• Green Construction Liability: Are You Prepared?
  • September 27, 2012 | Authors: Lori Wisniewski Azzara; Lane F. Kelman
  • Law Firms: Cohen Seglias Pallas Greenhall & Furman PC - Pittsburgh Office ; Cohen Seglias Pallas Greenhall & Furman PC - Philadelphia Office
  • With the drastic increase in green construction, industry experts and analysts predicted a flood of green-related litigation. Despite the surge in green projects and the implementation of new technologies and building strategies, however, the anticipated flurry of litigation has not yet followed. Why not? One reason is that green construction makes up a small percentage of overall construction projects, though that percentage is rapidly growing. In fact, according to a recent report by the U.S. Department of Labor's Bureau of Labor Statistics, "green" jobs accounted for 2.4% of the nation's total employment in 2010 and 6.8% of construction employment. It is clear that the green industry is here to stay, and, with its rapid development, this emerging area of the law is ripe for litigation.

    That is not to say that no green-related litigation has ensued. While the case law is sparse, there are several key lessons to help minimize liability on your next green project.

    Contracts Should Clearly Define the Expectations of the Project and Allocate Green Responsibilities

    As contractors are well aware, there is no one-sizefits- all standard form contract. The language of any standard form building contract must be modified to account for the specific and unique owner requirements on the project, and there is no exception for green projects. Green contracts should be drafted to clearly define the expectations of the project, especially with respect to the building's operational performance and obtaining third-party green certification, Leadership in Energy and Environmental Design ("LEED") classification, or otherwise. The contract language should indicate whether performance and/or certification is a requirement or an overall goal.

    In addition, provisions should be included that delegate green building responsibilities. For example, if LEED certification is required, the contract should clearly identify which party or parties are ultimately responsible for achieving that certification. The contract should also address which LEED points are being pursued, how they will be attained, and, if necessary, attach the LEED scorecard as part of the contract documents. Because of the need for detailed documentation in achieving LEED certification, the contract should also designate the party responsible for record maintenance, review, and submission to the certifying agency.

    The importance of precise contract drafting is demonstrated in the Maryland federal court case of Shaw Development LLC v. Southern Builders, Inc. While Shaw was initiated in 2007, and ultimately settled out of court, the facts illustrate a prime example of the liability that can result from a poorly drafted contract. In Shaw, the owner sued the general contractor because the building failed to achieve LEED Silver certification. The parties utilized the American Institute of Architects ("AIA") A101-1997 standard contract which incorporated a project manual as part of the contract documents. While the contract did not contain any specific green building requirements, the project manual did require the construction of an "environmentally sound ‘Green Building'" that conformed with the LEED Silver certification rating. Absent from the contract documents, however, were any provisions detailing the methodology and procedure for achieving the certification and resulting liability for failure to do so.

    Marketing Building as "Green" Can Create Inconsistent Expectations

    Builders and developers must be cautious when marketing a building as "green." Statements in marketing brochures and press releases often claim that the building "is" or "will be" LEED certified, is "highly energy efficient," and is "healthier and safer" for building occupants. These somewhat generic phrases create certain expectations by potential occupants and can lead to litigation over the failure to meet those expectations.

    Case in Point

    In the Riverhouse One Rockefeller Park Condominium Project located in Manhattan, certain unit owners filed suit against the project's principals, managers, architects, and marketing agents, claiming that the conditions in the units deviated grossly from what was promised and represented to them by the project sponsor and its principals. The owners asserted claims for breach of contract, fraud, and misrepresentation. Specifically, the unit owners alleged that the project was "marketed to be the cutting edge of ‘green' technology...featuring fresh filtered air, filtered water, eco-friendly materials and...low energy consumption." However, the owners alleged that the "the building's much-heralded ‘green' heating system" failed to adequately heat the units and that too much cold air infiltrated through doors, windows, and exterior walls. The owners are seeking damages in excess of $1.5 million.

    Lesson Learned

    Project personnel must choose their words wisely when marketing the building as "green." LEED certification cannot be achieved, and the performance and operational efficiency of a building cannot be measured, until sometime after a building is completed. Misstatements, misrepresentations, and false advertising claims can be avoided by careful review of the content with regard to the project's anticipated completion, certification, and operational performance.

    Allocation and insulation of risk is not a new concept in the construction industry, but the liability and risks associated with green projects and LEED certification are relatively new and unchartered territories. Contractors need to ensure that contracts for green projects seeking LEED or other third-party certification specify each party's responsibility in the certification process and allocate the risk and liability for obtaining the desired certification level.

    The legal documents are certainly catching up to the green trend and industry. This is exemplified by the AIA's recent introduction of its Sustainable Projects contract documents. The effectiveness of these documents, as with any contract, depends upon the party. These new AIA contract documents, like any other form contract, should be modified to conform to your particular exposure.