If you recall the comments from NAIOP President Thomas Bisacquino in the aftermath of the uproar created by the NAIOP study, Waxman-Markey may ultimately create the precise scenario that NAIOP and its constituents feared: 30 to 50 percent reductions over ASHRAE 90.1-2004 in the short-term. As you may remember, Mr. Bisacquino stated that “to mandate these targets right now, of 30 percent efficiency by 2010, is unrealistic for a lot of properties.” (Note that, even if the bill passes, it will likely not impose the first round of reductions until 2011 or 2012). In the study, NAIOP also argued in favor of increasing available incentives at the local, state, and federal levels to create more palatable payback periods for commercial owners and operators. Accordingly, it will be interesting to see if NAIOP pushes DOE to relax the Section 201 requirements if Waxman-Markey makes it through the Senate, or if this particular section of the bill generates any additional commentary from NAIOP or Mr. Bisacquino. Regardless, it’s clear that building performance- and associated liability concerns- will become increasingly critical issues moving forward if every building in the country is required to meet these new national energy efficient building codes.

• Energy and Climate Bill Would Set National Energy Codes (Worldchanging)
• American Clean Energy and Security Act (Section 201 available at Page 214)

First, I think that Ms. Shapiro’s last point is probably the biggest reason why we have yet to see a flurry of lawsuits. In my experience, plaintiffs will typically wait until they are up against the controlling statute of limitations before commencing a lawsuit. Here in New York, the applicable statutes of limitation for many of the causes of action under which green building liability may arise (such as negligence and breach of contract) range from three to six years. When you consider that LEED Version 2.2 only went live on January 1, 2006, many of the LEED-related green building claims that have been suggested to date remain well within the statute. This could be a significant reason why both LEED- and green building-related litigation will remain on the horizon for the near future. It is also important to consider that almost every construction agreement contains a confidentiality provision, which prevents the project team from disclosing any information about the project to certain third-parties. If aspects of an ongoing green building project’s design or construction are problematic, we will likely not hear about those failures until (a) the owner chooses to divulge that information; or (b) a lawsuit is commenced (subject to the foregoing SOL considerations).

Next, consider the following text describing the posture of the Shaw Development litigation from footnote 24 of the highly touted Harvard Law School green building liability study that was released last week: “[h]owever, a certificate of occupancy, which was necessary to obtain LEED certification, was not achieved within the requisite amount of time, and the developer failed to earn the tax credits.” (emphasis added). Moreover, in an article in the New York Times‘ Green, Inc. blog discussing the study, Robert Fox, a partner in the Philadelphia-based law firm that sponsored the study was quoted as stating that “the first lawsuit related to LEED, a green-building certification standard, occurred in Maryland, where a new condominium failed to get LEED certification and a certificate of occupancy in time to get substantial tax credits associated with green building.” These descriptions are simply not accurate. As discussed extensively here at GRELJ and over at gbNYC, LEED certification itself was not the source of liability in the Shaw Development litigation. Notwithstanding its pedigree and publicity, the Harvard study is an excellent example of attorneys misconstruing facts and, perhaps, creating heightened expectations that we will imminently see a crush of LEED-related litigation. There is no question that LEED and other third-party green building rating systems create an additional layer of risk that every project team must assess and mitigate through carefully drafted construction agreements, and I do believe that there is significant potential for LEED-related litigation. However, I think that the more imminent threat comes from regulatory structures that are, though perhaps well-intentioned, drafted poorly, enacted quickly, and confusing to project teams and their attorneys as was the case in Shaw Development.

Finally, I suspect that much of the activity that might fall within the purview of “green building litigation” will not jump off the page at us. Consider a recent news article in the Bakersfield Californian where a rooftop photovoltaic installation at a local Target caught fire and required officials to evacuate the store. Preliminary conclusions from the fire department indicated that the panels were not installed properly. These types of issues that arise in connection with green building projects- whether they lead to litigation or are otherwise managed through the insurance claims process- are likely to be far more pervasive than the higher profile LEED certification failures that have been discussed extensively to date. Of course, as LEED-driven mandates continue to proliferate, the potential for LEED-related litigation will continue to increase. But, I do think the relatively unspectacular failures similar to the Bakersfield Target fire are where we will find much of the activity in the short term.

