green built michigan presentation

Patrick R. Drueke, Attorney at Law

It Ain’t Easy Being Green: Carrots, Sticks and Safety Nets

Prepared For: Green Built Michigan

By: Patrick R. Drueke


Patrick R. DruekeRhoades McKee, P.C.Grand Rapids, Michigan

Patrick R. Drueke is a shareholder at Rhoades McKee. He helps individuals and businesses solve real estate disputes, real estate transactions, land development challenges, condemnation claims and construction matters. He is also a Leadership in Energy and Environmental Design® Accredited Professional (LEED AP). The LEED rating system is the nationally recognized benchmark for the design, construction and operation of high-performance green buildings. As a LEED AP, he can assist clients through the LEED certification process, from startup to final verification of a project’s green measures, as well as navigating clients through the evolving legal and regulatory requirements relating to green building.


Sustainability is Not a New Concept

“The earth belongs to each generation during its course, fully and in its own right, no generation can contract debts greater than may be paid during the course of its own existence.”

- Thomas Jefferson, September 6, 1789.

“Sustainable development,” is that which “meets the needs of the present without compromising the ability of future generations to meet their own needs.”

- Gro Harlem Bruntland, Norwegian Prime Minister, 1987.


Learning Objectives

• Identify the potential sources of green building incentives. • Identify potential mandates, and the legal issues arising out

of green building legislation. • Identify the contractual and professional risks created by

contracts for green building.


Incentives, Generally

Incentives for green building can include: Zoning density bonuses; Expedited permits; Reductions or waivers of municipal permit fees; Local, state or federal tax credits, incentives or rebates; Tax credits for expenses of continuing professional

education (Green Advantage, LEED Accredited Professional). “A combination of federal incentives, state tax credits, and

local government incentives would make green projects make more sense.” Larry Crittenden (USGBC Detroit Regional Chapter Executive Director), June 2, 2009.


Pending Incentives in Michigan

HB 4124 (Introduced January 27, 2009): • Permits a taxpayer to claim a credit equal to 50% of the total

cost for the construction of a green building or the rehabilitation of a building into a green building and the expenses incurred to obtain LEED certification or $50,000.00, whichever is less.

• “Building” includes a residential multi-family building with at least 4 habitable stories that contain at least 10,000 sq. ft. of space (this is in addition to commercial and industrial buildings).

• Current status: Referred to Committee on Energy and Technology.

• Drawback: Limited to buildings certified under the USGBC LEED standards.


HB 4193 (Introduced February 5, 2009):• Permits a taxpayer to claim a credit equal to $5,000 for the

purchase of an eligible green residential structure. • Permits a taxpayer to claim a credit of 30% of the costs

incurred for an eligible renovation or addition or $2,000, whichever is less.

• Structure must be certified by: Green Built Michigan, The National Green Building Program (must meet or exceed silver certification standards), or another recognized domestic or international organization approved by the Department of Labor & Economic Growth.

• Current Status: Referred to Committee on Energy and Technology.

• Drawback: Amount of credit.


HB 4926 (Introduced May 12, 2009):• Nearly identical to HB 4193. • Current Status: Referred to Committee on Energy and

Technology.

• Advantages: • Introduced as part of a two-bill package with HB

4927. • A bi-partisan effort with the two bill sponsors being

Rep. Horn (R-Saginaw) and Rep. Mayes (D-Bay City).


HB 4927 (Introduced May 12, 2009):• Provides a tax credit equal to $50,000, or 50% of the cost of

LEED certification (including third-party commissioning, consulting and verification costs) whichever is less for the construction or renovation of a qualified green building.

• Must obtain LEED Silver certification from USGBC. • Bill also provides a credit of 50% of the expenses to become a

LEED AP or that are incurred in passing the Green Advantage exam, or $2,000, whichever is less.

Current Status: Referred to Committee on Energy and Technology.

Advantage: See HB 4926.

Drawback: Limited to buildings certified under the USGBC LEED standards.


Existing Federal Incentives

The Energy Policy Act of 2005 (Extensions enacted on 10/3/08): • An eligible contractor who constructs a qualified energy-

efficient home can qualify for a credit up to $2,000. • Tax credit for efficient furnaces, boilers, air conditioners,

water heaters, insulation and window upgrades to existing homes.

• Detailed information at www.energytaxincentives.org

http://www.energytaxincentives.org/


Online Resources for Available Incentives

• www.dsireusa.org • www.usgbc.org• http://twitter.com/patdrueke

http://www.dsireusa.org/


Mandates, GenerallyMandates for green building can include:

Requirements that government funded projects comply with national green building standards;

Municipalities requiring residential construction to comply with a nationally recognized green building standard;

Municipalities requiring that new construction meet minimum energy efficiency standards;

Municipalities requiring new buildings to install green roofs; Mandatory fees to finance green building funding and

education.


The Legislation of Green Building Requirements

Green building may be increasingly difficult to avoid:

− Many federal, state and local governments now require that public buildings meet green standards.

− Some state and local governments have extended green building mandates to new residential and commercial construction.

− According to research conducted by the University of Wisconsin, in 2008 there were 134 mandatory green building programs in place in 118 counties in the United States.


− In 2008 California adopted the California Green Building Standards Code.

− The City of Boston enacted a green building section in its zoning ordinance:

• Requires projects to be “LEED certifiable” as a condition of approval.

