I have spent the last two years writing Green Building Law Update, a blog based on the premise that green buildings will result in new litigation. To be more precise, I have written hundreds of blog posts predicting an increase in litigation involving the green building certification processwhich I call “LEEDigation.” Yet, I will be the first to admit that the wave of LEEDigation has not developed. There certainly are examples of this type of dispute, but the number of cases are few and far between. So I began asking the question: What is the LEEDigation tipping point?
Published in 2000, Malcolm Gladwell’s book The Tipping Point details the theory that there are moments when ideas, trends, or social behaviors cross a threshold and spread like wildfire. I still believe that LEEDigation will hit its tipping pointbut wonder why this moment has not yet materialized and how a company can avoid this type of litigation when it does arrive.
To date, the prime example of LEEDigation is Shaw Development v. Southern Builders, a much-discussed case that was filed in Somerset County, Md., in 2007. The contractor, Southern Builders, originally filed a lawsuit against an owner, Shaw Development, which it had contracted with to build a condominium project. The contractor alleged that the owner had withheld payments. The owner then filed a countersuit, alleging that the contractor failed to obtain LEED Silver certification in a timely manner, resulting in the owner having to forfeit $635,000 in green building tax credits. The contract between the owner and contractor incorporated a project manual written by the architectwho was not involved in the litigationwhich stated that the project was “to be designed to comply with a Silver Certification level.” While the case never went to trial, the question remains: Would a court of law find the contractor responsible for failing to build a LEED Silver project when the contractor was not responsible for designing the building?
While the Shaw Development case has been dissected ad nauseam, a more recent example emerged in 2008, when a group of citizens filed the first LEED-certification challenge against the LEED Gold-certified Northland Pines High School in Vilas County, Wis. Under the LEED rating system, any person is allowed to challenge any point received under the LEED certification process. The Wisconsin residents filed a 125-page complaint with engineering report, primarily to challenge a designer’s energy-efficiency modeling. In response, the school district and the USGBC each hired their own engineering firms to review the challenge. During the challenge process, the designer was allowed to submit revised energy models and, in April, the USGBC concluded that the project had met the LEED prerequisites and credits, in part based on the revised modeling.
When Will It Tip?
As a construction attorney and consultant, I have heard of numerous instances of projects failing to achieve LEED certification to the desired level. But these projects typically do not result in formal disputes or litigation. Why?
First, the Northland Pines High School LEED-certification challenge was a bellwether as to how the USGBC enforces the LEED rating system. By allowing the designer to submit revised energy models, the USGBC made it clear that it was not interested in decertifying buildings. If the USGBC continues to work with owners, designers, and contractors to remedy green buildings instead of yanking LEED certification, then the chances for LEEDigation remain small.
Second, prior to the Great Recession, many building owners developed green buildings for nonfinancial reasons. When there were fewer LEED buildings, obtaining certification ensured industry buzz. It is difficult to measure loss of goodwill in monetary figures if a project fails to obtain a certain level of certification; therefore it is hard to sue for damages.
Third, the recession resulted in lower demand for legal services, including those for litigation. The construction and real estate industries were particularly hard hit by the recession, and demand for litigation from these industries dropped correspondingly. While the LEED challenge process does not involve formal judicial proceedings, it does involve the costs associated with defending against a lawsuit, including hiring independent experts. The green building industry may have avoided significant LEEDigation because parties were less willing to engage in costly litigation during the economic downturn.
However, these three factors canand likely willchange in the coming years, because there will be increased pressure on the USGBC to ensure that LEED buildings are performing properly and reducing energy usage. As a result, the USGBC is likely to come down harder by decertifying buildings that do not result in energy savings. Additionally, as LEED-certified buildings have become more common, and green building regulations more prevalent, owners are demanding LEED certification for financial reasonssuch as higher tenant demand, lower operating costs, and increased productivity. As more owners pursue LEED certification for these financial reasons, damages resulting from failed certification will be easier to calculate. Finally, as the economy begins to (hopefully) rebound, owners’ appetite for litigation will return.
If you are a contractor, architect, or engineer involved with LEED-certified buildings, you absolutely must consider the implications and liabilities created by LEEDigation. If you guarantee some level of certification, you may be responsible if the project does not meet the contract requirements or if a subsequent LEED challenge proves successful. Clearly defining LEED requirements in your contracts is the best protection from LEEDigation.
Chris Cheatham is the managing partner of Cheatham Consulting. He has helped owners, contractors, engineers, and architects implement risk mitigation strategies and draft contracts for green building projects. Cheatham is also a LEED Accredited Professional and frequently publishes articles about green building law and regulations on his blog, Green Building Law Update. He can be reached at [email protected].