• Solar Panel Mishap Sparks Fire at Target (Bakersfield.com)
• The Legal Risks of Building Green (Green, Inc.)
• Green Building Litigation: Whither the Lawsuits? (Greener Buildings)

As you will recall, NAIOP analyzed and then assembled a package of energy efficiency features that it identified based on a targeted 10-year payback period and then modeled the building in three separate climate zones to come up with its projected energy reductions over ASHRAE 90.1-2004. The study concluded by stating that the projected energy efficiency savings were “done primarily by upgrading the building envelope insulation and increasing efficiency of energy using sub-systems. Representing the practical limit of current construction, together, these upgrades will save enough energy in approximately 10 years to offset their marginal increase in cost. Solar can be used to make up the difference to 30 percent, but with a payback timeframe exceeding 50 years.”

NAIOP concluded that to reach the target reductions, an 11,000-square-foot rooftop photovoltaic system would be required at an installed cost of approximately $1.1 million; such a payback period would be in the range of 55 to 100 years. Interestingly, the report itself notes that “[a]fter upgrading building energy features, solar generation is the current solution for additional energy savings over the 90.1-2004 Standard. However, installed solar cost would need to come down by a factor of five for it to meet the ten-year payback criteria. This presents a significant economic barrier. Federal, state, and local incentives can further reduce this barrier.”

For policymakers, I believe that the study- and NAIOP’s response, particularly with respect to this latter point- is critical to consider, particularly in the context of crafting green building legislation in the form of a mandate rather than incentive. I think that it is critical for policymakers to understand that the the purpose of the study was to determine whether some of the 30 to 50 percent reductions in efficiency that are being discussed in many legislatures is practicable given current technologies and standard development practices. Absent significant financial incentives for developers that will bring expected payback periods in line with their business models, the types of efficiencies that we are hearing about are not economically feasible given current technologies. NAIOP’s FAQ actually notes that “a 10-year payback period is an extreme case for a developer to use as a business model” and many of NAIOP’s members have actually told it “that they cannot include anything beyond a 5-year payback in their business model.”

NAIOP President Thomas Bisacquino responded to critics in an interview he gave last month to GlobeSt.com with a number of interesting quotations that I have pulled and set forth below for your reference:

• “The reaction to the study has been really blown out of proportion. It’s clearly a case of shooting the messenger for the message. I’m not saying the study is perfect. I’m sure there are technical flaws. But it generally gives you a sense that to mandate these targets right now, of 30 percent efficiency by 2010, is unrealistic for a lot of properties.”
• “If these efficiency goals were set 3, 4, 5 years out, it would be a different story. A lot of these goals are here and now, the next 10 to 12 months. That’s where we see an issue.”
• “We think it’s very positive that if you use standard design, you can reach upwards of 23 percent without building a green building.”
• “I’ve read that you can use a lot of these technologies like solar to get a much quicker payback than our study indicates. They’re right, but where they’re suggesting that is where there are incentives at the city level, the county level, the state level. That’s what we’re advocating. We think incentives are good things. We don’t want mandates. We want incentives.”
• “The bottom line is that we’re an industry that does make a profit, with investors who have to be satisfied. They have to look at the operations of the building. Profit is not a bad thing. That’s how these companies work.”
• “We felt there were feel-good numbers being picked out of the air, [with some] saying ‘we need to mandate or legislate these targets through building code.’ They weren’t goals, or even nice targets to hit. They were going to become law. We asked, ‘is there data out there that supports these goals as something we can achieve and keep the building profitable. That’s the key.’”

Perhaps most interestingly, Mr. Bisacquino closed his interview with GlobeSt.com by noting that NAIOP is considering a variety of other building types for its next study, including a high-rise commercial office building or industrial property.

Just as a final note, while NAIOP acknowledges that much higher efficiencies are possible for trophy buildings or other types of development, I think that that the study helps buttress the argument that one-size-fits-all mandates will not make sense until a sufficient body of performance data emerges from an adequate cross-section of building stock.

• NAIOP Study – Facts
• NAIOP Study – FAQ
• Thomas Bisacquino Interview (GlobeSt.com)