Green Building Law Update : Green Building & Construction LEED AP, Lawyer & Attorney Chris Cheatham : Washington DC, Virginia, New York City

The primary theme of Green Building Law Update is green building litigation will develop.  To date, one of the rare examples of green building litigation is Shaw Development v. Southern Builders, a case that involved a project's failure to achieve LEED certification in a timely matter.  Other examples of green building disputes are sparse.

But I am confident the litigation will develop.  A recent article, "'Green' projects create new exposures", suggests others agree:

“There is certainly going to be litigation coming out soon around (green buildings) and insurance companies are waiting to see” the loss results before developing coverage products, (David) Cohen, [senior product director for commercial insurance at Fireman's Fund Insurance Co. in Novato, Calif.], said.

Fireman's Fund Insurance Co. (FFIC) was the first company in the United States to offer green building commercial insurance in 2006.  The availability of this type of policy further suggests the inevitability of green building litigation.

What factors do you think will eventually result in more green building litigation?

Related Links: 

Shaw Development v. Southern Builders (GBLU)

"Green" Projects Create New Exposures (Business Insurance)

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One of Green Building Law Update's favorite topics in 2008 was the Shaw Development v. Southern Builders case. You may recall that the Shaw Development v. Southern Builders complaint was one of the first examples of green building litigation, which resulted from  a project's failure to obtain green building tax incentives.

After recently research the condominium project, I was stunned, but not all that shocked to read the following headlines:

Crisfield Condo Sales Slump; Captain's Galley Restaurant Closes

Condominium auction sale canceled

The first article describes the struggling Shaw Development project:
 

Twenty-three condominiums sit along the water in Crisfield. So far only six have been sold. At the bottom of the condominium is the empty Captain's Galley restaurant. It closed on Monday. Shaw said the operators have not paid rent in a couple of years.

The second article describes the results of the condominium project's struggles:

A foreclosure sale planned for the waterfront Captain's Galley Condominiums was called off Friday after the owner filed for Chapter 11 bankruptcy. The renewed interest in the condo units is due in part to recent price reductions. Two bedroom units now start at $247,000 and a three-bedroom listed at $369,000 will probably be reduced to $359,000, she said.

"They're huge reductions -- less than half the original price," she said.

If the Shaw Development v. Southern Builders case had gone to trial, it would have resulted in very messy green building litigation.  A good attorney would have argued that the condominium sales slump and the restaurant closing was the result of the project's failure to achieve LEED Silver certification.  A good attorney would have argued that the failure to achieve certification not only resulted in the lost tax incentives, but also resulted in the slumping sales and restaurant closing. 

Do you think Shaw Development could have successfully recovered these damages?

Related Links:

• Crisfield Condo Sales Slump; Captain's Galley Restaurant Closes (WBOC)
• Condominium auction sale canceled (DelmarvaNow.com)
• Shaw Development, LLC Files for Chapter 11 Bankruptcy Protection (GRELJ)
• Shaw Development v. Southern Builders (GBLU)

Photo Credit:  WBOC

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Today we are wrapping up our discussion of Shaw Development v. Southern Builders, one of the first examples of major green building litigation.   On Monday we discussed the basic facts of the case; on Wednesday we looked at the contractual green building requirements between the two parties; and on Friday we looked at Shaw Development’s stated causes of action. We conclude our discussion today by looking at the damages alleged by Shaw Development. 

Parties that bring claims or lawsuits based on a green building project’s failure to achieve certification must also prove damages. Often, owners seek green building certification to obtain government incentives or comply with regulatory mandates. In Shaw Development’s counter-complaint, damages were based on the owner’s failure to obtain green building tax credits: 

Shaw Development demands judgment in its favor and against Southern Builders for . . . Six Hundred Thirty-Five Thousand Dollars ($635,000.00) in tax credits for failing to construct the Project in conformance with a (LEED) “Silver Certification . . . .”

The tax credits for which Shaw sought damages were part of a State of Maryland green building tax incentive program. Many cities throughout the country have enacted similar tax incentives to entice developers to build green. Failure to achieve anticipated incentives can result in litigation similar to this case. Additionally, many cities, including Washington, D.C., New York, Los Angeles and San Francisco, have adopted mandatory green building laws and codes that will require the incorporation of green building strategies into all construction projects. Failure to comply with green building laws and codes creates additional liability risks for contractors. 

