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.

Although the costs of auditing were raised by opponents to the bills earlier this year, mandatory energy audits are now required every ten years, though buildings certified under LEED 2009 for Existing Buildings: Operations & Maintenance or which receive EPA’s Energy Star label are exempt. It’s this exemption that’s of particular interest to us here at GRELJ; here’s the pertinent text from the body of the bill:

No energy audit is required if the building complies with one of the following as certified by a registered design professional:

• The covered building has received an EPA Energy Star label for at least two of the three years preceding the filing of the building’s energy efficiency report.

• There is no EPA Energy Star rating for the building type and a registered design professional submits documentation, as specified in the rules of the department, that the building’s energy performance is 25 or more points better than the performance of an average building of its type over a two-year period within the three-year period prior to the filing of an energy efficiency report consistent with the methodology of the LEED 2009 rating system for Existing Buildings published by USGBC, or other rating system or methodology for existing buildings, as determined by the department.

• The covered building has received certification under the LEED 2009 rating system for Existing Buildings published by the USGBC or other rating system for existing buildings, as determined by the department, within four years prior to the filing of the building’s energy efficiency report.

Legislation which incorporates LEED into local-level legislation is something we’ve noted frequently here at GRELJ, and a couple of recurring issues immediately come to mind with Int. 967.

First, although the bill does allow buildings to earn certification under “other rating systems as determined by [DOB],” the bill does not provide any input on what those other systems might be, or how DOB will “determine” those that would qualify a building for the exemption. Does this language sufficiently address non-delegation doctrine concerns? (i.e., a private third-party organization is effectively determining whether an energy audit is unnecessary under Int. 967 by proxy).

Second, there is no language that allows the legislation to track changes in LEED; for example, if USGBC releases a next-generation LEED system subsequent to LEED 2009, what happens? We have noted this specific issue recurring in various types of legislation. For example, when we wrote about San Francisco’s decision to reconsider its LEED-driven green building ordinance, we pointed out that “LEED itself continues to be a moving target and policymakers must guide themselves accordingly when considering the merits of [LEED-driven] legislative activity.”

Finally, could design professionals balk at signing off on the energy audits given that LEED-EBOM is subject to the same Minimum Program Requirements which, if violated by the building owner, could result in a decertification proceeding, the consequences of which remain unclear?

These questions are obviously theoretical at this point and are designed to elicit your thoughts in the comments. However, I want to stress that the New York City legislation emphasizes the import of assessing and understanding LEED-related risks as the rating system continues to permeate into the private sector in a variety of legislative contexts.

Just as a side note for your reference, the other three bills that constitute the “Greener, Greater Buildings Plan” are:

• Int. 564: New York City Energy Conservation Code. Closes the “50 percent loophole” in the current New York City Energy Code, which does not require owners who renovate less than 50 percent of their building’s total space to comply with the most current – and energy-efficient- version of the Code.

• Int. 476: Benchmarking. Requires buildings to perform an annual assessment of their water and energy use using EPA’s Portfolio Manager tool for the purpose of comparing themselves with their peers, but exempts certain buildings for which public disclosure would be problematic (i.e. high energy users such as data centers).

• Int. 973, Lighting Retrofits and Submetering. Requires large tenants to be submetered and lighting systems to be upgraded during renovations (whether or not those renovations contemplate electrical work) or, at the latest, by 2025. Residential tenants are exempt. Renovations where construction costs are less than $50,000 are also exempt.

Other than the revisions to the Energy Conservation Code under Int. 564, the legislation applies to all New York City buildings larger than 50,000 square feet (or buildings that stand on the same tax lot and, together, are larger than 100,000 square feet).

• GGBP Passes City Council (Urban Green Council)

As you may know, in order to earn LEED’s MR-7 credit, projects must “[u]se a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with the Forest Stewardship Council’s principles and criteria for wood building components.” In other words, wood-based products that are not certified by FSC are effectively excluded from earning this credit under LEED 2009 for New Construction, Core and Shell, Commercial Interiors, and Schools. USGBC, however, expressly disclaims on its website that the organization “does not certify, endorse or promote products, services or companies, nor do we track, list or report data related to products and their environmental qualities. LEED is a certification system that deals with the environmental performance of buildings based on overall characteristics of the project. We do not award credits based on the use of particular products but rather upon meeting the performance standards set forth in our rating systems. It us up to project teams to determine which products are most appropriate for credit achievement and program requirements.”

Nevertheless, USGBC is currently reviewing proposed amendments to MR-7 which would create a USGBC Forest Certification System Benchmark. The Benchmark would recognize certain forest certification systems, and the credit would be awarded for only wood products that “use a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with a forest certification scheme that is recognized after evaluation against the USGBC Forest Certification System Benchmark for wood building components.” More than 50 forest certification regimes currently exist globally; the four major players in the North American market are FSC, the Sustainable Forestry Initiative, the Certified Family Forest, and the American Tree Farm system. It’s unclear how many in addition to FSC the Benchmark would recognize.

