construction). This risk is particularly critical here in New York, where our Labor Law Section 240(1) makes liability for any gravity-related fall absolute. (For a number of reasons, the Scaffold Law, as it is called, is one of the most frequently litigated topics in all of New York construction law.) The duty that Labor Law 240(1) imposes on owners and contractors “is non-delegable . . . and an owner or contractor who breaches that duty may be held liable in damages regardless of whether it has actually exercised supervision or control over the work.” (i.e., even if the contractor or owner is only 1 percent at fault for the injury, and the worker is 99 percent at fault, the contractor or owner will be completely liable for all of the worker’s injuries).

• Construction management plans that call for reduced temporary lighting may create darker work spaces, decrease workers’ visibility, and increase the risk of construction-related hazards causing site safety issues.

• Reductions in the amount of temporary heating and cooling which may be provided at the project site may also heighten the risk of injuries to workers (by creating ice conditions in the winter and overheating – to equipment and workers – during the summer months).

• Air quality management plans may require certain building materials and products to be unpacked and unloaded off-site, increasing the risk of injury to workers who may be responsible for bringing those same materials to the project site.

It is also worth nothing that, in terms of site safety generally in New York, Labor Law Section 241(6) provides the same type of absolute liability against owners and contractors when a worker’s injuries are caused by a violation of certain statutory site safety regulations, even if neither owner nor contractor exercised supervision or control over the project site and was therefore not negligent in causing the condition that led to the alleged injuries.

Although the foregoing risks are of the class that any project team must manage in connection with a construction project, green building practices do have the potential to add an additional layer of risk to site safety practices. In New York, where courts will seek to fold these types of claims within the ambit of the applicable statute and preserve a plaintiff’s ability to recover – particularly under Labor Law 240(1) – it is critical that project teams directly confront green building-related risks that may impact site safety. Accordingly, in their construction agreements, owners should consider the specific risks that may be created by their green goals and require contractors and construction managers to incorporate a green building-related site safety plan in order to reduce the risks of injury to workers and the corresponding risk of claims. Doing so is of particular import given the increase in regulatory activity that continues to take place at the state and local levels.

In addition to the brief list above, are there any additional construction-related green building risks that you would identify? Have any of you seen claims arising out of these types of situations in your practice?

Once again, my thanks to Brian Anderson of Whyte Hirschboeck Dudek S.C. for forwarding along an article authored by Frank Keres, President of Construction Risk Associates, on which these remarks are based (and which I was unable to find available online).

The much more practical research that I turned up was the following except from an article by Kelly Luckett, the self-proclaimed “Green Roof Guy” who writes a column for greenroofs.com. In a column from the very end of 2008, Mr. Luckett describes how uneducated project teams may unwittingly expose themselves to unanticipated risks stemming from the maintenance requirements of green roof installations. His remarks also reflect a number of key points we’ve made consistently both here at GRELJ and over at gbNYC with respect to the additional risk management strategies demanded by new green building technologies and third-party certification programs.

It is also interesting to note that, for the particular project that he describes below, LEED certification requirements resulted in the green roof’s irrigation system being disconnected after the initial green roof establishment period, which resulted in a roof that did not appear as anticipated by the owner. One last important thought- Mr. Luckett hints that this project was located in Toronto, which, as you’ll recall, recently passed a green roof mandate. I think this is a great example of how legislation is fueling the types of liabilities that we grapple with here at GRELJ, and why, as always, contract language will remain paramount for green building project teams.

I would like to turn the focus now to an issue that continues to plague the green roof industry: the maintenance-free green roof myth.  Some in the media continue to espouse this nonexistent characteristic of green roofs resulting in many of our customers being painfully uneducated about realities of critical green roof maintenance!

Pretty strong language, I know, but the problem doesn’t seem to be getting better.  Let me tell you a story about my company’s largest project.  It’s a government owned project in the city that has become the nation’s green roof capitol; you know the place.  I sat in on a meeting where the general contractor, the architect, and the roofing contractor removed all mention of maintenance guidelines and the Plant Health Alert System from my submittal package!

For those of you outside the construction industry, a submittal package is a gathering of documents and drawings the subcontractor submits to the architect and owner to demonstrate compliance with the specifications for products or portions of the construction project.  When I questioned why they were removing critical pages of information from my submittals, I was told that they eliminated the irrigation system for this 96,000 square foot green roof based on a tour a green roof provider took the owner on during the preceding spring.  I asked if they had told them about the drought that killed green roof plants all over the region the summer before, to which I only received blank stares.  I practically had to threaten to hold my breath until I turned blue, or at least threaten to walk away from the project to get them to issue a change order to put the irrigation system back in.

