Blockchain has come to Real Estate

Earlier this fall an apartment in Kiev became the first real estate purchased using blockchain, portending a new era in the sale of land and improvements.

It is suggested blockchain may do for the $217 trillion real estate market what the Internet did for communication. Blockchain will address high transaction costs, long time delays, and heterogeneity, accelerating both the investment good and the consumption good of real estate across sectors and the globe.

Blockchain, a digitized, distributed ledger that records and shares information, could enable the real estate industry to address its inefficiencies. Many think of blockchain as the technology, or better yet the operating system, that supports Bitcoin, the digital currency launched in 2009 that has been very much in the media in recent days as prices have run up.

There is no requirement for a cryptocurremncy exchange in a business transaction undertaken with a smart contract stored over the peer to peer network that is blockchain.

Real estate is a highly regulated industry and real estate transactions must be recorded in a government ledger to be recognized and enforceable by all. There are more than 3,600 government in the United States alone where real estate deeds are filed and the vast majority are paper instruments filed with a court clerk and not easily accessible.

A California based private company, Propy, contracted with Ukraine’s e-government agency to serve as a duplicate official ledger facilitating the $60,000 Kiev apartment sale in September.

Laws will need to be changed across the U.S. and the globe to allow more than the old fashioned register of deeds because today in most of the thousands of local jurisdictions in the U.S. the transfer of ownership of real estate is effective when the deed in presented for recording among the land records.

States are making the necessary changes in law.

In 2016, Vermont enacted House Bill 868 that provides for the enforcement of transactions using “blockchain technology” by providing a presumption of admissibility in a judicial challenge,

A digital record electronically registered in a blockchain, if accompanied by a declaration that meets the requirements of subdivision (1) of this subsection [.. notarized], shall be considered a record of regularly conducted business activity pursuant to Vermont Rule of Evidence 803(6) ..

And earlier this year, Arizona went even further enacted House Bill 2417 recognizing blockchain signatures and smart contracts as an electronic record and Senate Bill 1084 requiring governmental agencies to allow the use of electronic records or electronic signatures, including for the transfer of real estate.

Delaware, Nevada and Illinois also have blockchain authorizing laws; as do Dubai and Israel.

It may well be commercial leasing will elevate blockchain in the marketplace ahead of deeds because leasing transactions do not require involvement of a government registrar.

And progressive owners of green buildings and the like will all but certainly be at the forefront of this technological revolution. But all owners of commercial real estate, whether or not their aim is improve profitability, risk becoming as outmoded as the buggy whip industry, if they do not ponder and consider adopting blockchain technology.

Green Building Data Risk as an Opportunity

Green buildings generate large quantities of data. In an age when many have opinions about Edward Snowden’s disclosures, foreign state sponsored hacking, and Uber’s massive customer data hack, most people have not considered matters of data protection from their real estate, green building or otherwise.

The topic is too broad to comprehensively address in a brief blog post, so this post will consider, within the realm of green building, what a business needs to know about protecting people’s personal information, no matter where the data is processed, stored or sent, even outside the four walls of the building, as may often be the case when it is transmitted over the Internet.

There is no single comprehensive federal data privacy law in the United States. There are a panoply of federal laws within discreet silos, including significantly: The Health Insurance Portability and Accountability Act (HIPAA), The Family Educational Rights and Privacy Act (FERPA), the Fair and Accurate Credit Transaction Act (FACTA), and the like. And there is some form of privacy law in at least 48 states (but not Alabama and South Dakota), including by way of example the California’s groundbreaking 2003 Data Security Breach Reporting Law, but most of those are reactive, that is most laws in the U.S. establish requirements for a business after a data breach.

The European Union has gone in another direction with the 2016 General Data Protection Regulation, applicable as of May 2018, updating and modernizing the principles enshrined in the 1995 Data Protection Directive which guarantee individual privacy rights in one’s personal data including “the right to be forgotten.” The EU law is not only mandatory of all doing business in EU countries, but is excellent guidance for any U.S. business seeking to mitigate the risk associated with data protection.

Because the U.S. does not have an omnibus data protection law, the EU data protection regime has become the de facto standard.

But make no mistake, privacy enforcement in the U.S. is more aggressive and punitive than anywhere else in the world, including the EU. Substantial financial penalties have been recovered by the Federal Trade Commission and the 50 state attorneys general, not to mention in private civil actions.

