legal issues arising in leed™ construction marina pratchett qc leed green associate fasken...
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Legal Issues Arising in LEED™ Construction
Marina Pratchett QCLEED Green Associate
Fasken Martineau DuMoulin LLPApril, 2012
Overview of Legal Proceeding s
New risks
Developing Standard of Care
Inadequate contract language
No precedents
Overview of Legal Proceeding s
From the perspective of claims and actions it is early days in development of LEED™
We can predict where legal actions might arise.
We look to the US to observe developments
Overview of Legal Proceeding s
Types of cases divide into categories:LEED certification process:
Responsibility for
Damages for failure to obtainRefunds of grants, loans, tax incentives
Liquidated damages
Overview of Legal Proceeding s
Types of cases divide into categories:Alleged misrepresentations regarding impact of LEED:
overpromising, under-delivering – sustainable promises/representations vs actual measured performance – eg energy performance
Overview of Legal Proceeding s
Types of cases divide into categories:Product Liability
materials or systems that do not work as expected or do not work like non LEED products or require more time or are more expensive or have higher maintenance costs than anticipated
Eg paints, glues, green roofs, recycled rainwater
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Overview of Legal Proceeding s
Types of cases divide into categories:Competing Standards/Codes
Which applies
Overview of Legal Proceeding s
Types of cases divide into categories:Challenges
to FSC wood: Wood lobby in US – most local wood not FSC – allege discriminationDept of Defence US – prohibits appropriation of funds to achieve LEED Platinum or Gold unless can certify no additional costs of show a financial payback. Also required by June 30, 2012 report on energy efficiency standards including cost benefit analysis of ROI of LEED, Ashrae 189.1 and Ashrae 90.1 2010
Overview of Legal Proceedings: Some examples:
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Overview of Legal Proceeding s
Henry Gifford et al v US Green Building Council US District Court, Southern District, NY 10-7747 action alleging deceptive trade practices, false advertising. Alleges that US GBC misrepresents the efficacy of LEED from an energy savings standpoint and misrepresents the results of a 2008 study performed for USGBC
Overview of Legal Proceeding s
Henry Gifford et al v US Green Building Council (cont’d)
Gifford claims that USGBC and LEED rating systems make false promises
Focus of the claim is false advertising and consumer protection
Overview of Legal Proceeding s
Destiny USA Holdings, LLC v Citigroup Global Markets Realty Corp., 69 AD 3d 212
Injunction
requiring specific performance of a construction loan for a ‘green’ shopping centre
Part of the funding secured was tax-exempt green bonds
Overview of Legal Proceeding s
Destiny USA Holdings, LLC v Citigroup Global Markets Realty Corp., (contd)
Green elements – promised conservation and technology goals not achieved
Possibility that IRS would review tax exempt status of the bonds
This would affect the tax to be paid by investors
Overview of Legal Proceeding s
Syracuse Industrial Development had given the project 30 years tax abatement
IRS has now announced intention to audit
Overview of Legal Proceeding s
Building Industry Association of Washington, Air America Inc et al v Washington State Building Code Council US District Ct. Washington,
Conflicting standardsSeeks an injunction against enforcement of certain provisions of the Washington State Energy Code, then coming into force, which conflict with federal law and regulations governing energy efficiency of residential HVAC and plumbing products
Overview of Legal Proceeding s
The Air Conditioning, Heating and Refrigeration Institute v City of Albuquerque, US District Ct, District of New Mexico, 08 633
Conflicting standards
Challenges to green building codes may be on the rise
Overview of Legal Proceeding s
Riverhouse Condominium in ManhattanOpened in 2007
Overview of Legal Proceeding s
RIverhouse (cont’d)Action commenced based on allegations that the building does not meet the promised/represented sustainability-performance standards.The lawsuit seeks $5.3 million in damages and alleges that the building's green HVAC system not provide adequate heat and that many green features in each condo are not in fact built to LEED Gold standards.
Overview of Legal Proceeding s
Riverhouse complaint alleges that the building “was marketed as being at the cutting edge of ‘green’ technology - a LEED Gold-rated building featuring fresh filtered air, filtered water, eco-friendly materials and is designed for low energy consumption.Complaints: cold drafts. insufficient heat, unsatisfactory energy audit, (a deviation of 49 percent over the LEED standards in air infiltration)
Overview of Legal Proceeding s
Shaw Development v Southern BuildersContract required LEED silver certificationCertification not obtainedDamages claimed >$700,000 plus lost tax creditsDeveloper sued builderNo clear allocation of risk in contractAction settled.
