Angela R. Stephens, LEED AP +BD&C, GA-CR ® Stites & Harbison, PLLC Chris Cheatham ClaimKit American Bar Association Forum on the Construction Industry 2013 Mid Winter Meeting

Growth of Green Building Lack of Litigation Developments increasing likelihood of suits Claims, Green $$$ Damages Ways to Reduce Risks

Yes, People are still building green buildings

1) Energy/Operational Cost Savings 2) Tax Incentives 3) Financing 4) Healthier Workspace 5) Increased Productivity 6) Positive Press 7) Better for Environment Environmental Social Economic

 $350M Renovation  Cut electricity use by 80%  Save 24M gallons of water each year

 $20M Renovation  Cut energy costs by 38%  Seeking LEED Platinum Status

 Team Mentality

 Lack of Enforcement  By USGBC  By Owners  Once certified... Always certified.

10  H.S. bldg committee alleged award of LEED Gold was not justified  Complaint with USGBC  Claim - failed to satisfy energy and atmosphere prerequisites  USGBC hired two engineering consultants to review credits issued  Appeal Denied

Recession Lack of assets to fight.

State Laws Codes Incentives Fed. Laws

20 States Mandate 4 Encourage

STATE OF ARIZONA: EXECUTIVE ORDERs /  State Funded Buildings:  Design and construct to derive 10% of their energy from a renewable resource.  Meet energy efficiency standards established by law.  LEED Silver

 Common law  Breach of contract  Breach of warranties (express and implied)  Majority of States - No express damages

Potential Green $$$ Damages  Failure to achieve certification required by State Law?  Cost to repair v. diminution in value  Operational costs  LEED Certification Premiums paid  Construction or Design Team  LEED Certification fees

 Effective 1/1/11:  Reduced water use  Reduced energy use  Use of recycled materials  Applies to residential construction

 AHSRAE, USGBC, IESNA  Applies to all buildings except low-rise residential  Similar to LEED

 Application  Sale of Property**  Change in Occupancy  Repairs/Renovations  Even in minor – HVAC and energy reqs  Not for residential  ASHRAE path

 Executive Order – Net Zero by 2030  All federal agencies  GSA currently requires LEED Gold  Creation of Own Code?

Potential Green $$$ Damages  Failure to achieve certification required by Codes?  Penalties – each day separate offense  Misdemeanor or civil infraction  Reasonable Attorney’s fees  Plus...

Potential Green $$$ Damages  IGCC Optional Ordinance – if adopted – forfeiture of:  Performance Bond  Irrevocable Letter of Credit or Cash  Plus...

Potential Green $$$ Damages  Cost to repair v. diminution in value  Operational costs  LEED Certification Premiums paid  Construction or Design Team  LEED Certification fees

Green Bonds Tax Incentives

 San Mateo, CA  Commercial or industrial buildings > 3000 sq ft  $5,000 bond  If don’t comply = forfeiture

 Miami, Florida  All new buildings more than 50,000 sq ft  Amount of performance bond based on sq ft  50,000 – 100,000 = 2% total cost of construction  101,000 – 200,000 = 3%  > 200,000 = 4%

 Washington D.C. Green Building Act  2012 – LEED Certification  nonresidential and post-secondary educational facilities  Failure to achieve:  Forfeit Performance Bond up to $3,000,  Plus fines by Mayor

 Nevada - Property tax abatements:  LEED Platinum = abatement 35% of taxes imposed  Gold = 30%  Silver = 25%  New Mexico – tax credits  LEED Silver = $3.50 / sq.ft.  LEED Platinum = $6.25/ sq.ft.

Potential Green $$$ Damages  Failure to achieve certification?  Lost tax incentives

 $7.5 Mill – 23 condo units  Attempting LEED Silver  Owner sought $635,000 in lost tax credits under state-level green building program  Case settled

B214 CD 310 DBIA Exhibit

Who is responsible for green goals? What happens if not achieved?  Varies by contract

 Architect = LEED AP  manages the LEED documentation  prepares LEED Certification Plan  ID’s participants and their roles.  crucial in any contract  Green “goals” - not mandates

Owners may point to: 2007 AIA Code of Ethics - CANON VI Members should promote sustainable design and development principles in their professional activities. Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.

Or point to: 2007 NSPE Code of Ethics Engineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.

Potential Green $$$ Damages  Failure to achieve green goals under B214?  Contract Silent

 GBF – Only party liable??  Article Project Participants shall perform elected green measures identified as their responsibility  Article 8.3 – No Project Participant other than the GBF shall be liable or responsible for the failure to achieve Green Status

No One Party Control of Points/Goals

Potential Green $$$ Damages  Failure to achieve Green Status under CD 301?  Refer to underlying contract  If waived in contract, lists consequential damages that are waived:  Lost profits  Increased operating and maintenance costs  Lost tax incentives  Lost marketing opportunities

 Owner and DB can agree to incorporate sustainable elements or achieve a designated level of certification  Contains a Remedies Section  Parties agree to appeal – pd for by Owner  Selection of Remedies

Potential Green $$$ Damages  Selection of Remedies under DBIA Exhibit?  Waiver  Liquidated Damages – sole remedy  Limited Obligations to Cure – max $$$  Remaining contingency  Share of savings (if GMP contract)  Set amount

 Biggest and most environmentally friendly structure  $2 Billion in Green Bonds from US Treasury

 $238 Million in Green Bonds from Syracuse Industrial Development Agency  Private investors purchased in exchange for:  Interest  Tax free status on interest  Developer received tax-free loan  $120 Million in savings

 To get $238 million in Green Bonds :  “demonstrate, and provide written assurances” that the project would receive LEED certification.  project had to include “a brownfield site”  meet “goals for conservation and technology innovation.”  Reduced electric consumption  Reduced sulfur dioxide daily emissions  photovoltaic capacity  fuel cell energy generation capacity

Destiny scrapped renewable energy features No plant running on biofuel No expansive solar panels

 stiny_usa_green_bon.html Bonds not dependent on actual achievement of green building and renewable energy goals

Potential Green $$$ Damages  If IRS had a different ruling?  Forfeit $2.38 M in developers reserve fund  Revoke tax exempt status - $120 M savings  Revoke tax exempt status from investors  MESSY

1 st to obtain LEED Platinum Certification Parallams exposed to the weather...