The leading Supreme Court case in this space which I analogize in the Article to the ongoing issues with the MR-7 credit is Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). In Allied Tube, a manufacturer of plastic electrical conduit claimed that a rival member of the National Fire Protection Association which manufactured steel conduit had packed the organization’s annual meeting with sympathetic interests in order to vote against the plastic manufacturer’s proposal to include plastic conduit in the Association’s National Electric Code. The Supreme Court noted that “private standard-setting associations have traditionally been objects of antitrust scrutiny,” that the Code was “the most influential electrical code in the nation,” and that many governments had adopted it into state- and local-level legislation by reference. It also suggested that “members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anti-competitive harm.” The significant factor for the Court in finding antitrust liability against the manufacturer of electrical conduit was the adoption of the Code into legislation. Although my Article does not suggest (nor am I suggesting here) that this sort of activity is taking place within USGBC, I do think the Supreme Court’s identification of legislation driving market effect in this context is an important consideration for policymakers.

What’s also interesting when reviewing the line of case law presented in my Article is that USGBC’s Antitrust Compliance Policy states that “from an antitrust standpoint, [USGBC] will be commonly referred to as a trade association. Trade organizations are subject to antitrust scrutiny because they involve meetings of competitors, but they frequently engage in a number of legitimate, pro-competitive and lawful activities. In order to avoid allegations of illegal price signaling, there should be no communications or discussions between any USGBC members either at USGBC meetings or at any other time about (a) current or future prices, pricing plans or production plans, or (b) announcements of price changes or output changes. . . . As a general matter, each member should be extremely careful and seek legal advice before engaging in any conduct that could possibly provide evidence to support allegations of collusion.”

As it turns out, though, the antitrust issues raised in my Article are more than just legal theory. As you may know, back in October,  the Coalition for Fair Forest Certification filed a complaint with the Federal Trade Commission (FTC) alleging anti-competitive behavior on the part of FSC and USGBC. Among other things, the complaint alleges that “the preference shown for FSC-certified products by the USGBC raises concerns about the viability of fair competition with other domestic certification programs. The Coalition submits that USGBC and FSC operate in tandem to disadvantage wood products certified by SFI and other certification systems. Thus, to the extent an investigation is warranted, the [FTC's] Bureau of Competition should look closely at the conduct of USGBC and its favoring of FSC certification.” It’s unclear what the current status of the complaint is and whether FTC has initiated any sort of investigation.

My Article concludes with some recommendations for policymakers, including a suggestion that the “LEED Certifiable” concept and general trend towards flexibility in how green building legislation is implemented may be an implicit acknowledgment of these emerging antitrust issues. I also present a number of other federal cases that are similarly interesting to review in light of current green building regulatory activity.  I would also note that the bases raised in my Article are by no means the only antitrust grounds on which LEED or other third-party systems might be challenged at some point.

Finally, I do expect many of these antitrust considerations to crystalize further during the course of 2010 as USGBC begins to evaluate various forest certification systems against its Benchmark and the Coalition for Fair Forest Certification’s complaint moves forward within the FTC.

In terms of the procedures which both the residents and USGBC/GBCI are obligated to follow in addressing the complaint, the GBCI’s Certification Challenge Policy is important to review. It states, in pertinent part, that “GBCI may revoke previously granted LEED certification or take other action regarding LEED certification such as determine to reduce points or category of LEED certification previously granted, if GBCI determines that credits/prerequisites for LEED certification were granted based on erroneous documentation or falsely submitted documentation. Persons concerned with possible inaccurately granted LEED certification are encouraged to contact the GBCI, provided, however, that GBCI reserves the right to institute an investigation and review of such possible errors or inaccuracy or veracity of documentation without third party complaint.” In the full version of its article (which is not available online), the Vilas County News-Review reports a USGBC official as stating that USGBC “gets challenges from time to time on certification designation” but that the Northland Pines challenge is “off the wall.”

Independent from the technical merits of the complaint – which I am curious to review – the article raises many critical legal questions. First, if the allegations are indeed true, will GBCI exercise its ability to decertify the building? If it does, will the party or parties alleged to be responsible face legal action for those failures? Will the complaint – and any written record created pursuant to the requirements of the Certification Challenge Policy – result in precedent that GBCI will follow in any subsequent decertification proceedings? If so, could Northland Pines become the next Shaw Development, cited as the seminal case for LEED decertification and subsequent green building litigation? If other decertification proceedings take place in jurisdictions where legislation is tied to formal LEED certification, how will state and local governments penalize projects that are decertified (if at all)? Finally, to what extent – if any – will USGBC make decertification materials available to the public for peer review? The Northland Pines proceedings may not answer any of these questions, but because it is the first time a decertification proceeding has been reported publicly, we will be keeping a close eye on what transpires in connection with GBCI’s review of the complaint, a copy of which I am attempting to obtain.