The green roof was planted in June and July, 2007, and required routine irrigation throughout the establishment period, a task that could not be accomplished over 96,000 square feet using a garden hose.  After alleviating concerns over the irrigation system conflicting with LEED certification requirements by agreeing to disconnect the system after the establishment period, the change order was issued.  However, I insisted that the irrigation system remain in place as insurance should drought conditions require its activation to keep the $250,000 worth of plants alive.

Now fast forward two years. The phone rings; it’s the roofing contractor.  The ownership is requesting a walkthrough to discuss the condition of the green roof.  I asked our horticulturist to accompany me to the autumn meeting on the rooftop. We were greeted by the general contractor, the architect, the roofing contractor, and a clearly unhappy owner’s representative.  The condition of the green roof?  Starving sedums due to absence of the fertilizer that was supposed to have been applied the previous spring, per the maintenance guidelines that the ownership never got to see.

Also, since the plants did not receive the food required to grow and cover the surface of the growth media, the weeds moved in.  The good news –  the weeds will die over the winter and an application of fertilizer next spring will allow the plants to thrive.  The bad news – the project lost the opportunity for the plants to grow in one of the wettest growing seasons on record.  As you can imagine, there was a round of discussion about who was supposed to have provided the maintenance, a discussion that may wind up being continued in a court room.

However, the owner’s representative asked why the irrigation system was still there.  When the general contractor started to speak he was stopped by the owner’s representative who said the question was directed to me.  Before I could answer, another question was posed, “Do you tell your customers that they need to provide irrigation for their green roof?”  To which I replied, “Absolutely yes, every single one of them.”

The owner’s representative, clearly not expecting this answer, became even more agitated.  That’s when I began to appreciate how serious this problem has gotten for the green roof industry.  The owner’s representative placed in charge of one the city’s largest green roofs, in arguably the most green roof educated city in the nation, was utterly surprised by the fact that plants need food and water.  The building code issue evoked an urgent call to arms that brought about action by many and opened lines of communication among perceived adversaries, while lack of proper green roof maintenance poses far more serious threat to the green roof concept yet the green roof industry remains largely quiet.

Admittedly, nobody uses discussing maintenance during the green roof sale as their go-to closing strategy, but it’s a lot healthier for a green roof business in the long run to address this issue upfront rather than standing in the middle of a problem on a green roof facing an unhappy and uneducated customer the following season.  I’ll keep working on the code issues on behalf of the industry, but it’s time the industry start working on this much larger problem.

• The Green Roof Guy (greenroofs.com)
• Green Roof Archive (GRELJ)

Green building design, construction and operation practices have gained widespread popularity in the healthcare industry in recent years, even considering the current challenging economic climate. This trend is likely to continue because green building practices result in both decreased overall life cycle costs and healthier building occupants. This article will briefly examine the background of building green in the healthcare sector, discuss the unique needs of healthcare facilities in relation to green building practices, and finally examine the choices and challenges faced by healthcare facilities in determining whether to design, construct and/or operate a green building facility, with a specific emphasis on the legal issues therein.

Introduction

According to the United States Environmental Protection Agency (“EPA”), green building is the practice of creating healthier and more resource-efficient models of construction, renovation, operation, maintenance and demolition. The leading vehicles for green building implementation in the healthcare industry are the Green Guide for Healthcare (“GGHC”), a healthcare industry driven system that was created by the American Society for Healthcare Engineering in 2002 and the Leadership in Energy and Environmental Design (“LEED”) rating system administered by the U.S. Green Building Council (USGBC).

Adapting Green Building to the Unique Needs of Healthcare Facilities

There are a number of unique challenges in accomplishing standard green building practices in healthcare facilities, including, among others:

• The need for hospitals and other healthcare facilities to be open with all systems functioning 24/7;
• The high level of dangerous waste produced by healthcare facilities;
• Patients’ increased sensitivities to chemicals and pollutants (along with related air circulation issues);
• The need for healthcare facilities to meet stringent regulatory standards which are not applicable to typical commercial developments; and
• The fact that healthcare facilities have different transportation expectations than some other places of business (e.g. very few patients can be expected to ride bicycles to the hospital).

As a result of these differences, green building standards for the healthcare industry have taken longer to develop than other uses. Until recently, the healthcare industry generally relied on GGHC in designing, constructing and operating a green building. The GGHC is a voluntary self-certifying program that borrows from, but is not formally connected to the LEED rating system. In a manner similar to the LEED system, GGHC gives a certain number of “credits” for each environmentally-friendly and energy-efficient characteristic incorporated into a building. GGHC includes metrics for both construction and operations, which allows it to be used for existing facilities as well as new construction. Because GGHC is a self-certifying system, healthcare entities who wish to use it must vouch for their own compliance with the program.