So there are implications for owners and operators of green buildings. But the largest owner of green buildings (also the owner of the most LEED certified buildings) the Department of Defense has largely taken itself out of this discussion with a waiver that provides,

Department of Defense prohibits the sharing of metered data with private entities, such as USGBC. Therefore, DoD sustainable proponents have brokered this waiver with USGBC, allowing DoD to continue to utilize LEED without compromising data. This waiver is specific for LEED Version 4.0. The similar waiver for LEED v2009 is still in effect ..

And the power utilities protect themselves from liability related to data. A common provision in a utility Written Consent To Release Confidential Customer Usage Related Information, is

I hereby release, hold harmless, and indemnify Utility from any liability, claims, demands, causes of action, damages, or expenses, including attorneys’ fees, resulting from: 1) any release of information pursuant to this Authorization; 2) the unauthorized use of this information by the Authorized Party; and 3) any actions taken by the Authorized Party pursuant to this Authorization.

It is the unsophisticated who will encounter legal issues and be left holding the bag.

A properly drafted green building lease may contain a provision substantially like,

Landlord shall provide to Tenant reports for the amount of electricity, natural gas and fuel oil (where applicable) consumed at the building broken down by utility type, energy unit usage (e.g., kWh, therms or ccf, gallons), cost per month for each energy source for the duration of the Lease, including a limited license to use the Landlord’s data for nonpecuniary purposes. Unless disclosure is prohibited by state or local law or if data is not available or is confidential, ..

.. Irrespective of any other provision contained herein, the above described exchange of data shall be as an accommodation only, to the maximum extent permitted by law AS – IS without representation or warranty of any kind or type, and use of the data is at the risk of the party using it.

Some data transmission is involuntary. There are a number of mandatory energy benchmarking reporting laws requiring large buildings in a dozen or so U.S. cities to report data to the local government. Many of those local laws are poorly drafted and do not insulate the reporting parties from liability for errors, harmless or otherwise.

Others collect building data. ARC Skoru collects lots of data stored in servers throughout the world and its services agreement contains language found in similar green building rating system agreements, often including data not actually owned by the party submitting it,

You hereby grant GBCI and the GBCI Affiliates and subcontractors a perpetual, non-exclusive, royalty-free, fully paid-up and irrevocable license to access, view, reproduce and otherwise use all Project Information submitted to GBCI, including all copyrighted materials, tradenames and other proprietary information, for the purposes of assessing the Project.

And building automation systems not only create and collect data but use it to control mechanical and electrical systems, and today the standard is contracts that license the use of data over separated computer systems from the building available Internet provider. It may seem unlikely that a hacker would attack an environmental control handled lighting/ shading system, but proprietary and building occupant personal data may be accessible from that network.

Additionally, with the advent of the Internet Of Things, smart device manufacturers and providers often control data, and even claim to own it, including a large number of power utilities that claim smart meter data as theirs; not only in commercial buildings but also homes.

Much of this post has been about energy data, but water data is notoriously unreliable and simply bad across the country. A claim pending against a major U.S. city with more than 400,000 water customers alleges that more than 38% of billings (which are based on water usage) in that city are wrong. There is little if any accountability for junk data from government water systems.

And this subject involves more than simply the USGBC Minimum Program Requirement for 5 years of energy and water use data reporting. LEED projects gather a broad breadth of data from individuals occupying buildings including Occupant Comfort Surveys and Occupant Commuting Surveys; all which personal data has to be protected.

When claims are made, including for negligent misrepresentation, by a buyer against a seller that data is not accurate, who is responsible largely depends upon the writings. In one widely discussed claim, a tenant reported ‘bad’ utility data to its landlord when the public utility mixed up accounts being uploaded to an ENERGYSTAR account, and the landlord provided the whole building ENERGYSTAR report to the prospective purchaser, who only after buying the building discovered the very large underreporting of electricity costs.

Contract documents involving real estate must now prescribe who owns the building data. This is an issue in the GBCI Change Of Ownership Agreement which terminates all rights to data provided by the seller and transfers all rights to the buyer, and also the obligation to continue to report energy and water usage data to GBCI. That Agreement and more should be part of every contract of sale for a LEED project.

Private sector commercial leases now, in most instances, have provisions describing who owns the data or has a license to use it or in some instances to require it be held confidential and not released. For example, when the DoD is a tenant within a building the building owner must also not report data for the remainder of the building and several other federal government civilian instrumentalities impose similar restrictions.

