Legal Issues Arising in LEED™ Construction
Marina Pratchett QC
LEED Green Associate
Fasken Martineau DuMoulin LLP
April, 2012
Overview of Legal Proceeding s
New risks
Developing Standard of Care
Inadequate contract language
No precedents
Overview of Legal Proceeding s
From the perspective of claims and
actions it is early days in development
of LEED™
We can predict where legal actions
might arise.
We look to the US to observe
developments
Overview of Legal Proceeding s
Types of cases divide into categories:
LEED certification process:
Responsibility for
Damages for failure to obtain
Refunds of grants, loans, tax incentives
Liquidated damages
Overview of Legal Proceeding s
Types of cases divide into categories:
Alleged misrepresentations regarding
impact of LEED:
overpromising, under-delivering – sustainable
promises/representations vs actual measured
performance – eg energy performance
Overview of Legal Proceeding s
Types of cases divide into categories:
Product Liability
materials or systems that do not work as
expected or do not work like non LEED
products or require more time or are more
expensive or have higher maintenance costs
than anticipated
Eg paints, glues, green roofs, recycled rainwater
.
:
Overview of Legal Proceeding s
Types of cases divide into categories:
Competing Standards/Codes
Which applies
Overview of Legal Proceeding s
Types of cases divide into categories:
Challenges
to FSC wood: Wood lobby in US – most local
wood not FSC – allege discrimination
Dept of Defence US – prohibits appropriation of
funds to achieve LEED Platinum or Gold unless
can certify no additional costs of show a
financial payback.
Also required by June 30, 2012 report on
energy efficiency standards including cost
benefit analysis of ROI of LEED, Ashrae 189.1
and Ashrae 90.1 2010
Overview of Legal Proceedings: Some
examples:
.
:
Overview of Legal Proceeding s
Henry Gifford et al v US Green Building
Council US District Court, Southern
District, NY 10-7747
action alleging deceptive trade
practices, false advertising. Alleges that
US GBC misrepresents the efficacy of
LEED from an energy savings
standpoint and misrepresents the
results of a 2008 study performed for
USGBC
Overview of Legal Proceeding s
Henry Gifford et al v US Green Building
Council (cont’d)
Gifford claims that USGBC and LEED
rating systems make false promises
Focus of the claim is false advertising
and consumer protection
Overview of Legal Proceeding s
Destiny USA Holdings, LLC v Citigroup
Global Markets Realty Corp., 69 AD 3d
212
Injunction
requiring specific performance of a
construction loan for a ‘green’ shopping
centre
Part of the funding secured was taxexempt green bonds
Overview of Legal Proceeding s
Destiny USA Holdings, LLC v Citigroup Global
Markets Realty Corp., (contd)
Green elements – promised conservation and technology
goals not achieved
Possibility that IRS would review tax exempt status of the
bonds
This would affect the tax to be paid by investors
Overview of Legal Proceeding s
Syracuse Industrial Development had
given the project 30 years tax
abatement
IRS has now announced intention to audit
Overview of Legal Proceeding s
Building Industry Association of
Washington, Air America Inc et al v
Washington State Building Code
Council US District Ct. Washington,
Conflicting standards
Seeks an injunction against enforcement of
certain provisions of the Washington State
Energy Code, then coming into force,
which conflict with federal law and
regulations governing energy efficiency of
residential HVAC and plumbing products
Overview of Legal Proceeding s
The Air Conditioning, Heating and
Refrigeration Institute v City of
Albuquerque, US District Ct, District of
New Mexico, 08 633
Conflicting standards
Challenges to green building codes may be
on the rise
Overview of Legal Proceeding s
Riverhouse Condominium in Manhattan
Opened in 2007
Overview of Legal Proceeding s
RIverhouse (cont’d)
Action commenced based on allegations that the
building does not meet the promised/represented
sustainability-performance standards.
The lawsuit seeks $5.3 million in damages and
alleges that the building's green HVAC system not
provide adequate heat and that many green
features in each condo are not in fact built to
LEED Gold standards.
Overview of Legal Proceeding s
Riverhouse complaint alleges that the building
“was marketed as being at the cutting edge of
‘green’ technology - a LEED Gold-rated building
featuring fresh filtered air, filtered water, ecofriendly materials and is designed for low energy
consumption.
Complaints: cold drafts. insufficient heat,
unsatisfactory energy audit, (a deviation of 49
percent over the LEED standards in air infiltration)
Overview of Legal Proceeding s
S
Shaw Development v Southern
Builders
Contract required LEED silver certification
Certification not obtained
Damages claimed >$700,000 plus lost tax credits
Developer sued builder
No clear allocation of risk in contract
Action settled.