S
Overview of Legal Proceeding s
Washington DC v Washington National Owner alleged green expectations not met and withheld $3.5 million
S
Overview of Legal Proceeding s
Eagle River Wisc. A group of residents challenged (unsuccessfully) the LEED rating given to a new high school.
Overview of Legal Proceeding s
Chesapeake Bay Foundation v Weyerhaeuser Co.
Allegations of “defective, inferior or unsuitable building products for a construction project.”
Design called for certain re-cycled and environmentally friendly products
Product was parallam beams and preservatives
Overview of Legal Proceeding s
Chesapeake Bay Foundation v Weyerhaeuser Co.
Specs provided that materials had to be approved by architect.
Manufacturer’s shop drawings indicated intent to use a particular sealant
Architect’s approval to the sealant not obtained (review of shop drawings not = approval)
Claim amount $6million
Sample
Taken from a full page advertisement in the Okanagan SNAP, vol 5, no 9, April 2011, re SOPA Square Development:
“Why Sustainable Choices Matter! :Sustainable designed buildings like SOPA use about 36% less energy than conventional buildings.
Green buildings have operating efficiencies that reduce emissions and are less harmful to the ozone layer“
Turning to the Contracts
Contractual drafting and negotiation all about identifying risks and allocating
In theory allocation should be fair, going to the person best able to control and contain the risk
In practice allocation is lob-sided in favour of the person with best leverage at time of tender/contract – market driven risk assumption
Overview of Legal Issues
Liquidated Damages vs Penalties
Consequential Losses
Waivers
Impact of Changes
New Players - certification body, GBF, energy modelers
Overview of Legal Issues
Warranties
Third party warranty providers
Product Liability
Costs not properly explained
Emerging technologies – eg green roof systems, geothermal systems,
Turning to the Contracts
In the USConsensusDocs 310 Green Building Addendum
AIA -
Turning to the Contracts
ConsensusDocs 310 Green Building Addendum
Defines the role of a “Green Building Facilitator:
GBF could be architect, contractor or a third party
Defines role of GBF – does not necessarily impose liability for certification on GBF
Turning to the Contracts
ConsensusDocs 310 Green Building AddendumComments on risk allocation – defaults to underlying contractsDefines ‘consequential losses’ broadly as including owner’s loss of income, loss of profit, reductions in operating and maintenance costs, tax or other benefits, marketing opportunities, credits and says that all of these are subject to waiver of CD”s in underlying contracts
Turning to the Contracts
ConsensusDocs 310 Green Building Addendum
Also says no project participant other than possibly the GBF is responsible for failure to achieve Green Status (as defined)
Turning to the Contracts
AIA B 214 (2007)
Identifies LEED AP
No responsibility for failure to certify
Turning to Contracts
Canadian ApproachTypically, architectural contracts expressly state that they are not liable for certification and contain limitation of liability clause
Turning to Contracts
Canadian ApproachSome drafters appear not to understand LEED
Loosely worded “LEED” sections being added to contracts without reference to any other provisions
Turning to Contracts
Drafting Tips Consider and deal with a risk of changes in laws and standards, and even changes in professional requirements.
Identify clearly who plays what role – and what the deliverables for each party will be
Turning to Contracts
Drafting Tips
All of the following clauses must be looked at through green eyes
Change orders
Delays
Force Majeure
Substitution
Turning to Contracts
Holdbacks
Representations and warranties
bonding, insurance
damages, LD’s, -consequential losses, waivers
Turning to Contracts
Close out procedures
Substantial Completion
Document Retention
Submittals, O & M training
QA/QC
Turning to Contracts
Drafting Tips Consider issues around concurrency of “faults”
Turning to Contracts
What are the actual and real consequences and damages to the owner of not achieving a ‘certification”
Holdbacks disproportionate to real costs and damages may be classified as ‘penalties’ or forfeiture and thus rendered unenforceable or in BC subject to being set aside under s. 24 of the Law and Equity Act (“The Court may relieve against all penalties and forfeitures”)
Turning to Contracts
Costly Contract TermsMandating certification
Costs of LEED rating and certification
LEED point chasing
Maintaining Holdback pending certificationRecent example – defined LEED as version 1
Major holdback to certification
Turning to Contracts
In US third party certification being replaced with green building codes.
International Green Construction Code
Turning to Contracts
Costly Contract TermsProduct specifications that have the effect of sole sourcing
Turning to Contracts
Where products and systems are specified, contractors are asserting they are not responsible when the product or system fails
QUESTIONS
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