When green goes bad

As far as industry fashions go, it's no secret why a green wave is washing over the building industry. With sustainable practices now not only a sign of environmental consciousness but a proven way to slice operating costs down the line, green is going from specialty to industry standard.

It also makes a good selling point.

Today, when plans are unveiled for a Class A office development or luxury residential tower, the design's likely to incorporate sustainable features. Beefed up by the U.S. Green Building Council's stamp of approval, a LEED-certified design makes an attractive option for potential tenants and buyers drawn to cutting edge spaces with an eco-friendly aura.

However, what happens when a development invests time and money into the LEED process, only to come up short in the end?

As the number of LEED buildings across the country rises, so does the number of failed LEED projects, buildings that set out to hit the target but, because of some snafu in the development process, are denied the desired distinction.

And this trend begs the question: When projects fail, who is legally accountable?

On new legal ground

The liability involved in beached LEED ambitions is new legal ground, largely because there's yet to be a court judgment on the books to set a precedent.

"There's been very little litigation out there, and litigation is what drives contract drafting, rule making, risk control and insurance coverage," said Jeffrey R. King, an attorney with Stites & Harbison, and also a LEED Accredited Professional. "We're not really there yet in the cycle."

But just because the courts have yet to see such a case doesn't mean the issue isn't brewing.

When a project fails to meet LEED requirements, the builder and developer work to settle the issue out of court – often until the statute of limitations ends in two to six years. At the end of that period the battle moves to the courts. With the number of certification attempts growing in the last three years, King predicts that a number of disputes over bungled LEED plans are in the works.

This means now is a critical time for the building community as it identifies the ways owners, architects, engineers and contractors can protect themselves from the potential fallout of a failed project.

Credit catch

There's a catch to "green" building. Despite the intentions announced when the building breaks ground, an owner and his or her team don't know whether or not a building passes the LEED qualifications until after a structure is built.

LEED certification is based on the number of credits a building racks up in the construction process. Credits are awarded for everything from meeting certain efficiency standards to using sustainable building supplies. But when a building fails to reach the credit total needed for certification, it can have a significant financial impact on the project.

A 2008 Maryland lawsuit – later settled out of court – may well be a harbinger of what's ahead on the legal landscape. In that case, Shaw Development sued a contractor for $1.3 million after the company's condo project failed to achieve LEED Silver certification. The company had budgeted the project to include a tax break contingent upon the certification – a break it didn't end up getting.

Legal questions also can arise when tenants and condo owners pre-lease on the assumption they are buying into a building up to USGBC standards.

"If it's an office building, to get a loan you've got to have a certain amount of pre-leasing. If it's a condo project, you've got to have a certain amount of presale," King said. "Part of your marketing is going to be if you're a green building. That has a certain cachet."

Again, the question of where the responsibility falls is unclear. The industry-standard contracts drafted by the American Institute of Architects do not specify how LEED liabilities are to be handled, meaning all parties are open to finger-pointing.

According to King, design professionals, contractors and owners are the most likely targets for breach of contract lawsuits or negligence claims in these situations.

For example, if an engineer designs an HVAC system and it's installed properly, yet the system fails to achieve the desired reductions, fault is likely with the design team. However, if on paper the design is flawless, but a problem occurs in the installation, contractors will be targeted.

"Potential suits against design professionals are likely breach of contract or malpractice cases, professional liability cases," King said. "There [are lots] of questions as to whether the existing professional practice liability policies of some of these professionals cover these particular risks."

The insurance companies are currently crunching numbering to calculate the potential coverage they can offer the building industry and the appropriate premiums. But without a court decision to solidify the issue, the companies are holding back from committing, King said.

Communication is key

The key to successfully pulling off a LEED project is clear communication between all elements of the team involved, according to Stephen Rick, a LEED AP (accredited professional) with Street Dixon Rick. Having hit LEED qualifications for all the structures it has aimed to certify, included the LEED Gold Vanderbilt Commons, Rick's firm has experience translating a LEED design to the construction phase without issue.

"Like any other project, the key is managing goals and expectations, a clear understanding of what you're doing and to make sure everyone understands the impact of decisions" Rick said. "Probably, if there are some expectations that are not being met, it's because somebody didn't understand something along the way."

That clarity needs to extend into the contractual agreements that bind all the participants. King suggests when contracts are drawn up, more attention must be paid to the fine print than on usual projects.

For example, when hiring a contractor, the owner should specify exactly the type of supplies that must be used on the project, such as low VOC paints, specially certified wood or efficient electrical systems.

"You need to make sure that whatever you deem to be your exposure or risk in the project that you've got the coverage, or you figure out a way to address them with indemnifications from whoever is promising the performance you need."