The USGBC’s LEED system is the most established green building rating system. It is also a third-party certification system, so in contrast to GGHC, it more rigorously scrutinizes a project’s green building features. Some healthcare facilities have elected to invest the extra time, money, and effort required for LEED certification. For example, the Dell Children’s Medical Center (“DCMC”) in Austin, Texas is one of the most dynamic green building healthcare facilities, as evidenced by recently becoming the world’s first LEED Platinum-certified hospital. DCMC has succeeded in accomplishing some amazing results, including, an onsite natural gas power plant providing 100% of the facility’s electricity; recycling 75% of the waste produced during construction; and ensuring that no location in the building is ever more than 32 feet away from a source of sunlight. Various challenges, such as the hospital’s 24/7 operation schedule, required DCMC to overcompensate in other areas in order to reach Platinum certification. The project’s architect admits that the challenges in obtaining certification under a system not designed for healthcare were “enormous,” but apparently worth the cost for the hospital, which predicts that its energy efficiency investments will pay for themselves within six years. There are currently less than 40 other LEED-certified healthcare facilities of any type across the country (including, for example, the
Boulder Community Hospital in Boulder, Colorado, which was the first-ever hospital to be LEED-certified, and the Jewish Hospital Medical Center South in the Louisville, Kentucky area). However, approximately 350 hospitals that are currently under construction are LEED-registered, indicating a desire to achieve LEED certification upon completion. Luckily, for those looking for something more rigorous than the GGHC, but more tailored to healthcare than general LEED certification, the USGBC will soon issue a new LEED for Healthcarerating system. The new certification system will incorporate feedback from pilot projects that used GGHC and will be open to a public comment period before being officially implemented.

Choices and Challenges

Those who are beginning the planning process for green healthcare facilities have three possible paths to choose from at this point: they can wait until LEED for Healthcare is rolled out, use traditional LEED, or use GGHC. All of these choices have positives and negatives: LEED for Healthcare will likely become the new industry standard, but its exact requirements are not yet clear, so healthcare entities might have to delay their projects or could be taking a risk by committing themselves to a program under which they may not be able to obtain certification. Traditional LEED is rigorous and well-recognized, but could impose unnecessary costs and difficulties when applied to the healthcare sector. GGHC has clear metrics that are already tailored to healthcare construction and operations, but does not carry the same weight as LEED since it is a voluntary, self-certifying system.

There are certain actions, no matter what green building rating system decision makers elect to utilize, that healthcare facility decision makers must take in order to limit unforeseen cost, risk and liability. It is important to make green building goals clear and specific early in the planning process. A team of experienced professionals, including architects, construction managers, contractors, lawyers and others, with quantifiable experience on past GGHC or LEED-certified projects is also highly recommended. These experts will be able to properly guide property owners with the unique issues that arise in connection with green building and thus help mitigate further risk.

There are multiple legal risks that green healthcare facility project teams should consider, some of which may include:

• Whether there any potential governmental incentives or other awards that might help supplement the costs of green construction;
• The proper detailing of liability for failure to achieve certain green standards;
• The evolution of labor laws regarding the classification of the construction tasks for new green building work, such as green roofs;
• Lease drafting that requires all tenants at the property satisfy certain green building operational requirements; and
• Avoidance of greenwashing, or misleading the environmental benefits of the facility or services being provided.

There are innumerable other legal issues associated with green building and leasing. As this is an emerging area, it is important to work with professionals in order to avoid unnecessary liabilities when implementing green design features or pursuing any form of third-party certification.

Conclusion

Green building design, construction and operation practices are likely to continue at an exponential growth pattern in the healthcare industry in the years ahead. It is critical for facility owners, managers and stakeholders to fully understand the unique issues that arise for green building in the healthcare arena and work with a team of professionals that can help advise and minimize the risks associated therewith.

I think that this latter point is critical- as I wrote previously here at GRELJ, most professional liability insurance policies contain an exclusion for assumptions of liability that are not imposed by law (i.e., because the LEED AP Fellow designation implies that the design professional will perform at a higher level than the prevailing common law standard, the design professional may not be covered for any resulting claims of negligent design services arising out of disputed green design services). It seems to me that if the LEED AP fellow designation implies a higher standard of care than is prevalent in the industry, this type of form exclusion would come into play. Accordingly, I am very curious to see if there is any reaction from insurance industry professionals on this crucial issue.

Nevertheless, although the idea that programs like LEED and green design techniques generally are changing the standard of care for design professionals is nothing new, the Schinnerer report is the first time I have seen a major insurer pointing to the new tiered LEED AP program as playing a role in that uptick. The report also emphasizes the importance of a “mutual understanding on designing for sustainability and certification,” and offers two form contract provisions that should serve as a good jumping off point for design professionals concerned about risk management on green building projects.

The same section of the report discussing the new LEED AP program also identifies the “successful marketing of the LEED program” and state and local governments’ tying of certain project-based incentives to private certification as a potential source of “significant financial repercussions if a project is not granted a desired level of LEED certification” (likely a reference to the Shaw Development litigation). The report rather ominously suggests that “[g]overnmental enticements to support the pursuit of these LEED accredited projects and their environmentally conscious goals represent a level of risk that approaches a project-level warranty.” The danger here, of course, is that any claims alleging a breach of such a warranty would likely be excluded by a design professional’s controlling errors and omissions policy, and the notion that legislation may be creating the equivalent of a warranty is certainly interesting to consider.