• Citizens Challenge Green Certification of Pines School (VCNR)

However, I think it’s important to look at the specific language that provides for decertification in LEED 2009, which reads (in part) as follows: “certification may be revoked from any LEED project upon gaining knowledge of non-compliance with any applicable MPR.” (emphasis added). The way I read this language, USGBC/GBCI is not obligated to revoke certification upon learning of non-compliance, but it is not restricted from receiving information regarding non-compliance from any third party. The question then becomes what, if any, obligations USGBC/GBCI may have to use that information and pursue a decertification proceeding, either conferred elsewhere in the LEED rating system itself or otherwise imposed by law. I don’t know the answer to that question, but perhaps Ujjval or others could chime in below in the comments. I think this is an absolutely critical point to dissect.

Also of import in the ENR article with respect to the MPR requiring access to building performance data (which has been the MPR driving much of the risk discussion here at GRELJ and elswhere), Duane Morris construction attorney Ed Gentilcore emphasizes that “[w]hat was once an initial project-performance milestone now has ongoing tail responsibilities that could create extended obligations for the owner itself and possibly, in turn, design and construction teams.” In addition, Scot Horst told ENR in the same article that the organization is “still developing the best and easiest ways to help owners do this. This is a new requirement and there is a lot to work out over time.” He declined to tell ENR when any addenda to the MPRs might be released.

I think it’s clear that the contract challenges and corresponding risks associated with the new LEED 2009 MPRs are just begin to emerge, particularly if USGBC and GBCI release a second addenda to a document that was just released a few months ago.

• Building Rating System Requirement Raises Concerns (ENR)

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)

In his opening remarks, Mr. Gifford discussed both his problems with the LEED system generally, as well the basis of the critiques in his paper. “The first study we heard was in ‘07, and even before that, it was becoming law. The study came out and said that LEED-rated buildings save 25-30 percent compared to a national database. Well, I did a radical thing. I read the study, and I think there’s nothing in the study that supports, related to, or even references the conclusion. I think the conclusion was invented and stuck on. They found a 24 percent difference between two numbers, mean energy used by the national database and the median of the LEED buildings. Mean to mean would have shown that LEED did 29 percent higher.”

Mr. Owens responded by agreeing with Mr. Gifford that “before this research was done, there was a leap of faith involved, but the characterization of this as a scandal and a con is really unfortunate. I’ve never found anyone other than Henry saying that these buildings are using more energy. LEED is an assessment of potential for a building to perform. That’s all it is. We could do better to educate the public that the model isn’t good enough, yet. We haven’t really gone through and said ‘this is the first step in a 6 or 7 or 8 step process.’”

Fred Unger, a former board member of NESEA, challenged Mr. Owens and USGBC from the floor “to commit to not putting LEED or USGBC on any legislation” and called it a “scandal” that “LEED is being put into building codes when it still has these bugs to work out.” Mr. Owens responded by saying that although “the USGBC has never advocated putting this into law, it’s not the best use of this rating system.” According to Mr. Prager, Mr. Owens said USGBC would not make that commitment to keep LEED out of any legislation. He did, however, state that perhaps USGBC should have been more of an advocate in terms of articulating that LEED was not meant to be used as a legislative tool. Just as a side note, as recently as approximately one year ago, USGBC did have a statement on its home page that LEED was not intended for adoption into legislation or local building codes, but I am not certain whether it’s still there in any capacity or not.

I think it’s important for USGBC to engage building scientists like Henry Gifford at events such as these and, for that, I give it and Brendan Owens credit for attending the NESEA forum; indeed, one of the major disappointments of this past year’s Greenbuild event was USGBC’s failure to acknowledge LEED performance failures and other risk implications of building green. In a post at gbNYC that discussed the event, I wrote, with respect to building performance, that “[m]obilizing the industry is important, and creating green good will is great too, but I think the USGBC is missing a big opportunity here by not embracing these types of leaders who can help improve the energy performance of our buildings- we can’t lose sight of that ultimate goal.” Hopefully that’s what’s beginning to place here.

I also think it’s encouraging that green building performance issues are beginning to receive more media attention, particularly in the context of LEED. If anything, the NAIOP study and Henry Gifford’s ongoing efforts have stakeholders on both sides of the aisle considering the merits of predictive energy modeling more vigorously; hopefully that debate will continue as USGBC prepares to release its LEED 2009 system. In the interim, the construction and real estate attorney’s role in the context of building performance will continue to be- as Mr. Owens hinted at during the NESEA panel- educating clients that the LEED model “isn’t good enough, yet” and may present liability implications that they have not previously had to consider.

I am certain there will be much more to say about both this forum and the NAIOP study in the coming weeks and I look forward to hearing your thoughts and reactions in the comments below. I also encourage you to check out the comments to BuildingGreen.com’s article discussing Mr. Gifford’s “Lies Damn Lies” paper, where folks like Fred Unger, Rob Watson, and Mr. Gifford himself have left a tremendously interesting series of responses which I think that you’ll find to be quite insightful.

• Lies Damn Lies (BuildingGreen.com)
• LEED Controversy (Michael Prager)