Overview of Legal Proceeding s
S
Washington DC v Washington
National
Owner alleged green expectations not met and
withheld $3.5 million
Overview of Legal Proceeding s
Eagle River Wisc.
A group of residents challenged
(unsuccessfully) the LEED rating given to a
new high school.
Overview of Legal Proceeding s
Chesapeake Bay Foundation v
Weyerhaeuser Co.
Allegations of “defective, inferior or
unsuitable building products for a
construction project.”
Design called for certain re-cycled and
environmentally friendly products
Product was parallam beams and
preservatives
Overview of Legal Proceeding s
Chesapeake Bay Foundation v
Weyerhaeuser Co.
Specs provided that materials had to be
approved by architect.
Manufacturer’s shop drawings indicated
intent to use a particular sealant
Architect’s approval to the sealant not
obtained (review of shop drawings not =
approval)
Claim amount $6million
Sample
Taken from a full page advertisement in
the Okanagan SNAP, vol 5, no 9, April
2011, re SOPA Square Development:
“Why Sustainable Choices Matter! :
Sustainable designed buildings like SOPA use
about 36% less energy than conventional
buildings.
Green buildings have operating efficiencies that
reduce emissions and are less harmful to the
ozone layer“
Turning to the Contracts
Contractual drafting and negotiation all
about identifying risks and allocating
In theory allocation should be fair, going
to the person best able to control and
contain the risk
In practice allocation is lob-sided in
favour of the person with best leverage
at time of tender/contract – market
driven risk assumption
Overview of Legal Issues
Liquidated Damages vs Penalties
Consequential Losses
Waivers
Impact of Changes
New Players - certification body, GBF,
energy modelers
Overview of Legal Issues
Warranties
Third party warranty providers
Product Liability
Costs not properly explained
Emerging technologies – eg green roof
systems, geothermal systems,
Turning to the Contracts
In the US
ConsensusDocs 310 Green Building
Addendum
AIA -
Turning to the Contracts
ConsensusDocs 310 Green Building
Addendum
Defines the role of a “Green Building
Facilitator:
GBF could be architect, contractor or a
third party
Defines role of GBF – does not necessarily
impose liability for certification on GBF
Turning to the Contracts
ConsensusDocs 310 Green Building
Addendum
Comments on risk allocation – defaults to
underlying contracts
Defines ‘consequential losses’ broadly as
including owner’s loss of income, loss of
profit, reductions in operating and
maintenance costs, tax or other benefits,
marketing opportunities, credits and says
that all of these are subject to waiver of
CD”s in underlying contracts
Turning to the Contracts
ConsensusDocs 310 Green Building
Addendum
Also says no project participant other than
possibly the GBF is responsible for failure
to achieve Green Status (as defined)
Turning to the Contracts
AIA B 214 (2007)
Identifies LEED AP
No responsibility for failure to certify
Turning to Contracts
Canadian Approach
Typically, architectural contracts expressly
state that they are not liable for certification
and contain limitation of liability clause
Turning to Contracts
Canadian Approach
Some drafters appear not to understand
LEED
Loosely worded “LEED” sections being
added to contracts without reference to any
other provisions
Turning to Contracts
Drafting Tips
Consider and deal with a risk of changes
in laws and standards, and even changes
in professional requirements.
Identify clearly who plays what role – and
what the deliverables for each party will be
Turning to Contracts
Drafting Tips
All of the following clauses must be
looked at through green eyes
Change orders
Delays
Force Majeure
Substitution
Turning to Contracts
Holdbacks
Representations and warranties
bonding, insurance
damages, LD’s, -consequential losses,
waivers
Turning to Contracts
Close out procedures
Substantial Completion
Document Retention
Submittals, O & M training
QA/QC
Turning to Contracts
Drafting Tips
Consider issues around concurrency of
“faults”
Turning to Contracts
What are the actual and real consequences
and damages to the owner of not achieving a
‘certification”
Holdbacks disproportionate to real costs and
damages may be classified as ‘penalties’ or
forfeiture and thus rendered unenforceable or
in BC subject to being set aside under s. 24
of the Law and Equity Act (“The Court may
relieve against all penalties and forfeitures”)
Turning to Contracts
Costly Contract Terms
Mandating certification
Costs of LEED rating and certification
LEED point chasing
Maintaining Holdback pending certification
Recent example – defined LEED as version 1
Major holdback to certification
Turning to Contracts
In US third party certification being
replaced with green building codes.
International Green Construction Code
Turning to Contracts
Costly Contract Terms
Product specifications that have the effect
of sole sourcing
Turning to Contracts
Where products and systems are
specified, contractors are asserting they
are not responsible when the product or
system fails
QUESTIONS