 2003 – water intrusion  2009 – widespread rot  Parallams not treated properly  or treatment not suitable  Foundation, architect and contractor settled and sued Parallam supplier  Breach of contract  Indemnity  Contribution  Negligent misrepresentation  Negligence

Potential Green $$$ Damages  Demand to Parallam supplier = $6 M in damages  Investigation  Removal and replacement  Lost revenue  Loss in value of Center  Attorneys fees

 Action dismissed - statute of limitations

 Marketed as LEED Gold Building  Cutting edge green technology  Complaint  Not enough energy savings  = additional costs  = decreased unit values

Building Not Green Enough?  Cost to repair v. diminution in value  Operational costs  LEED Certification Premiums paid  LEED Certification fees  Code penalties  Attorneys fees

Potential Green $$$ Damages  Forfeiture of:  Performance Bond  Irrevocable Letter of Credit or Cash

Potential Green $$$ Damages  Lost tax incentives  Lost marketing opportunities

Potential Green $$$ Damages  Liquidated Damages – sole remedy  Limited Obligations to Cure – max $$$  Remaining contingency  Share of savings (if GMP contract)  Set amount

Potential Green $$$ Damages  Investigation costs  Lost revenue during renovations  Reduced rental rates  Financing costs

New Risks? Clients on a tight rope? Tips to minimize the risks.

Don’t guarantee: “reduce operating costs” “healthier and more productive occupants.”

Express Warranty Do Not Guarantee Level of Certification

 Do not guarantee certification  It is a Goal, Not Promise  Except as required by law.  Warrant that Work will be in accordance with:  The Contract  Industry Standards

Marketing Efforts:  Energy/Operational Cost Savings  Healthier Workspaces  Increased Productivity Can these claims be verified? LEGAL ISSUE #2: Implied Warranties

 Fraud  Negligent Misrepresentation  False Advertising (Lanham Act/FTC)  FTC Green Guide  Consumer Protection Acts

 False Statements:  §43(a) of the Lanham Act  Deceptive trade practices (under New York law).  New York’s False Advertising Act,  false advertising, unfair competition, and unfair business practices under the common law.

 LEED buildings use less energy  “LEED is providing third-party verification that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings”  LEED-certified buildings and other allegedly “green buildings” “Boost Employee Productivity.”

 Manage expectations -Don’t over-promise  Disclaim promises – “All warranties are limited to those expressly stated in the Contract. No other warranties, written or implied shall be binding or enforceable against _____________.”

Will you be held to higher standards of care? Architects/Engineers – suppose to promote sustainable design and construction

 Identify the standard of care:  ______ shall not be held to a heightened standard of care on the Project.  The ____ shall perform its services consistent with the professional skill and care ordinarily provided by ___ in the same or similar locality under the same or similar circumstances.

Project LEED/ US ASHRAE IGCC Green Globes Other? Building Codes Zoning Laws Owner’s Standards Energy Star

No One Party Control of Points/Goals Obtain buy-in of all effected parties LEGAL ISSUE #5: Identify Participants, Their Roles and Responsibilities.

LEGAL ISSUE #5: Identify Participants, Their Roles and Responsibilities  Add this to LEED Addendum

LEGAL ISSUE #6: Insurance Questions over Insurability of LEED projects Contracts agreeing to provide insurance that is not available See your agent

.. LEGAL ISSUE #7: LEED Certification Documentation Find a dedicated professional Delineate responsibilities in the contract

LEGAL ISSUE #8: Delays  Green materials - availability  Skilled workers  Longer durations for installation of new technologies  Time to obtain certification from USGBC  Necessity of Appeal of Ruling

LEGAL ISSUE #8: Delays – What can you do? Limit responsibility Include a Force Majeure clause

LEGAL ISSUE #8: Delays – What can you do? Define Substantial Completion Don’t make SC dependent upon achieving LEED Certification Waive Consequential Damages

 Long-term maintenance issues  Who is responsible for maintenance?  What happens if mfg goes out of business  What happens if component malfunctions?  Provide a Notice and Opportunity to Cure clause in your contract.

 VE and Change Orders may effect the ability to achieve certain points or green measures.  A/E or LEED AP should review changes to plans (COs/ VE) to see how goals are affected.  May want to consider establishing time frame for review and approval of COs

If LEED AP is an independent party? No assets? No insurance coverage? What can you do?  Talk with owner regarding LEED AP selection.  Ask whether the LEED AP is insured.

 Define source of standards and data to be used for computer modeling.  Do not guarantee that the building will perform in accordance with the models.

 Be aware of time limitations established by GBCI  25 business days to appeal the results of the Final Review

LEGAL ISSUE #13: Specify who will pay for LEED Appeals “___ shall not be responsible for any costs associated with the appeal of any LEED Credits.” $500 per credit appealed

Waiver of consequential damages

 Certification level may take months.  Don’t tie payment to the achievement of a certain certification level  Owners may insist on withholding some retainage until all paperwork and appeals processes are complete.