Finally, on page 5, the report proposes two form contract provisions for design professionals to consider incorporating into green construction contracts. The first reflects the situation where an owner may want certain green building materials or systems incorporated into the design, and the second where the Owner intends to seek third-party certification. These provisions are merely form language and should be treated as such by design professionals; the report does explicitly note the important of assessing risk on project-by-project basis, as well as retaining counsel to draft provisions that reflect the circumstances of a given project. As the Shaw Development litigation teaches, this is the threshold consideration for a green building project team. Each of the provisions is reprinted below for your reference:

When Owner Wants the Design to Meet Specific Sustainability Criteria

Owner has made Design Firm aware that Owner wants a specific level of sustainability incorporated into this Project and that Design Firm shall use the standards published by [specific design guidelines or certification standard] for this Project. Design Firm shall research the applicable sustainability requirements and design the Project with the intentino of having the Project meet the requirements. Owner recognizes that a project designed to meet a specific sustainability standard might not perform as designed because of the construction, operation, and maintenance of the Project and therefore agrees that it shall bring no claim against Design Firm if the project does not perform as intended, unless the negligence of the Design Firm is the sole cause of the performance deficiency.

Owner also recognizes that during the design of the Project, Design Firm shall use professional judgment in the selection of materials, products, and systems for the Project but that Design Firm cannot and does not warrant the performance of any specified material, product or system. Design Firm will identify for Owner any material, product, or system that, in the Design Firm’s judgment from the Design Firm’s examination of available performance information, might provide Owner with a benefit on this Project but does not have adequate information on its performance in actual construction or operation. Owner acknowledges that it shall look solely to the manufacturer, supplier or installer of materials, products, or systems if their performance does not meet expectations.

When Owner Wants Third-Party Certification of Sustainability

Owner has made Design Firm aware that Owner intends to pursue [specific certification standard] for this Project. Design Firm shall research the applicable certification requirements, design the Project with the intention of having the Project meet the requirements, and document the design of the Project for submission by the Owner to the certifying organization. Owner recognizes that certification is not based on design alone but also on the construction, operation and maintenance of the Project and therefore agrees that it shall bring no claim against Design Firm if the Project is not certified as intended unless the negligence of the Design Firm is the sole cause of the Project not being certified.

Owner also recognizes that during the design of the Project, Design Firm shall use professional judgment in the selection of materials, products and systems for the Project with the goal of meeting certification criteria but that Design Firm cannot and does not warrant the performance of any specified material, product, or system. Design Firm will identify for Owner for any material, product or system that, in the Design Firm’s judgment from the Design Firm’s examination of available performance information, might provide Owner with a benefit on this Project but does not have adequate information on its performance in actual construction or operation. Owner acknowledges that it shall look solely to the manufacturer, supplier or installer of materials, products or systems if their performance does not meet expectations.

The full report is available via the link below for your review.

• Victor O. Schinnerer & Company, Inc. – Guidelines for Improving Practice (No. 3, 2009)
• LEED AP = Higher Standard of Care (Real Life LEED)

Green roofs have been a part of building for over a thousand years. The current green building movement has, however, had the greatest impact on the growth of the green roofing industry. A green roof is commonly defined as a roof that consists of vegetation and soil, or a growing medium, planted over a waterproofing membrane. There are two basic types of green roofs: (i) an extensive roof, which has a few inches of soil cover; and (ii) an intensive roof that has two feet or more of soil for a variety of grass, trees, bushes and shrubs. Green roofs are used in a multitude of buildings, including industrial facilities, commercial offices, retail properties and residences. The benefits of a green roof include reduced storm-water runoff, absorption of air pollution, reduced heat island effect, protection of underlying roof material from sunlight, reduced noise, and insulation from extreme temperatures. A green roof can thus be a critical design element for a green building. As more properties across the country are attempting to obtain LEED certification, it is worth noting that a green roof can help a property obtain over a dozen LEED credits, including credits for reduced site disturbance, landscape design that reduces urban heat islands, storm water management, water efficient landscaping, innovative wastewater technologies and innovation in design. The increase in green roofs and the green building movement is also resulting in an increase in liability resulting from errors in the design, installation or maintenance of green roofs. As a result, owners, design professionals and contractors should carefully consider ways to mitigate the potential risks involved with building a green roof.