As inexperienced parties undertake green building projects, unmet expectations will result in disputes and lawsuits. Parties must protect themselves from the start by clearly stating all parties’ understanding of the green building certification process and what is to be achieved. Furthermore, parties must fully understand the specific requirements of the green building incentives and mandates that apply in their locality. While Shaw Development v. Southern Builders was apparently settled without a trial, further green building litigation is just around the corner and is unlikely to be as easily settled.   Check back with Green Building Law Update as we continue to discuss how to mitigate your green building risks.   

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This week at GBLU, we are focusing on the Shaw Development v. Southern Builders case, the first significant example of green building litigation.  On Monday, GBLU explained the importance of the case and reviewed the basic facts.  Today GBLU will review the most important part of the case, the contract between the parties and accompanying green building responsibilities.  

Why is the contract the most important part of this case?  The contract is the primary means for dictating a contractor’s green building obligations.  Shaw Development and Southern Builders relied on an AIA A101-1997 Standard Form of Agreement Between Owner and Contractor as their general contract, which did not include green building requirements.  Additional requirements were incorporated through a Project Manual that made specific reference to green building certification:  

Project is designed to comply with a Silver Certification Level according to the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) Rating System, as specified in Division I Section “LEED Requirements.” 

Shaw Development’s AIA contract and incorporated Project Manual lack clarity in articulating Southern Builders’ responsibility for constructing a LEED Silver certified project.  While the Project Manual does state that the project was designed to comply with LEED Silver certification, it does not assign the contractor responsibility to construct the project according to LEED Silver certification.  Instead, as stated in A101-1997, the contractor is responsible for building according to the designs and specifications.  Thus, the contractor could be liable if it failed to build according to plans and specifications, which resulted in a failure to achieve LEED certification. 

Owners and contractors are well served to clearly describe the contractor’s responsibilities related to the construction of a green building project.  If your green building contract looks anything like the contract from Southern Builders v. Shaw Development, you should think about revising it. 

Related Links

• The Anatomy of America's First Green Building Litigation (gbNYC)
• The First LEED Lawsuit...Great.... (Real Life LEED)
• Open the Floodgates:  The Era of Green Building Litigation (Greener Buildings)

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Way back on August 13, GBLU’s inaugural post focused on the impending green building litigation and factors that would cause the litigation.  One of the factors that was described focused on parties’ financial expectations:  “Parties undertaking green building projects for purely financial reasons will expect to make a profit.”  In order to make a profit from a green building, the project typically has to be certified.  Thus, it was anticipated that green building litigation would most likely occur when a project failed to achieve certification.  

Not surprisingly, we now have an example of green building litigation arising from this very scenario.  On February 16, 2007, Shaw Development, L.L.C. (Shaw Development) filed a counter-complaint against Southern Builders, Inc. (Southern Builders) in the Circuit Court of Somerset County, Maryland arising from, in part, the projects failure to achieve LEED Silver certification.  While the case never proceeded to trial, Shaw Development’s counter-complaint is instructive as to the future of green building litigation.  Our next three GBLU posts will look at the Shaw Development v. Southern Builders case in detail:  

•    Monday we will review the facts
•    Wednesday we will review the contract
•    Friday we will review the causes of action
•    Next Monday we will review the damages and provide some tips to avoid this type of litigation

The facts are similar to most construction projects.  Prior to the lawsuit, Shaw Development purchased property in Somerset County, Maryland and retained Southern Builders to construct a condominium project on the property.  In the counter-complaint, Shaw Development alleged, among other things, that Southern Builders failed to construct the condominium project in a good and workmanlike fashion and, as a result, the project did not achieve USGBC LEED Silver certification.

The contract between two parties is key to determining liability between two parties undertaking a green building project.  Check back Wednesday when we review the contract between Shaw Development and Southern Builders.  

Related LInks

• The Anatomy of America's First Green Building Litigation (gbNYC)
• The First LEED Lawsuit...Great.... (Real Life LEED)
• Open the Floodgates:  The Era of Green Building Litigation (Greener Buildings)

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