FEATURE ARTICLE, OCTOBER 2008

GREEN IS GOOD...MAYBE
James A. Kosch

The mantra for the 21st Century has to be “Green is Good” . . . . with apologies to Gordon Gekko. Sustainability concerns (real and imagined), all too real energy costs and emerging technologies will make for radical changes in how we live and work. These changes will be as profound as those that occurred at the turn of the last century, when America shifted from a rural and agricultural society to an urban and industrial one.

Just as the proponents of urban and industrial change in the 1900s saw limitless progress without consequence, many proponents of a “green” future foresaw nothing but “blue skies,” literally and figuratively. However, we who lived through the second half of the 20th century, learned all to well “reality bites” (no more movie references, I promise!).  Such will undoubtedly be the case with some aspects of the green revolution. Legal, regulatory and business disputes are bound to occur. No matter how pure your intentions, you can’t change the laws of physics (ok, I’ve moved to T.V.) or human nature.

For those looking to build, renovate or manage green properties, there’s good news and bad. The good news is that we are at the beginning of this greening movement and it needs to be invented. It’s a fresh start for everyone. That, of course, is the bad news too.

We should be forward looking, precautionary and learn from the past. Each of the following steps applies to owners, developers, contractors, suppliers, landlords, tenants and property managers. Being “green” is an interesting, but vague idea, and that leads to the first consideration. What do you want to accomplish, or “how green is green?”

1. Plan First.  Do you want to create a completely green environment, or just save on energy and water, or take some other incremented steps? There are a number of ways to determine your goals. You can select an existing rating program including: LEED® Green Globes®, Energy Star, GBI and AIA Committee on the environment. You can also develop customized standards. 

LEED® is best known in the United States and is a voluntary third-party rating system established by the U.S. Green Building Council (USGBC). USGBC has developed ratings for a variety of developments including new construction, commercial interior, existing buildings, core and shell, homes, neighborhood development and schools. USGBC claims that LEED® certified buildings enjoy 30 percent to 70 percent energy savings, increased value, water savings, enhanced productively, reduced legal liability and improved risk management. Since there are only some 900 Leed® certified buildings, many of these claims are hard to verify at this time. There are some 10,000 LEED® registered buildings and, as they are certified and come into use, more data will become available and better assessments made.

An owner or developer will need to decide if LEED®, or another rating program, is appropriate, or whether a customized program developed separately, or if picking and choosing from existing programs, better fits their green goal. Seasoned professional advisors should be sought out early to help make these kinds of decisions.

Except for a few federal agencies, and some state and local initiatives, there is very little law or existing regulation on green building. However, nearly every state legislature is considering green development legislation of one kind or another, mostly dealing with government buildings, but also on such things as requiring “green” consideration in housing development plans, community development plans, building codes, water restrictions, and alternative energy programs. You will need to be familiar with new laws and regulations that may be on the books and affecting your project sooner rather than later.

Relatedly, you must think ahead to future market conditions and anticipate the demand for green buildings and amenities.

2. Clear Expectations.  Once you have decided on a goal, your plans and specifications and contractual documents should specify what is to be done, how it will be done, and who is to make sure it will get done, as well as the consequences for failure. These responsibilities should be allocated among owners, design professionals, contractors and others. AIA has new documents for consideration, but most arrangements will have to be freshly negotiated and drafted until experience allows for custom and usage to take over. Among the consideration to be addressed in these contracts are:

• Clear statement of the owner/developer’s green objective (i.e., LEED® or other)

• Standard of care for design professionals and limitation of liability

• Who will certify compliance

• “Green” experience requirements of the various contracting parties (i.e., is a LEED® or other approved professional needed)

• Tracking project costs

• Discretion in substituting materials or methods that may affect green certification

• Representation, warranties and remedies

• Dispute resolution.

3. Other Risk Mitigation Issues.  In addition to adequately documenting your project, other legal issues should be addressed. As stated before, “green” is a seductive, but vague term. The expectations of the various parties including buyers, tenants, employers and employees need to be addressed.

Avoid making claims that cannot be verified, but could be deemed to be warranties or guaranties of performance. Limit yourself to factual statements about the building. For example: “The Hawthorne Green Corporate Center is a LEED® Certified Sliver building having received points for the following elements . . . .” Avoid making more generalized statements such as “this building will save energy costs” without tying the claim to a measurable baseline. Other claims should be avoided altogether such as “the building will increase employee productivity and employee satisfaction.” The former is difficult to quantify and the latter could be an invitation to litigation by the office malcontent. Likewise, claims as to enhanced market value should be nuanced since there is no reliable current data supporting any such contention. Presently, auditors book green and non-green building similarly and neither banks nor insurance companies treat green buildings materially better than other structures.

You should also keep in mind that each of the third party rating systems is voluntary and iterative. In other words, building certification today may be different tomorrow. Avoid an undertaking to update certified levels or, if you do, include tenants in funding such improvements, if they are demanded. Liability and dispute resolution issues should be spelled out.

Once committing to a green program, develop an operation and maintenance program designed to keep and maintain those goals. Allocation of those obligations and costs among landlords, tenants or other third parties should be clear and agreed to by the responsible parties.

Many of the legal issues of concern in the owner-contractor relationship will be mirrored in the owner-tenant context as well.

4. Other Considerations.  Apart from the planning and risk mitigation perspectives, other legal considerations arise when developing a green project. The use of solar panels may require air, light and height easements from adjoining property owners. The same is true if your green building will rely on “natural” lighting for interior spaces. A corporate campus or community development that includes open space, bike paths or other benefits may need conservation, access or other easements.

Buildings with alternative energy sources, especially solar, will need to know the law on obligators purchase of excess energy by utilities and enter into appropriate agreements. Likewise, the owner or operator should be aware and take advantage of tax abatements, subsidies or other incentives for alternative energy sources. Also, some jurisdictions bundle green development programs with urban renewal or brownfield incentives.

Lastly, insurance companies are taking a fresh look at green buildings and developing new products and underwriting programs. These should be monitored closely for coverage that require some green improvements, provide new incentives, or add new requirements and carry premium changes. 

In sum, green development is all to the good . . . so long as you prepare for the bad.

Veteran environmental attorney James A. Kosch is a shareholder in LeClairRyan’s Tort Defense Group, based in the firm’s Newark, New Jersey, office. He focuses his practice on complex environmental, toxic tort, product liability, business tort, construction, estate and commercial litigation.

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