In order to mitigate liability, the stakeholders in a project that features a green roof should clearly detail their expectations and performance requirements in their contracts. This will require preparing contracts that might not easily fit within standard forms of architect and construction contracts. A clear example of green roof liability was detailed by Frank Musica at the AIA Convention 2007. In that instance, the green roof contractor and structural engineer failed to communicate the specifics of the green roof. The result was water leakage and significant structural damage. This scenario could have been avoided by simple communication. One can easily imagine potential disputes arising from any of these following situations: (i) failure to deliver the energy efficiency levels claimed by the installation of a green roof; (ii) failure to deliver a green roof that results in the claimed number of LEED credits that should be awarded by the USGBC; (iii) mold or other environmental hazards as a result of poor maintenance of a green roof; or (iv) a roof collapse resulting from a green roof that was not properly constructed, installed or maintained. Parties should look to limit unnecessary liability by drafting contracts that clearly detail how the applicable parties will be responsible for each of the above-mentioned items. Although liability for said items is not able to be eliminated, it is important to all stakeholders that it is appropriately detailed in contract form, instead of by a judge or jury.

Green building owners and general contractors should engage experienced green roofing professionals when building a green roof. The green roofing industry has begun to assist in this regard by designating such professionals in a manner similar to that of the USGBC’s LEED Green Associate or Accredited Professional designations. Green Roofs for Healthy Cities has established the Green Roof Professional (“GRP”), which designation was created to distinguish certain individuals that have achieved a specific knowledge level with regard to green roof design, project management, installation and maintenance.  The goal of the designation level is to allow green roofing professionals to differentiate themselves, establish an increased level of professionalism in the green roofing industry and help protect the public health, safety and welfare by the building of better green roofs. I would strongly encourage clients to seek GRPs when working on a green roof in an attempt to mitigate unforeseen liability. It is worth noting, however, that one likely unintended consequence of this accreditation program for GRPs is that they could very well be held too a higher standard of care should any problems occur following the installation, repair or maintenance of a green roof.

Green roofs provide a benefit to the environment, energy efficiency related savings to property owners and tenants and potential credits for owners seeking LEED or other third-party green building certification for their property. The legal risks and potential liabilities of green roofs should, however, be carefully examined, both by companies considering installing a green roof and by green roof professionals themselves before getting involved with any green roofing project.

Geoff White is a Senior Associate in the Commercial Transactions and Real Estate Group at Frost Brown Todd.  He is a LEED Green Associate (LEED GA) and a Fellow of the Institute of Green Professionals (FIGP).  A sizeable portion of his practice is spent advising clients on the legal issues of green building and sustainable development.  He recently co-authored the chapter “Understanding and Mitigating the Legal Risks of Green Building,” in the Aspatore Books Inside The Minds – Negotiating and Structuring Construction Contracts.  Mr. White is licensed to practice law in Kentucky and Ohio.  Contact him at gwhite@fbtlaw.com or (502) 568-0202.

First, in the MPR preamble, the LEED v3 program expressly provides GBCI with the ability to revoke LEED certification “upon gaining knowledge of non-compliance with any applicable MPRs.” It is thus crucial that project teams consider and comply with each MPR, particularly if the project seeks to take advantage of a state- or local-level LEED-driven incentive program that is keyed to the receipt of formal certification. While we have yet to see LEED-certified project have its certification revoked, an interesting question could arise here if a state or local government that had provided a project with an incentive upon certification sough to recoup those incentives if the project was de-certified by GBCI. Even thornier would be the scenario where a project that was required to earn certification under a legislative mandate loses certification. The corresponding liability-related issues would of course flow downstream and impact each member of the project team. MPR 1 actually obligates every LEED-hopeful project to “be designed to comply with all applicable USA federal, state and local environmental laws and regulations in place where the project is located and at the time of design and construction.” Comprehensive legislative surveys and strong contract language emphasizing regulatory compliance will thus be a priority for project teams under the LEED v3 regime.

From a legal perspective, MPR 7 is perhaps the most important to consider: “all certified projects must commit to allow USGBC to access all available actual whole-project energy and water usage data in the future for research purposes.” Moreover, “[t]his commitment must carry forward if the building changes ownership.” For attorneys, it will be an interesting challenge to draft such a covenant that will bind subsequent purchases of real property (or, in the context of LEED-CS and LEED-CI 2009 MPRs, subsequent tenants). For owners and project teams, it will be imperative to recognize that such language must be translated into purchase agreements or leasing documents such that GBCI cannot revoke a project’s LEED certification. More generally, it will be interesting to see if any private owners balk at granting USGBC access to such data, and whether there are any local legal obstacles (in terms of building codes, utility regulations, etc.) that may make it difficult for owners to provide the data as required by LEED v3.

Applicable MPRs are set forth below as printed in the text of the New Construction and Major Renovations rating system. Note that I have also set forth MPR 6 below, which lays out certain timeframes that project teams should remain aware of. I anticipate that there will be much more analysis of these and other provisions in LEED v3 as more project teams become familiar with the terms and scope of the program; please feel free to suggest any additional legal issues that we may have missed in the comments below.

