How I Learned to Stop Worrying and Love LEED De-Certification
Love might be too strong of a word but you get the point. The idea of LEED de-certification has touched off a firestorm of comments, some in support and others in objection. I think a follow up post is warranted.
First, I want to clarify one important piece of information as I noticed some were heading down the wrong path. The LEED 2009 Minimum Project Requirements (MPR) require, among other things, that projects report energy performance data. If projects do not report energy data, then LEED certification may be revoked (i.e. de-certification). The USGBC has not stated that LEED certification will be revoked for poor energy performance itself. Go take a look at the USGBC's MPR webpage if you get a moment.
Furthermore, the USGBC's decision to require energy reporting and threaten LEED de-certification makes sense. Why?
The number of people complaining about LEED certified projects that were not reporting energy performance reductions was growing everyday. Ever heard of Henry Gifford? He actually engaged in an open debate with the USGBC in March 2009 about the merits of LEED certification. This was not good press. This was not a good development for the USGBC.
In response, the USGBC took a dramatic step to fix the problem. The USGBC has taken what I think is only the first step to ensure improved energy performance. Additionally, the USGBC used the only "stick" (i.e. enforcement mechanism) it had available: LEED de-certification.
On Wednesday, there was a great piece in ENR regarding the LEED energy reporting and de-certification. Both an American Institute of Architects representative and a Building Owners and Managers Association representative came out in favor of the reporting requirements. Of course, there was some criticism in the ENR article regarding LEED de-certification:
The “bottom line” is, these conditions “may end up doing more harm than good for the future vitality” of LEED, says attorney Edward B. Gentilcore, a partner of Duane Morris LLP, Pittsburgh. “This would be a significant loss in light of the accomplishments to date,” he adds.
Mr. Gentilcore is a fellow construction attorney. Us attorneys are going to be worried about any new requirement that creates additional risk and liability. That is why we are here. We are here to worry about your risks and liability.
The moral of the story? As LEED 2009 changes are implemented, your contracts need to change as well. Let us do the worrying for you.
Photo: JonBen
You make an important distinction, Chris, by noting that what subjects a project to decertification is not necessarily poor energy performance but a failure to report energy data. At the same time, one would think that the former must follow; if LEED certified projects are allowed to obtain certification, but in subsequent years prove to be energy-efficient failures, it will give the USGBC and LEED certification a bad name! The enforced reporting will only highlight projects which fail to live up to expectations, and, to the extent there really is a problem, the reporting will only make what has been a quietly rumored bad situation much more real and visible. At that point, I believe, the USGBC must take positive steps to decertify projects for energy efficiency failures.
A great point Andrew. Reporting without improvement only worsens the PR problem. I still think that while this is the only "stick" in the USGBC arsenal, the real liability issue is when LEED becomes the benchmark for performance by governments and in contracts. Otherwise, from a liability standpoint, what's the big deal? Yes, losing LEED certification is bad PR for an owner, but does not cause the owner to pay more or a contractor to do more unless a contract, building code, or other regulation makes it so.
@Andrew
I would think that the USGBC would be better served by not just identifying and de-certifying, but rather by identifying and determining why performance does not meet the standard.
At that point, the USGBC could offer assisstance and resources (for a fee I am certain) to increase the building performance to necessary levels. If the building could not meet the performance level, then presumably there would be some reason that could be identified that would create liability.
However, as someone mentioned on a prior post, modeling software is far from flawless and is a potential cause of underperformance. I wonder what percentage of buildings underperform as a result of poor maintenance and operations v. erroneous modeling?
@C.Hill
Consider lenders giving favorable terms to borrowers based on a level of certification and expected operating cost saving compared to similar structures. Presumably, the cost savings would make the loan lower risk based on the greater ability to make payments due to lower operating costs (projected rent premiums could factor in as well).
If the building does not deliver the expected operating efficiencies based on certification level, couldn't the lender exercise a clause that would increase the interest rate or assess some penalty based on the "default?" The higher interest rate could represent enormous damages and therefore liability.
Ok, time for me to finally chime in, here. As you attorneys begin incorporating new contractual requirements of energy performance to address LEED 2009's Minimum Project Requirements, please make sure to keep in mind that reporting the usage of natural resources and the subsequent efficiencies create unique risks and liabilities that my (insurance) community has yet to address.
As I have mentioned on numerous occasions, surety providers of performance bonds are underwriters based on the assumption of no losses. Should a contract contain language guaranteeing energy or natural resource performance/efficiency, the surety will exclude that language from their performance bond. In the event that a building fails to perform to a specified level of resource efficiency, should the surety be required to compensate the owner to rebuild the structure? That is not what they are in business to do and will not bond contracts guaranteeing efficiency and performance specifications.
The next question is if there is a situation in which a building is de-certified for either failure to report usage data or lackluster performance (should the program requirements change), than is their a potential for liability by a third party to the operation and maintenance of the building and has the owner incurred a financial injury due to de-certification. The plaintiffs will most likely argue that in fact, the building has lost value, but commercial general liability may not deem this as an occurrence caused by the negligence of their insured. Many professional liability contracts contain exclusions pertaining to guarantees and warranties, so who will provide the defense, what are the damages and what will the plaintiffs argue as their incurred damages?
The point is that we need to be proactive as our contractors enter the realm of performance contracting and they need to be clear as to how their liability insurance will and WILL NOT respond. Guarantees of building energy performance are not new, but they are UN-insurable. If you as a contractor or architect make these claims, you will be ON YOUR OWN if the building fails to meet the owners expectations.
Jeff,
My point is not that we don't need to have this discussion, but that the use of LEED as you describe (and in other ways) is the key, not as much LEED itself. LEED is a benchmark, the use of that benchmark is what creates the unique risks. I am not disagreeing with much of this discussion, just offering a different starting point. BTW- Check out Musings on Monday for more on this.
@Andrew Falk - You just wrote the post I was going to write for Monday! I agree with you completely.
@Christopher Hill - Getting a project de-certified would be a HUGE deal. Tenants buy property in DC because the project is LEED certified. Those same tenants will not be happy when they are no longer in a LEED certified building. Those tenants will want to hold someone accountable.
@Jeff Howell - Whenever I hear about projects not meeting expected energy performance levels, the maintenace and operations are always blamed.
@Mark Rabkin - I was wondering where you were! Thanks for jumping in to the conversation (and phone call - I will call you next week). Your comment is very important. I don't have anything to add, but everyone should go back and read it again. I know I will.
Chris,
Your comment is very true. However, if the tenants wanted the building Green Globes certified, we'd be discussing how Green Globes creates unique risks.
@Chris Hill
I completely agree. Your post on Musings today (http://constructionlawva.com/2009/07/musings-on-leed-de-certification.html#comment-form) sums it up well. What does the USGBC say about why they have implemented the de-certification element? Isn't there a lawyer on their board?
Thanks for the plug Mark. I'm sure that they have an attorney on board, but have no real knowledge of the internal workings of the USGBC
Check out Matt Devries post on his great blog for a great synopsis of this debate. http://bit.ly/6Fj7g