A recent article in the Sydney Morning Herald suggests that Henry Gifford’s class action suit against USGBC has resonated not only domestically, but across global real estate markets as well.

Consider the following: while visiting Melbourne to observe green Australian commercial office buildings, Roderic Bunn, the principal consultant at Britain’s Building Services Research and Information Association said that “[w]e are piling often unmanageable complexity into these buildings, so the consequence is unmanageable complexity. It’s the enemy of good performance.” Although Bunn stated that he was “not saying it [a lawsuit] will happen [in Australia] or in the UK,” he did affirm his belief that “Australian commercial and public sector buildings are suffering the same problems as those in Britain.”

Pointing specifically to Henry Gifford’s lawsuit against the USGBC currently pending in the Southern District of New York, Bunn went on to say that “[p]roperty organizations have accused the [USGBC] of selling green certification. Some people are waking up to the fact they believe they have been mis-sold a rating system that guarantees performance, and the construction industry hasn’t been quick to disabuse them of that notion.”

In addition to its referencing the Gifford litigation, I think the article is important to note because it highlights many of the same building performance issues that have plagued green buildings here in the U.S., as well as the operational issues that green lease provisions are designed to address. For example, Bunn observes that:

• “We have been seduced by the often false promises of new technologies. A building can be mounted with wind turbines and photovoltaics, but they don’t contribute nearly as much as designers think they do because they haven’t driven down the energy requirement to begin with. We tend to glue these things on to the outside of buildings before we actually have reduced the loads of the building as far as we can go. The mantra should be ‘half the loads, double the efficiencies. Halve the carbon in the fuel supply before we go anywhere near on-site renewables. They are often expensive, small, very complex, and maintenance hungry, and the maintainability of these things is rarely taken into account.”

• “The construction industry is very good at designing dreams but crafting nightmares – and it’s the managers who inherit the nightmares. We can’t afford to have a sustainable building not delivering what they are supposed to deliver.”

Bunn served for 16 years as editor of the Building Sciences Journal, which is the official journal of the Chartered Institute of Building Services Engineers, and has received numerous government grants to study building performance in the United Kingdom. Uniformly, according to Bunn, those studies found that “energy consumption was far too high, systems were not finished off properly, no one knew how to use them, and they were misfiring on a whole range of criteria.”

Some of the solutions which Bunn suggested to the Sydney Morning Herald include requiring the project team to remain engaged with the building for a period of time after construction is complete to get it “as close to the design targets as they can get. Finish it off properly, follow through. Builders should be appointed on the basis they will stay engaged for a significant period after occupation to fine tune and perform, monitor the energy use to optimum satisfaction.” Of course, in the U.S. construction industry, this rarely happens; the project team wants to get off the job as quickly as possible, and for the owner to keep it engaged for any additional period of time costs money.

Although addressing the gaps between green design, construction, and operations will continue to be a major challenge in 2011, I think it’s clear that the Gifford litigation is playing a major role in raising awareness about those gaps and increasing the level of conversation about the types of measures that can improve it. Indeed, Bunn also identified the new building performance reporting requirements in Australia for office buildings as potentially closing the gap between design and operations and allowing future green building projects to more meaningfully address it; as you may recall, as of November 1, Australia requires landlords to disclose the energy efficiency of their office buildings when they either sell or lease space that is larger than 21,530 square feet (2,000 square meters). (Ratings are based on the National Australian Built Environment Rating System (“NABERS”), which is on a scale of 1 to 5 stars, and Australia’s current median market performance stands at 2.5 stars). I think this is also important to note because, in the aftermath of the 2010 USGBC Legal Forum at Greenbuild, we pointed to building performance reporting requirements as a trend that will likely increase in 2011.

Finally, I thought Bunn’s remarks were also timely given the recent release of the International Green Construction Code for a second round of public comments in light of the types of green building practices that could soon become mandatory as part of building codes throughout the U.S. We’ll have more thoughts on the IGCC and what it means for the future of local-level green building programs in an upcoming article here at GRELJ.

Perhaps unsurprisingly, then, I had difficulty identifying specific buildings or spaces where the breach of specific green obligations in a lease give either party the ability to declare a default and terminate the lease. However, and as Schnapf suggests, I was able to find some details on the leasing structure for the New South Wales Police Headquarters Building, just outside of Sydney in Parramatta, Australia, which provides a specific remedy for the tenant in the event that the landlord fails to satisfy certain terms of the green lease. Designed by architects Bates Smart and completed in 2003, the 15-story tower’s lease document between the landlord, the Department of Commerce, and the New South Wales Police Service requires the landlord to earn a 4.5 star NABERS rating (National Australian Built Environment Rating System, an environmental self-reporting system that’s roughly equivalent to our Energy Star program) over the lifetime of the lease. The rating is evaluated annually and, if the landlord fails to earn 4.5 stars, the tenant’s rent is reduced by the amount of any increased energy and water costs that arise as a result.

This is an interesting arrangement which we haven’t heard much about here in North America. Is it conceivable that a tenant could demand that the landlord build in a rent rebate provision into its lease in the event the building or space fails to earn (or maintain) the rating required by the terms of the lease? I think it would be difficult to quantify the difference in operating expenses between a LEED Silver building and a LEED Gold building, but the concept is interesting to consider. (Of course, such an arrangement would depend on whether the lease is gross (the landlord pays for building operating expenses) or net (the tenant pays)). What about tying a reduction in rent to a lower level of third-party certification? Again, the question would be how to quantify such a reduction, but I would think a landlord would only agree to using its “reasonable efforts” to pursue the third-party rating anticipated by the tenant. Nevertheless, in a soft leasing climate where deals are far and few between, tenants may be able to insist on stricter language in green leases during negotiations.

Just as a side note, the USGBC’s Green Lease Guide suggests, under its form Defaults and Remedies section, that “[t]he remedies included in a lease for breaching environmental objectives will reveal how critical these obligations are to the parties. If the objectives are aspirational, the lease will include something less than an absolute obligation to comply, such as reasonable efforts. On the other hand, if the objectives are critical, the lease will include an absolute obligation to comply.” For example, if a tenant is required to occupy space in a LEED-certified building or LEED-CI-certified buildout (as is the case for the General Services Administration, which must occupy LEED Silver-certified space pursuant to federal legislation), the landlord’s failure to deliver that space at the required level may necessitate the tenant insisting on a right to terminate in the body of its lease. Conversely, for the landlord pursuing LEED-EBOM certification pursuant to a similar mandate or, more significantly, in order to comply with applicable legislation, certain green lease provisions may need to have more teeth.

Has anyone come across arrangements in leases similar to the New South Wales Police Headquarters or other provisions where green obligations were more than merely aspirational?