December 8, 2011

Legal tips for construction firms pursuing LEED

PETER KENTER

correspondent

Sustainable building is transforming the Canadian construction industry. However, new construction techniques and new contract terms may be creating legal risks around liability, insurance and project certification that have not yet been fully explored.

“We haven’t seen a lot of cases involving LEED-igation or sustainable building projects, but we know they’re coming,” says Danielle Stone, an associate with Blaney McMurtry LLP and a member of the firm’s commercial litigation group. “In the United States since 2007, there have been about 13 cases related to sustainable building.”

Two U.S. cases involving Leadership in Energy and Environmental Design in particular have garnered interest in legal circles.

In Bain v. Vertex Architects (Illinois, U.S.A.), the plaintiff claimed that the architect “failed to pursue and obtain for the Project certification from the USGBC LEED for Homes Program” for a farmhouse renovation, when the stated objective of the architectural contract was to “create a sustainable green modern single family home.” The question raised: who is liable for failure to obtain LEED certification?

In Shaw Development v. Southern Builders (Maryland, U.S.A.), the developer contracted with a general contractor, who was not responsible for the building design, to construct a project to LEED Silver certification standards.

Shaw filed a US$1.3-million lawsuit alleging the contractor failed to finish the building in a timely fashion and failed to build it in accordance with LEED standards by state deadlines required to receive a green building tax credit of US$635,000. The question raised: can a contractor be liable if it was not responsible for designing the building?

“LEED requirements are changing all of the time,” notes Stone. “If you read the material two years ago and say ‘I’m good,’ you’re really not.”

Stone advises builders to keep up to date with LEED requirements and to retain counsel who can address the following issues:

•Determine which party is responsible for administering the LEED certification process.

•Determine who is responsible if a project fails to achieve LEED certification and what sort of damages may result from such a failure.

“Appeal is a costly process, about $500 for each credit you’re appealing, so it can really add up,” says Stone.”

•Determine any ongoing obligations relating to the operation and maintenance of buildings.

•Define who bears responsibility for the loss of certification from third parties.

“Anyone can appeal the certification at any time,” says Stone.

“Even 10 years down the road. If you build a condo that turns out to be not as energy-efficient as it was promised to be, who can be liable for that? That should be in your contract.”

•Confirm that there is adequate insurance coverage, including professional liability insurance for design professionals, that takes into account the “green” nature of the project.

“A lot of insurance companies are hesitant to give coverage for these types of projects because they don’t know what the risks are,” says Stone. “For example, what are the risks of green roof building?”

“Check warranty and guarantee language to confirm that new green construction procedures or installation materials and/or techniques do not void the warranty of guarantee for a product.”

“Make sure that your sub-contractors know exactly what they’re doing,” says Stone.

“Determine if intellectual property infringements will result from utilizing new green techniques or equipment and who is responsible for dealing with infringements that may arise.”

“However, it all starts with a contract that must be very clear and specific with regards to everyone’s duties and obligations,” says Stone.

Stone spoke at a presentation of Blaney McMurtry’s Architectural, Construction, Engineering Services (ACES) Group.

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