Minimum Program Requirements (“MPRs”) – LEED 2009 – New Construction and Major Renovations

• LEED Version 3 (USGBC)

The paper is essentially divided into five sections: (1) general points about whether risk exists for real estate stakeholders in connection with green building projects; (2) a brief overview of some emerging regulatory concerns; (3) whether increasing concerns about achieving LEED certification are valid; (4) a discussion of new products and technologies as risk concerns; and (5) how knowledge, experience, and contracts can help green building project stakeholders mitigate green building risk. The paper unquestionably provides a good legal primer with respect to each of these issues but injects a tone of commentary into the discussion that unnecessarily trivializes many of the legal issues that the green construction bar continues to grapple with. For example, the paper starts out by stating that “[a]ccording to insurance professionals . . . there have been very few claims reported arising out of sustainable design to date, despite concerns to the contrary. The risks to architects in ‘building green’ are essentially the same as the risks on other projects.” Standard of care and insurance coverage issues, for example, have many design professionals, their insurers, and even owners concerned about the availability of coverage in event of a claim that arises out of disputed green design services. While general principles of construction law will always apply to every project, calling their application in novel contexts to be simply “old bottles” suggests that there is no additional risk for project teams to consider or attorneys to address in contract documents.

One specific point made in the paper that’s also worth noting relates to the factual posture of the Shaw Development case. The paper incorrectly states that Maryland’s green building tax credit program which was at issue in the lawsuit was “limited to qualifying LEED projects and restricted to a set window of time. The project did not have LEED qualification within the window of time and Shaw sued for damages for the loss of the tax credits.” As you’ll recall, the issue in Shaw was the parties’ failure to understand the applicable tax credit program, which required a certificate of occupancy by a certain fixed date in order for a LEED-hopeful project to take advantage of tax credits; formal LEED certification was not required. Shaw emphasizes that legislative schemes are among the fundamental drivers of green building risk and must be clearly understood and accurately reflected by controlling contract documents.

Additionally, on page 5, the paper states that “[w]hile some commentators recommend avoiding guarantees, a precise contract can appropriately define the guarantee and mitigate risk.” However, there is no detailed discussion of exactly how stakeholders might begin to craft such provisions. More critically, the paper fails to discuss why even the appearance of the equivalent of a warranty or a guarantee or an elevated standard of care may be problematic from the perspective of a professional liability policy (i.e., these are form exclusions to the standard policy which most architects and engineers are required to procure on every project by contract). The Marsh end-of-year report from 2008 makes it clear that professional liability insurers are keenly monitoring this area of activity with heightened scrutiny. While standard exclusions to a professional liability policy are indeed traditional components of construction law, it is also clear that the rapidly moving standard of care for design professionals is unprecedented, and its implications should not be understated by attorneys who represent architects and engineers.

I want to emphasize that I am not criticizing USGBC’s effort to foster discussion about these important issues; rather, I think it’s extremely positive that the organization has taken this initial step towards engaging the legal industry in refining the parameters of green building risk management. As I noted last November over at gbNYC, this was a major shortcoming at last year’s Greenbuild and it’s encouraging that USGBC has started to move in a different direction. However, I think it is troubling that the paper chose to characterize green building law as “new wine in old bottles.” In my opinion, the reasons why many of the issues noted in the paper are creating a new paradigm meriting the attention of both legal scholars and practitioners are four-pronged: regulatory activity at the federal, state, and local levels is moving more rapidly than anyone can track in sufficient detail; the insurance coverage implications for claims arising out of green design have been largely unremarked upon; the insurance industry itself has acknowledged that the standard of care for design professionals is changing more quickly than at any time in history thanks to the proliferation of the LEED AP and green design obligations in the new AIA construction documents; and preliminary data suggesting that green buildings may not perform at the higher level generally anticipated by most project teams may have significant consequences both in terms of litigation and future policymaking. These are a set of completely new and emerging legal issues that will have a major impact on how attorneys create risk management strategies for their clients as green construction practices continue to proliferate. Suggesting otherwise will likely damage the long-term prospects of the green building movement, particularly if it encourages stakeholders not to take these emerging risks seriously and engage counsel capable of assisting them in navigating unchartered waters.

The paper is a quick read and I hope you will print it, review it, and share your thoughts in the comments below.

• The Legal Risk in Building Green (USGBC)

As you may know, the NAIOP study evaluated a handful of energy efficiency measures as implemented across the same building type in three different U.S. climate zones in order to determine the feasibility of 30 to 50 percent reduction targets over ASHRAE 90.1. The energy model used in connection with the study considered enhanced wall and roof insulations, varying levels of exterior glazing, efficient windows, reduced air infiltration, reduced lighting power densities, efficient HVAC equipment; and photovoltaic electricity energy generation.

