Green is the Goal, but what if the Target is Missed?
Green building continues to expand its footprint in the construction industry. Several reasons exist for the increased use of green-construction methods, including consumer demand and, perhaps surprisingly, municipal building codes. But in some cases, the parties involved in a green building project have not recognized that these new technologies also give rise to new expectations. When construction of an energy-efficient building is the goal, the parties may be left scratching their heads trying to figure out who is responsible if the goal is not achieved.
Green building techniques are not themselves new and arose in response to the resource-intensive nature of constructing and operating buildings. To keep occupants happy and healthy, buildings consume large quantities of energy and water and produce a steady stream of waste output.
And while green building practices have been percolating through the construction industry for years, the pace has increased in recent years. It is estimated that nearly half of the projects recently started for governmental owners will be energy-efficient designs. Among private owners, the U.S. Green Building Council calculates that more than half a billion square feet of commercial space has been certified as “green” by the Leadership in Energy and Environmental Design (LEED) rating system.
The increase can be traced in part to consumer demand for green building, including private owners or commercial tenants demanding more environmentally friendly construction. Also, some governmental owners have a mandate to require energy-conserving buildings.
Up to this point, the federal government has exercised only a light touch to encourage green building. There is a provision in the tax code that allows a deduction to investors in commercial buildings that reduce their energy costs. But this provision is set to expire at the end of 2013, and Congress has not yet shown an interest in extending the deduction or enacting other incentives.
Interestingly, local governments have been taking larger roles in pushing the widespread adoption of energy-efficient design. Municipalities such as Kansas City, Missouri, Cass County, and Overland Park recently have implemented new energy-efficient building codes for residential and commercial construction.
Regardless of the factors motivating green construction, these projects may require owners, designers, and builders to re-think their expectations. Green building remains an emerging technology and is often directed to new goals by comparison to traditional construction.
For example, consider a contractor’s or designer’s professional duty to exercise a “standard of care” in their performance on a project. Under this duty, construction professionals must demonstrate the same level of knowledge and skill as other professionals working in the same area. This standard will be tested in an emerging area such as green building because the building professional may be working with new technologies or methods of building. That is, what can be considered the reasonable level of knowledge and skill when a technology is new?
Also, should the construction of a LEED-certified or energy-efficient building be considered to require an average or enhanced level of care? These questions are further complicated in the context of LEED certification because
a third party will be deciding whether the ultimate goal is reached.
A discussion of duties naturally leads to the question of what is the cost if the goal of energy efficiency or LEED certification is not achieved. For example, if an owner commissions a LEED-certified building with the expectation that it will attract tenants and justify charging higher rents, then a failure to achieve certification could result in years of lost rental revenue.
Similarly, in a recent Maryland case, an owner filed suit for the loss of state tax credits resulting from the failure to obtain LEED certification. As these examples demonstrate, the potential consequential damages from a “failed” green building project can dwarf the amount of the contract.
The lesson here is that the parties involved in a green building project should understand their expectations going into a project and determine whether their contracts express these expectations.
Rather than leaving the question of the standard of care to a court, the parties should define their expectations ahead of time. Similarly, the goals for the project should be addressed and the risk of loss for not achieving these goals should be reflected in the parties’ agreement. As always, early planning and communication can help prevent surprise and uncertainty later.
Chris Dove is a partner with the Warden Grier law firm in Kansas City.
P | 816.877.8176
E | cdove@wardengrier.com
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