However, it is key that data protection strategies encourage innovation and use of data, not the opposite. Strategies for data protection in contract documents must become an essential term incentivizing businesses to innovate and develop new ideas, methods, and technologies for security and protection of personal data. With well drafted protection provisions in contracts, businesses will mitigate risk and have effective tools to create technological and organizational solutions, including to monetize that data.

The fix is very easy. All LEED surveys and other data collection vehicles should promote techniques such as anonymization (removing personally identifiable information where it is not needed), pseudonymisation (replacing personally identifiable material with artificial identifiers), and encryption (encoding messages so only those authorized can read it) to protect personal data, while allowing the aggregation of data that can be valuable.

There is a robust cyber security insurance market designed to mitigate losses from a variety of cyber incidents, including data breaches, but such carries with it a dollar cost and does not necessarily encourage the implementation of best practices for self-protection.

Data is often described as the currency of today’s digital economy. Collected, analyzed and moved across the globe, personal data has acquired enormous economic significance. By strengthening green building standards of data protection, owners of real estate will mitigate risk while creating business opportunities and increasing dollar values, all while saving the planet.

Arc is Electrifying Green Building

Scot Horst at Greenbuild

Next week will be a year since the launch of Arc. Already approaching a Billion square of projects not only in the United States but also from India to Sweden and Israel to Bhutan, if you are not familiar with the Arc platform, that helps a building owner measure performance and benchmark against others, you are missing out on what is transmogrifying the built environment.

I had an opportunity just days ago to talk with Scot Horst. Scot serves as the CEO of Arc Skoru Inc., the technology company established to build Arc, the digital platform created by the U.S. Green Building Council and its sister organization, the Green Business Certification, Inc.

Previously, Scot was the chief product officer at the USGBC where he oversaw LEED, so he is uniquely qualified to explain Arc’s place in the cacophony of green building standards, codes and ratings systems including its space in the orbit of LEED. While LEED was designed to recognize leadership which has historically been described as the top 25% of the real estate market, “now we can help everyone else make improvements from where they are.”

The Arc platform is not Noah’s ark, the vessel in the Old Testament that saves Noah’s family and the world’s animals from the planetary engulfing flood, but it may only be a modest overstatement to analogize Arc scored existing green buildings saving life as we know it. New construction of green buildings cannot save the planet when less than 170,000 new commercial buildings were constructed in the U.S. last year and that number is all but insignificant given 5.6 million existing U.S. buildings, so eucatastrophic benefit can only be achieved by impacting those millions of existing buildings.

The Arc platform is already casting a huge and growing green shadow over that existing building market.

Those existing buildings participating in the inaugural year of Arc, while in largest number are in the U.S., are across all 7 continents except Antarctica. As we heard from the speakers at Scot Horst’s Master Series session at Greenbuild 2017, they range from schools to airports, from offices to train stations and baseball stadiums to hospitals.

The reason this “system” is having a disruptive impact on hundreds of millions of square feet of existing buildings in less than 12 months, is that while LEED is designed to be about the effort of designing and constructing green building, Arc was created “to focus on the results not the effort.”  Put another way, it is “an outcome based standard, not a rules based standard.”

Projects using Arc input data across five categories: Energy, Water, Waste, Transportation and Human Experience. Over time this data will generate a performance score. The data required for Arc includes 12 consecutive months of energy and water use, and a minimum of 1 waste data point, occupant/ transportation survey, and interior carbon dioxide and interior total volatile organic compound levels.

Arc is not a raven-messenger when allows the project to measure improvements and benchmark against itself and other similar projects. A “project” can represent a single standalone building, a group of buildings in a large development or portfolio, or an entire city.

Arc can even be used to send data to GRESB.

There is no Arc “certification.” Arc is a technology platform that offers online tools for buildings to score themselves. There is no plaque, but there is an optional display unit ideal for a building lobby and there is an App so building occupants can track building data real time and be involved.

Arc is available at no charge to LEED registered projects. There is a $1,200 registration fee if a project is not registered with GBCI.

Participation in Arc does satisfy the LEED MPR6 owner’s commitment to share whole building energy and water usage data.

