American Bar Association Forum on the Construction Industry 2013 Mid Winter Meeting Project Not Green Enough? What types of green $$$ can an owner recover? Angela R. Stephens, LEED AP +BD&C, GA-CR® Stites & Harbison, PLLC Chris Cheatham ClaimKit
Overview • Growth of Green Building • Lack of Litigation • Developments increasing likelihood of suits • Claims, Green $$$ Damages • Ways to Reduce Risks
(Source: State of Green Business Report: GreenBiz Group January 2012)
Environmental Economic Social WHY GO GREEN? • Energy/Operational Cost Savings • Tax Incentives • Financing • Healthier Workspace • Increased Productivity • Positive Press • Better for Environment
Willis Tower • $350M Renovation • Cut electricity use by 80% • Save 24M gallons of water each year
Empire State Building • $20M Renovation • Cut energy costs by 38% • Seeking LEED Platinum Status
Why the lack of litigation? • Team Mentality
Why the lack of litigation? • Lack of Enforcement • By USGBC • By Owners • Once certified . . . Always certified.
Northland Pines High School (USGBC Internal Dispute Resolution) • 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
Why the lack of litigation? Recession Lack of assets to fight.
Regulations That may lead to claims. . . State Laws Codes Incentives Fed. Laws
20 States Mandate 4 Encourage
STATE OF ARIZONA:EXECUTIVE ORDERs 2005-05 2008-292-11-05 / 12-16-08 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
Failure to achieve certification required by State Law? • Common law • Breach of contract • Breach of warranties (express and implied) • Majority of States - No express damages
Potential Green $$$ Damages • Failure to achieve certification required by State Law? • Cost to repair v. diminution in value • Operational costs • LEED Certification Premiums paid • Construction or Design Team • LEED Certification fees
CALGreenJuly 17, 2008 • Effective 1/1/11: • Reduced water use • Reduced energy use • Use of recycled materials • Applies to residential construction
ASHRAE 189.1PHigh Performance Green Buildings • AHSRAE, USGBC, IESNA • Applies to all buildings except low-rise residential • Similar to LEED
International Green Construction Code • Application • Sale of Property** • Change in Occupancy • Repairs/Renovations • Even in minor – HVAC and energy reqs • Not for residential • ASHRAE 189.1 path
Federal Codes and Mandates • Executive Order 13514 – Net Zero by 2030 • All federal agencies • GSA currently requires LEED Gold • Creation of Own Code?
Potential Green $$$ 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
Incentives increasing likelihood of suits . . . Green Bonds Tax Incentives
Green Bonds • San Mateo, CA • Commercial or industrial buildings > 3000 sq ft • $5,000 bond • If don’t comply = forfeiture
Green Bonds • 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%
Green Bonds • Washington D.C. Green Building Act • 2012 – LEED Certification • nonresidential and post-secondary educational facilities • Failure to achieve: • Forfeit Performance Bond up to $3,000,000.00 • Plus fines by Mayor
Tax Incentives www.dsireusa.org
Tax Incentives • 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 $$$ Damages • Failure to achieve certification? • Lost tax incentives
Shaw Development v. Southern Builders • $7.5 Mill – 23 condo units • Attempting LEED Silver • Owner sought $635,000 in lost tax credits under state-level green building program • Case settled
Contracts increasing likelihood of suits . . . CD 310 B214 DBIA Exhibit
Who is responsible for green goals?What happens if not achieved? Varies by contract
Architect = LEED AP • manages the LEED documentation • prepares LEED Certification Plan • ID’s participants and their roles. • crucial in any contract • Green “goals” - not mandates
Owners may point to: 2007 AIA Code of Ethics - CANON VI • Members should promote sustainable design and development principles in their professional activities. • Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.
Or point to: 2007 NSPE Code of Ethics • Engineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.
Potential Green $$$ Damages • Failure to achieve green goals under B214? • Contract Silent
GBF – Only party liable?? • Article 7.7 - 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
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
Destiny USA • Biggest and most environmentally friendly structure • $2 Billion in Green Bonds from US Treasury
Destiny USA • $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
Destiny USA • 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
http://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.htmlhttp://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.html Bonds not dependent on actual achievement of green building and renewable energy goals