− The City of Toronto enacted legislation that requires green roofs on all new residential buildings over 6 stories, schools, affordable housing developments, commercial and industrial buildings.

− Michigan Legislature introduced HB 4575 (March 12, 2009), which permits local municipalities to adopt its own building code consisting of the National Green Building Standard or the current version of LEED.


Legal Challenges to Green Building Mandates

• Efforts to mandate green building may face legal challenges based on claims of vagueness, ambiguity, improper delegation of government authority and preemption.

• Requirements that condition approval on a project being “LEED certifiable” or permit a municipality to adopt the “current version of LEED” are vague because the USGBC can and does adopt new versions of the LEED rating system mid-year.

• A vague standard can also be challenged as an unlawful delegation of governmental authority because it delegates a governmental power to a non-governmental entity.

• Solution: Reference a specific version of the third party rating system (LEED NC v3.0, National Green Building Standard, ICC-700).


Additional Concerns

• The blanket adoption of a non-specific third party rating system takes the local government out of the decision making process and places it in the hands of a third-party which is outside of the public’s oversight.

• The adoption of a non-specific third-party rating system may produce unanticipated consequence because a municipality may tie itself to any change the third-party makes to the rating system.

• Toronto’s green roof mandate may cause building costs to increase substantially, and create adverse consequences for insurance policy holders if there is a “loss” under the policy of insurance.


Local MandatesCity of Grand Rapids Resolution No. 74599: • All construction and renovation projects involving municipal

buildings larger than 10,000 square feet and a cost of $1 million or more must receive LEED certification.


HB 4575 (Introduced March 12, 2009):• Would amend the State Construction Code Act. • Permits local municipalities to adopt its own code

consisting of either the National Green Building Standard, ICC-700, or the “current version of Leadership in Energy and Environmental Design (LEED)”

• Current Status: Referred to Committee on Regulatory Reform

• Potential legal issue: Unlawful delegation of governmental power, or too vague (to the extent a local municipality mandates “the current version of LEED” as opposed to a specific version of LEED).


Is There New Legal Exposure for Green

Building?• The USGBC contends that there is no new legal risk in its

paper: “The Legal Risk in Building Green: New Wine in Old Bottles?”

• The paper suggests that liability risk associated with green building is nothing different than traditional construction (i.e. “the novel liability associated with building green are . . . new wine in old bottles”).

• The paper suggests that the framework of legal liability is not new: local building codes and land use regulations must still be followed.

• The paper suggests that there have been very few insurance claims against green design professionals


Does this Mean There is No Additional Risk?

• A recent case in Maryland (Southern Builders v. Shaw Development) emphasizes the importance of understanding the applicable legislative scheme (mandate or incentive) and clearly describing the responsibilities of: the owner, design professional, contractor, etc.

• In Southern Builders the parties utilized a standard form contract, and incorporated a project manual, which stated that the project was “designed to comply with a Silver Certification Level according to the USGBC’s LEED Rating System.”

• Maryland offered state tax credits for LEED projects. • Projects could obtain the credit only after receiving a certificate

of occupancy after construction was complete, and a submittal that the building meets the criteria necessary to receive the tax credit (i.e. LEED Silver) – all within a specified time period.


Shaw Builders (Cont.)• There was no language in the contract documents obligating

Southern to secure any formal certification from USGBC. • The contractor was required to deliver a Certificate of

Occupancy within 336 calendar days from the date of the agreement.

• The contractor failed to deliver the COO, and as a result the project missed the deadline to obtain the tax credits.

• The owner sued the contractor for “$635,000 in lost tax credits.”• The lesson learned:

• The parties failed to recognize the risk created by the regulatory scheme that led to the loss of tax credits.

• The contract documents did not include a risk transfer mechanism with respect to securing the tax credits


Key Issues• Negotiate and draft contracts keeping in mind that the specific

third-party rating system requires the allocation of responsibility.

• The professionals and consultants building the project should have experience and be familiar with sustainable design, the specific rating systems, and the certification process.

• Your contract must specify the materials, systems, and products required to achieve the necessary level of green performance.

• You must know the state and local legislation which governs green building standards, or that otherwise offers incentives for such projects.

• Because “green” design is non-traditional you cannot rely on a contract that might be used for a traditional built structure.


Managing Risk Through Your Contract

• Current form contracts do not contain language specific to green projects.

• The contract should include provisions relating to: • Specification for certification (if applicable);

• Define exactly which third-party rating system is being used (i.e. National Green Building Standard, LEED for Homes, Green Globes), and whether a level of certification is required.

• A contractor should delete any requirement to achieve a certain level of certification if another party designed the structure (if an architect did not design the project to satisfy the prerequisites or credits why should the contractor be held responsible?).


• Avoid guarantees of a certain Performance Point Level (e.g. Bronze, Silver, Gold, Emerald) under the National Green Building Standard.

• Liquidated damage provisions should be considered:• A contractor can mitigate risk by specifying a predetermined amount

of damage to be paid in the event of a breach• Such a clause would avoid the owner claiming “actual damages.”

• Obtain a waiver of consequential damages. • Force majeure clauses are important:

• NAHB Green Building Guidelines: “Use materials manufactured from renewable resources or agricultural by-products such as soy-based insulation, bamboo, or wood-based products”

• What if those are not available, and you have a deadline?• Responsibilities for obtaining tax credits:

• Allocate risk in the event certification and/or credits are not obtained


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