And it is really much more than that. A very large number of LEED Existing Building certified projects did not recertify (.. some could not meet the increasing LEED minimums). And only a very few LEED New Construction certified projects later pursued LEED EB (.. including only a handful that took Rick Fedrizzi up on his Greenbuild offer of some years ago for free certification).  Those tranches of building owners are ideal candidates for Arc. And that does not include all of those who are not interested in pursuing third party certification, but will share data so that they can benchmark themselves against other similar buildings. And just maybe, when their score gets close to 40, a building owner might determine it could do a few more things and qualify for LEED certification?

A new and improved LEED v4.1 O+M Building Operations and Maintenance aimed at a larger existing building market share, will be released before the end of 2017 and through piloting available for immediately for use. As I described in my recent blog post, LEED v4.1 Announced by USGBC at Greenbuild, there are still some final decisions to be announced on the much discussed concept of removing prerequisites for O+M projects and the possibility of O+M interior spaces as opposed to the current whole building only. So, it is not Arc in lieu of LEED, but rather Arc complementing LEED.

And Arc building data is already accelerating global market transformation. For example, with 129 registered projects in India, Arc has among the best building performance databases in one of the fastest expanding and high growth real estate markets in the world (.. the construction market in India is expected to grow almost twice as fast as in China).

All of this building data, collected in Arc and other green building rating systems, screams issues of personal data protection and privacy laws not to mention who ‘owns’ the building data and it enormous economic significance. Such will be the subject of my blog post next week.

Industry insiders have predicted that with Arc approaching one billion square of projects in year one, there will be more than 5 billion square feet participating in Arc by this time next year.

Regular readers of this blog may think this post sounds like an endorsement of or testimonial for Arc, and I would respond we are cheerleaders for this system and have been since I first wrote about it a year ago. Just last month in a blog post focusing on the opportunities to green existing buildings, I coauthored with Katie Stanford, we wrote, “Greening the millions of existing buildings, one commercial build out at a time, with .. Arc scored space, can actually save the planet.

What more can I say, except that you should learn about how Arc will transform your business.

LEED v4.1 Announced by USGBC at Greenbuild

LEED v4.1 Presentation at Greenbuild

The announcement of the upcoming release of the new LEED version 4.1 by the U.S. Green Building Council was no doubt the biggest story at Greenbuild 2017 in Boston last week.

And that is saying a lot because Greenbuild is the world’s largest conference and expo dedicated to green building and there was much to be excited about in the aisles of the expo floor.

But when USGBC announces a new version of the most widely used green building rating system in the world, that certifies 2.2 million square feet daily and has more than 92,000 participating projects in more than 165 countries and territories, it is big deal.

That LEED v4, originally released as LEED 2012, is growing and changing in response to the marketplace is widely heralded as a very good and necessary thing.

Beginning in November 1, 2013 projects had the option of registering under LEED v2009 or LEED v4. And beginning November 1, 2016, new LEED projects had to register under v4. Despite that passage of time there are not a large number of certified v4 projects and a very modest number of new construction v4 building in the U.S.

The “existing credit requirements” in LEED v4 are the foundation of the changes. This is not a full version change of the rating system, but rather it being described as “the next evolution” of the rating system, hence the nomenclature of moving from v4 to v4.1 and not v5 (.. development is underway on the next full version of LEED in collaboration with the creators of the already approved ASHARE 189.1- 2018 and the 2018 IgCC).

There is much that is not known because many decisions about LEED v4.1 are yet to be made and nothing has yet been released in writing, but this blog post is based upon the best information that could be gleaned from USGBC staffers as of last Friday. It is quite likely that some of this will change and there will no doubt be much more to come. Here are the key facts as we now know them:

The technical development work has been under way on a new version of the rating systems that will be known as LEED v4.1.

Version 4.1 will be released in first quarter 2018 and credits will be immediately available for use through a piloting period that will run concurrently with an approval process that will include public comment and a balloting of the members in 2019.

Initially, v4 and v4.1 will both exist on parallel tracts at least until the vote by the members.

LEED v4.1 O+M Building Operations and Maintenance will be released earlier, again through piloting available for use (hopefully) before the end of January 2018. But there are still some final decisions to be made to this rating system “that will see the most change” and be expanded to a larger share of the market. No final determination has been yet made on the much discussed concept of removing prerequisites for O+M projects and the possibility of O+M interior spaces as opposed to the current whole building only.

Among the four goals of this next evolution of the rating system, as described by USGBC staff, is to “address market barriers and lessons learned from v4 projects teams.” As part of the technical development process staff quantified the percent of all LEED BD+C v4 projects that earned each credit. That work, including highlighting those credits that were little achieved, which is the basis of the changes that will be LEED v4.1, can be accomplished on this short timeline because it is being tasked to the same leadership and team that drafted v4.