The results were as follows:

Chicago: 23 percent in energy savings; $188,523.45 cost increase; 8.8 year payback;

Baltimore: 21.5 percent in energy savings; $165,148.13 cost increase; 11 year payback;

Newport Beach: 15.8 percent in energy savings; $169,898.13 cost increase; 12.2 year payback.

In a press release detailing the results of the study, NAIOP president Thomas J. Bisacquino said that “[w]ith the results of achieving higher efficiency targets differing so greatly across the climate zones, the study reveals that a ‘one-size-fits-all’ approach to mandatory energy reductions does not work in legislation or other mandates. It is important that policymakers and others realize the economic consequences that imposing mandated targets will have on the development industry.” As I noted above, many commentators decried the study’s methodology, arguing that it failed to consider numerous other energy efficiency strategies, including site orientation and other passive design techniques. For example, on his blog, Jerry Yudelson said that “It’s all about integrated design; that’s why NAIOP’s study is plain wrong as a general rule. You have to “build it in, not bolt it on, meaning that if you take a conventional building and attempt to add energy-savings features to standard design, it’s always going to be less and less cost-effective to go beyond, saving 15% more savings.”

Regardless of the resulting furor, I think it is important to note the study’s results for a few reasons. First, ConSol used the Department of Energy’s EnergyPlus Version 2.2 simulation tool in order to derive its results. The study was based on a projection and not actual data. Second, other studies promulgated by some of the organizations that decried the NAIOP study have also been heavily criticized. For example, as we noted last fall over at gbNYC, NBI’s highly touted study only obtained data from 22 percent of the LEED-certified buildings in the country, compared it to a national database (CBECS) that includes buildings dating from the early part of the 20th century, and then compared the median energy consumption for LEED buildings to the average of the pool of comparable buildings. This study was widely disseminated for the proposition that LEED buildings were performing 25 percent better than comparable buildings with respect to energy efficiency. Interestingly, according to CoStar, USGBC issued a statement in response to the NAIOP report that LEED-certified buildings are “proof-positive that you can achieve 30 percent and greater energy efficiency using integrated design with little or no additional first costs.” CoStar also quoted Dave Hewitt, executive director of the New Buildings Institute, that the study was “artificially constrained to suggest that you can’t get there from here.”

I don’t disagree that integrated design is green design and will likely lead to higher efficiencies, but I do think that one point to take from the NAIOP study, in the context of commercial real estate, is that passive solar design or other integrated design features that were mentioned in the response to the study may not be possible for certain types of building stock. Particularly here in New York City- or in the rest of the country where new construction has grinded to a halt- the “bolt it on” types of green improvements may be the only option. In that context, the NAIOP study may be particularly useful to policymakers who are considering mandating the 30 to 50 percent improvements in efficiency that the study was specifically contemplating. If those improvements are not possible, or are more difficult than many believe, design professionals, contractors, and consultants may also be exposing themselves to significant liability absent sufficiently protective language in their construction agreements. From the lawyer’s perspective, I think the critical points to take from all of this are that until we get studies that are grounded in actual performance-related data, it is dangerous to advocate for policies that are based on energy models. Moreover, I think it emphasizes the importance of transactional risk management – in the form of a fully vetted construction agreement- in connection with green building projects that aim for increasingly higher levels of energy efficiency.

While the results and merits of this particular study continue to be debated, what is clear that building performance, contracts, and risk management will intersect significantly as we move forward during the course of 2009. I am also curious to see what NAIOP’s reaction to the backlash will be – if any – and whether any building science experts (like Henry Gifford and Joseph Lstiburek, whose work we have referenced previously over at gbNYC) chime in.

• Commercial Developers Try to Debunk Green Building (Fast Company)
• A Hog in a Tuxedo is Still a Hog (Architecture 2030)
• Experts Reject NAIOP Study, Citing Flawed Analysis (CoStar)
• Yudelson Associates Blog
• Study Shows ASHRAE 30 Percent Difficult to Meet (BD+C)

Much like the rest of the green building industry, green leases contain a collection of legal risks that landlords and tenants have not previously had to consider. This article considers a small sample of such problems, specifically in relation to certification requirements, cost issues, insurance provisions and green product issues.

Many companies and government agencies require their space to satisfy an applicable LEED for Commercial Interiors certification level. These entities look for a lease to specify that the space will meet such standards. Landlords are not generally in the position to guarantee such certification level. The project architect, general contractor, subcontractor and USGBC all have a much greater impact on whether the space meets the required certification level. The landlord will thus need to make sure it is working with contractors and architects that understand the issues and are able to work towards achieving the necessary certification levels. It will need to protect itself in its applicable project contracts. The landlord and tenant must work together in attempting to craft a lease that adequately protects each of their respective interests and avoids liability outside of either of their control. Crafting lease incentives such as free rent periods or rental abatements are the best way to incentivize a property owner to deliver a green lease space without undue penalty for items outside of its control.

