Green Building Litigation—LEEDigation

As green building mushroomed in recent years, some industry and legal observers predicted a flood of litigation would accompany that growth, as new technologies and construction methods were introduced. But that flood of lawsuits has not materialized, and a growing chorus of experts now believes the building industry is rising to the challenge of successfully integrating LEED (Leadership in Energy and Environmental Design).

For sure, legal challenges to green building codes and programs do occasionally occur, and green-related litigation concerns are becoming regular topics at building and sustainability conferences. The issue has even spawned a new term—LEEDigation. Yet, it has turned out to be much less of a problem than some original predictions, such as in 2009 when the New Orleans–based Wolff Law Group’s Construction Law Monitor reported that “messy green building litigation . . . is coming.”

“I think the level of concern about green building risks has been overblown,” says Daniel Slone, an attorney specializing in environmental and sustainable development at McGuireWoods LLP in Virginia and a member of ULI’s Sustainable Development Council. “The industry is quickly absorbing these issues. Buildings have employed new technologies for a very long time, and green technologies aren’t inherently different than new technologies that came before.” Indeed, the U.S. Green Building Council’s general counsel, Susan Dorn, convened a panel of industry experts who concurred that LEED-related disputes can be characterized as “old wine in new bottles.”

Fears about LEEDigation arose because of the spectacular growth of green building itself. The green building market quadrupled in size between 2005 and 2008, according to McGraw-Hill Construction. And then during the recent recession, when total construction starts dropped 26 percent between 2008 and 2010, the green market kept surging, from $42 billion to an estimated $55 billion to $71 billion, McGraw-Hill reported. LEED has proven to be the industry’s green standard, with the federal government even requiring that all its new buildings achieve certification.

With LEED’s growing popularity, legal experts could foresee how disputes could arise, particularly around unmet expectations. These include the following: project costs rising more than expected, projects taking longer than expected, new technologies not working as well as planned, completed buildings not achieving the expected LEED rating, and buildings not achieving the expected energy savings.

In fact, such issues did result in a couple of seminal lawsuits. In 2007, for example, lengthy construction delays related to achieving LEED certification led to the Shaw Development vs. Southern Builders case in Maryland. It was ultimately settled out of court. Then last fall, New York energy use consultant Henry Gifford challenged the U.S. Green Building Council’s entire LEED program, alleging it lacked scientific basis and misrepresented the energy efficiency of buildings. Earlier this year, Gifford amended his suit to narrow its scope, but it is proceeding in New York. The USGBC recently filed a motion to dismiss the suit.

A few other lawsuits have emerged against green building codes, such as in New Mexico and Washington State. Still, even Washington, D.C.–based construction attorney Chris Cheatham, who coined the term LEEDigation, recently acknowledged, “I will be the first to admit that the wave of LEEDigation has not developed.”

He and others cite a couple of primary reasons why. First, the USGBC has been flexible in enforcing its LEED ratings. In one bellwether case, a group of citizens challenged the Gold certification of Northland Pines High School in Wisconsin, and the USGBC permitted the project team to retroactively amend the energy models and retain the Gold rating. “The USGBC works with projects to make sure they are successful, and that limits legal challenges,” Cheatham says.

Second, construction contracts relating to materials, techniques, and codes have been adjusted to incorporate green concepts and processes. Some contracts, for instance, spell out which project participants, from architects to contractors, are responsible for certain LEED points.

As a result, the insurance industry isn’t overly concerned about green-related project disputes. Earlier this year, Washington, D.C.–based specialty insurance broker Ames & Gough surveyed underwriting executives at leading insurers and asked why rates were increasing for architects’ and engineers’ professional liability coverage. Green design wasn’t mentioned as an issue.

“They had an opportunity to list sustainable design and they didn’t,” says Dan Knise, Ames & Gough’s CEO. “There hasn’t been a history of claims yet.”

Nevertheless, as the number of projects seeking LEED certification continues to grow, more legal disputes could pop up. For instance, one new type of dispute is emerging, in which energy-efficient components were promised to qualify for development incentives, but then such components weren’t part of the completed project.

So legal experts offer the following recommendations to guard against green building–related disputes:

• Manage expectations. Do not guarantee a certain level of LEED certification, although owners sometimes demand it.
• Specify responsibilities. If a development hopes to achieve a certain level of certification, identify which partners on the development team are responsible for which green components. “Clarity of roles and responsibilities is essential,” says the U.S. Green Building Council’s Dorn.
• Build flexibility into timetables. Make sure contracts include provisions for scheduling delays caused by third parties, such as for green-related reviews and approvals.
• Know your insurance. Some newer green products or techniques may not be fully tested yet and thus may not be insurable.

“The thing that gets developers in trouble with green buildings is not being able to quantify the expected performance standards,” says McGuireWoods’ Slone. “It’s not always about building the building; it’s about tracking through the expectations.”