The largest number of changes will be in the Materials And Resources category. MR Credit: Building Life-Cycle Impact Reduction is very paperwork intensive and little achieved, only in 27% of projects, in part because with only option 4 of the credit available to new construction and the iterative modeling required arguably having limited true environmental efficacy, the credit will be revamped. MR Credit: Building Product Disclosure and Optimization – EPDs is perceived as having resulted in “tremendous movement” in green building, but has not been widely accepted in the marketplace and should see dramatic change away from USGBC promulgated EPDs to globally accepted standard EPDs. MR Credit: Building Product Disclosure and Optimization – Sourcing of Raw Materials option one under the credit requiring using at least 20 different products with an extraction report has never been achieved and option two is little achieved; and will see change. MR Credit: Building Product Disclosure and Optimization – Materials Ingredients, was only achieved in 17% of projects (the lowest rate of achievement of any credit), which will result in a serious reconsideration of the whole topic of material ingredients.

There are also changes proposed in the Sustainable Sites category. Only 24% of projects achieved the SS Credit: Site Development – Protect or Restore Habitat and that credit is being revamped. SS Credit: Rainwater Management is also little achieved and despite the concept of storm water management being widely accepted it is clear that the current credit does not capture current best practices often ensconced in law.

The Indoor Environmental Quality category will also see improvements. Despite that EQ Credit: Low-Emitting Materials has been achieved on 75% of projects, it will be streamlined. EQ Credit: Indoor Air Quality Assessment, despite being the second most often achieved credit, on 89% of projects, is achieved under the credits option one that is a building flush-out while not a single project has achieved option two which requires actual testing of 32 parameters that is too expensive if even available; and will be updated. EQ Credit: Daylight is only achieved ion 31% of projects and is being changed. The EQ Credit: Acoustic Performance ties as the least achieved credit, at only 17% of projects, and simply does not reflect where the market is, and will be changed.

The second goal is to “update the performance requirements” in the Energy And Atmosphere category, but there is a real debate to be had if this is actually accomplished by simply ratchetting up the prerequisites (including the almost certain move from the reference ASHRAE Standard 90.1 – 2010 to 90.1 – 2103) or if that move simply eliminates projects from qualifying for LEED and possibly the better change is to move away from energy cost savings to some other metric? EA Credit: Renewable Energy Production has only been achieved on 41% of projects and will be updated. EA Credit: Green Power And Carbon Offsets is also being changed.

Which is closely related to the third stated goal of this next evolution of the rating system, “expand the marketplace for LEED.” For example EA Credit: Demand Response has only been achieved on 20% of projects and  is being looked at again and will be changed because there are simply so many places that the electric power utility does not offer Demand Response. And similarly EA Credit: Green Power And Carbon Offsets, which is largely tied to Green-e, is not available in many markets. And despite that Location And Transportation category LT Credit: Sensitive Land Protection was achieved on 79% of projects, it simply cannot be achieved at all locations, and it will be changed. Six new international advisory councils are being convened to harmonize credits across the globe (similar to Regional Priority Credits aimed to be in the U.S.) with national codes and local best practices.

And the last articulated of the four goals of this updated rating system is to “improve performance through the life of buildings.” This will largely involve aligning the credits, including underlying metric, across all rating systems, including LEED Neighborhood Development and the Cities program, as well as describing alignments with PEER (version 2.0 to be released in first quarter 2018), WELL and SITES. As part of this work all of the residential rating systems will become one program and, possibly burying the lead, this will include an “updating of the single family home” rating system.

Moreover, “Arc is now fully available as a platform to support projects as they track energy, water, waste transportation and human experience.”

We suggest this is what innovation looks like.

Follow this blog for more and additional information on LEED v4.1 as the most widely used green building rating system in the world adopts a new version. And if we can assist you with your v4.1 project or other green building work do not hesitate to email Stuart Kaplow.

Arbitration is Why There is So Little Litigation in Green Building

It is surprising to many in the environmental industrial complex that there has been relatively little litigation arising out of green building. There have been only a very modest number of cases commenced in courts across the country involving construction of green buildings.

The reason for the dearth of court cases is not that there are no disputes and differences arising from green building design and construction, but rather that many, if not most of the contracts in sustainable construction require mandatory arbitration, in lieu of a judicial contest.

