Your Green Project Could End Up In Court

Chad I. Michaelson, Esquire
cim@muslaw.com

It makes sense that more and more building owners want to certify their commercial developments as green. On average, green buildings earn higher rents, have higher occupancy rates and sell for a 13% premium.

 

But overpromising or under delivering on a green project can lead the building developer into financial and legal hot water.

 

Owners and developers usually can’t get the money to build or renovate until they have tenants signed up. To get those tenants, owners and developers often tout the green features of the building and the expectation of green certification. But certification is not awarded until after a building is complete and more than a quarter of all buildings drop out before the certification is awarded.  And in other cases the building is awarded a lesser certification than was represented at the time potential tenants signed leases.

 

Without the promised certification, the building owner can suffer a pernicious domino effect: The tenants may terminate their leases, the lender may declare a default, the owner may lose tax credits or other incentives, and the partners and investors may sue.

 

Owners and developers must not overpromise.  Marketing materials should make it clear that a project under construction is merely registered for LEED certification and that the building in question may perform better or worse once it is operational. Moreover, landlords should not sign leases allowing tenants to terminate if LEED certification is not obtained.

 

Green building also complicates contracts with those who are doing the work. Just as a green building requires a more sophisticated design and construction methods, it also requires more sophisticated contract documents.  Those documents must clearly set forth the owner’s sustainability goals and allocate responsibility for reaching those goals among the owner, architect(s)/engineer(s), general contractor, subcontractors and suppliers.

 

The contract documents must be drafted with the certification process in mind.  They should clearly define who is responsible for maintaining and gathering the information necessary to support certification submittals and who is responsible for the submittals themselves.  The contract should also spell out precisely what type of supporting documents and information must be maintained. 

 

The contract documents also must provide for the possibility of a failure to achieve certification, or to obtain certification at the desired level.  Because the hallmark of green building is a sustainable design, much of the responsibility for reaching certification goals should fall on the architect’s shoulders.  The general contractor, however, has a responsibility to ensure that the building is built in accordance with that sustainable design.  Certification points could be lost if, for instance, the owner and general contractor agree during construction to substitute for a specified material or otherwise modify the design to reduce cost or save time.  In addition, the general contractor exercises control over certain activities that have a significant impact on a project’s ability to meet certification goals, such as management of construction waste.  Consequently, the contract documents must clearly spell out the responsibilities of each member of the team.