The construction industry will be transformed over the next few
years by the green building movement. There is an increased demand
in North America for buildings and construction procedures with a
reduced impact on the environment. In particular, it is becoming
relatively common for public and private owners to require that
their buildings achieve a particular level of LEED"
certification (Leader in Energy and Environmental Design).
The practical and legal implications for owners, design
consultants, contractors, and suppliers or manufacturers of
construction products of committing to design and build a
LEED" project are not yet fully understood, but past
experience with new developments in construction would suggest that
a careful consideration of the legal risks and appropriate
mitigation measures is warranted at this time.
In Part I of this article, we focus on the experience with green
building in the United States, from which lessons can be learned.
In a future newsletter, we will identify the legal risks associated
with green building as well as specific steps that can be taken in
drafting and administering construction contracts in order to
minimize the risks.
A commonly cited American case in relation to green building is
Southern Builders v. Shaw Development No. 19-C-07-11405,
(Somerset Co. Cir. Ct., filed Feb 7, 2007). Although the case
settled before trial, thus depriving us of judicial reasoning on
the issues, it does provide insight into some of the potential
risks on LEED" projects.
The project which was the subject of the litigation was the
Captain's Galley, a $7.5 million condominium project located on
the Chesapeake Bay in Crisfield, Maryland. It was intended to
achieve a Silver LEED" rating, which under the laws of
Maryland, would have resulted in tax credits for the owner.
However, there were significant delays during construction, and the
contractual completion date was not achieved. As a result, the
Captain's Galley failed to achieve the LEED" certification
within the time limit specified in the tax credit application, and
the credits were denied.
The contractor, Southern Builders, commenced an action to
enforce a lien of approximately $50,000, based on amounts claimed
to be owing under the construction contract. Shaw Development
counterclaimed, seeking damages in the amount of $1.3 million from
Southern Builders, of which $635,000 related to the building's
failure to achieve the tax credits. The relevant claim made by Shaw
Development was that Southern Builders had breached the
construction contract and been negligent in failing "to
construct an environmentally sound 'green building' in
conformance with the LEED" rating system".
The only reference in the contract to the project's
LEED" requirements was in the Specifications, which stated
simply that the project was "designed to comply with a Silver
Certification Level according to the USGBC's LEED" Rating
System, as specified in Division 1." The contract was a
standard American Institute of Architects (AIA) A101-1997
Owner/Contractor Agreement. While it required Southern Builders to
build the project in conformance with the contract design, it did
not obligate the contractor to achieve any particular LEED"
certification, nor did it specify the contractor's
responsibilities in relation to achieving the certification, or
address the fact that the certification had to be achieved within a
specific time frame.
More will be said on the topic of the need for specific contract
language dealing with roles and responsibilities relating to
LEED" certification in the next edition of this
It should be noted that while there are very few reported
judicial cases on green building issues, there are many reports in
the United States of claims made under liability insurance policies
and otherwise on green projects, arising from failures, unexpected
consequences and unfulfilled expectations. These include:
failure to achieve the represented LEED" level of
claims for breach of warranties or representations made in the
LEED" certification documents
claims arising from inexperience with new products
claims of overstated experience
water damage, mould and air contaminants
failure to meet changing regulatory requirements
claims by occupants of failure to meet their expectations
increased maintenance costs.
In our next newsletter, we will offer tips on risk mitigation
steps that can be taken in the contract drafting and administration
phases of a green project in order to assist in avoiding such
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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