In addition, green building is generally more costly and timely than the standard building process. Landlords and tenants must realize this when determining the tenant improvement allowances detailed in the lease. Although green space is obviously important for a company, having a finished space is a far more important issue.

The improvements must also be are properly insured. A party entering into a green lease must carefully consider the increase in both (a) the replacement cost and (b) the rebuilding period following a casualty event, due to specific green building issues. As detailed above, the cost of green building products are generally more expensive than standard materials. There will also be additional costs incurred if the space needs to re-obtain its LEED certification level following a casualty event. It is important that each of those points is considered when determining replacement value and how that is detailed within the lease. If the casualty event is not the fault of the tenant, the lease should also consider who will be responsible for the costs of the LEED re-certification. The rebuilding of the space will also take longer due to both (i) the installation of many energy efficient systems and (ii) the LEED re-certification process following the casualty event. Such issues must be considered in the sections of the lease detailing the rebuild obligations of the parties following a casualty event.

The use of certain green products can also create unforeseen issues for both the landlord and the tenant. Some specific examples were detailed in Frank Musica’s “Don’t Let Green Design Cause Red Ink” presentation at the 2007 AIA National Convention in San Antonio.

The first example to consider is one in which a design firm specified cork flooring in kitchen areas. Unfortunately, this product had not been properly tested for use in high traffic kitchen areas. As a result, the cork flooring eventually saw growth of mold created by the high traffic and water spillage of the kitchen area. Another example was a tenant that provided the government with military systems designs and terrorism identification systems. The tenant invested in green design and extensive daylighting systems, including skylights and large window systems. Upon inspection of the new space by the government, it was determined that the tenant was putting confidential information at risk. The tenant faced a threatened revocation of its contractor’s security rating and cancelation of existing contracts. These outcomes show why tenants must work with their landlords in the installation of green building products and systems within their spaces in order to avoid potential liabilities that may have been unforeseeable for the landlord, contractor or architect.

In conclusion, green leasing, much like the green building movement itself, is here to stay. There are a multitude of new legal issues and risks that both a landlord and a tenant must consider if they elect to lease green space. These potential risks are further reasons to work with the most skilled professionals in the green building and leasing industry, whether that is an architect, contractor or attorney in site selection, plan preparation, lease negotiation and the final build-out of the space in connection with a green lease.

Geoff White is a Senior Associate in the Commercial Transactions and Real Estate Group at Frost Brown Todd. He is a contributing author to Green Real Estate Law Journal. He also oversees the Green Building Series on the Frost Brown Todd’s Construction Law News website. Mr. White is licensed to practice law in Kentucky and Ohio and is a member of the Kentucky Chapter of the U.S. Green Building Council. Learn more about Geoff at http://www.frostbrowntodd.com/geoffwhite

At least in the commercial context, a jumping off point for plaintiffs who assert these types of claims could be the studies- many of which are promulgated by the USGBC and its constituents- that tout the higher leasing and purchasing figures for LEED-certified buildings. I have started to see the beginning of this inquiry in my own practice and recently pointed a client to the CoStar study in order to assist it in attempting to translate a lost LEED rating into a quantifiable dollar figure (litigation has not resulted – yet – in this particular matter).

It is obviously a bit different in the residential context and I do not believe there is a study comparable to CoStar’s out there just yet. However, I do agree with Mr. Anderson’s conclusions in the PB piece that the most critical threshold issue for green construction in either sector is contract language that clearly defines the parameters of a project’s anticipated green features. While litigation is always a possibility no matter the type of project, matching the parties’ expectations through tight contract language that clearly defines the term “green,” among other definitions, can help reduce the risk that sustainable design will increase the potential for a lawsuit or claim on a green building project.

• Green Lawsuits, What It Could Mean for Home Builders (PL)
• Critique of CoStar Study (gbNYC)

What happens if the ultimate rating that is conferred by USGBC is not Gold but Silver? It is not difficult to imagine a scenario where a tenant sues everyone in the chain- the owner, design professionals, consultants, contractors, and even lenders- if the project fails to reach the level of certification that was advertised. Significantly, we have already heard of claims where tenants sued owners when office space did not perform at the level that the tenant anticipated with respect to indoor air quality and energy efficiency. Owners must therefore be careful about elevating the expectations of potential tenants with respect to a building’s puported green features by accurately presenting a project’s sustainable elements in promotional materials. This obligation should, of course, extend to the project’s construction documents, which should clearly reflect the green design services for which the parties are contracting. Transactional risk management in advance of construction will assist stakeholders in mitigating risk and ensuring that the project achieves specific, targeted measures of green performance- whether it be under a third-party rating system or some other objective as defined by the parties in their contract.

• West Coast Green Panel Discusses Risk Management for Green Building Projects (gbNYC)
• Minimizing Green Building Risks (Greener Buildings)
• Listening to Greenbuild (Green Building Law Blog)