Appreciate that this limited number of disputes pursuing courtroom redress exists against a backdrop of a rising number of actual claims in green building construction projects.

The purpose of the blog post is not to argue whether or not arbitration works as well or better than litigation. Legal scholars can have at it.

And there is no question that a properly drafted provision in a contract requiring arbitration is enforceable. The Supreme Court, in American Express v. Italian Colors Restaurant decided in 2013, “the overarching principle that arbitration is a matter of contract. .. Courts must “rigorously enforce” arbitration agree­ments according to their terms.”

While there has been much discourse in the media recently about consumer contracts containing alternative dispute resolution provisions, including those requiring arbitration, that situation is easily distinguished from (non-consumer) construction industry contracts. With over a million contract documents licensed on an annual basis, the AIA’s form construction documents are the most widely used contract documents in the industry. And while the AIA documents mandated arbitration as the exclusive form of binding dispute resolution for well over 100 years, the current form of documents contain a ‘check the box’ where the parties choose between arbitration, litigation or other agreed process.

Arbitration is particularly widespread in green building and has resulted in so few green building disputes ever seeing the inside of a courtroom. Even the Green Business Certification Inc. LEED Certification Agreement has a mandatory arbitration provision.

Significantly, many green building subcontractors and materials suppliers have provisions in their purchase contract requiring arbitration or their contracts are governed by provisions in prime contracts (many of which are from larger and more sophisticated construction industry players) that mandate arbitration.

A review of 25 suppliers that were exhibitors at Greenbuild 2015 (unscientifically selected from a single aisle on the expo show floor) found 16 had sales contracts requiring arbitration. And two years later, an online review of 25 suppliers registered to appear exhibitors at Greenbuild 2017 this coming week (also unscientifically selected) found 18 had sales contracts requiring arbitration.

Maybe more surprising are contracts requiring religious arbitration, like that required by bamboo floor supplier Higuera Hardwoods, a past Greenbuild exhibiter, providing,

Arbitration shall be by a single arbitrator experienced in the matters at issue and selected by principal and agent in accordance with the Rules of Procedure for Christian Conciliation of the Institute for Christian Conciliation, a division of Peacemaker Ministries.

While it was a court enforcing an arbitration provision involving a Church of Scientology agreement that made headlines last year and concern over a court enforcing an alternative dispute resolution applying Sharia law is publicly debated, courts have been enforcing these provisions both under the edict of the Supreme Court in the American Express decision and out deference to the First Amendment rights of the religious groups. Anecdotally, it appears most of these cases are Christion conciliation.

However, the Department of Defense Appropriation Act precludes expenditure of funds on contracts in excess of $1 Million that require subcontractors and employees to consent to arbitration. And such is a big deal in this consideration when the Department of Defense is the largest owner of green buildings.

Arbitration can be useful in some matters of green building for a variety of reasons including that experienced green building construction arbitrators may be better suited to rule on complex construction disputes rather than layperson judges and juries, and that arbitration is a faster and more cost effective dispute resolution process.

In absolute numbers there are more green building construction claims this year than last and more last year than the year before. And the dollar amount of those claims is increasing. The vast majority of those claims that this law firm is involved in are resolved through mediation or arbitration and it is the rare case that ends up in judicial redress. But make no mistake claims are being paid including profits being disgorged by designers, construction companies and materialmen.

The take away from all of this should be in an effort to manage your risk, pay particular attention to and negotiate the dispute resolution provisions in your contracts. And always consult your attorney before signing.

The Systole and Diastole in Recycling

Recycling is not new. 11,000 years before Christ the people in the Nile valley recognized the intrinsic value of reusing waste. But maybe not since that dawn of civilization has recycling undergone the wide fluctuation, good and bad, that we are seeing right now.

The bad news is that on July 18, China notified the World Trade Organization in two filings it would be imposing a ban on imports of certain kinds of solid waste.

The resultant chaos in the recycling market is because last year, China imported 7.3 million metric tonnes of waste plastics from developed countries including the U.S. In 2016, the U.S. sent $5.6 Billion of recyclables to China.

And the externalities are dramatic because shipping companies charge less to import all cargo containers into the U.S. when those containers return filled with waste in lieu of returning empty. Moreover, U.S. environmental laws greatly limit reuse of recyclables, including by way of example making all but impossible to recycle plastic drink bottles at scale in the U.S. Which is why it makes sense to export things that are almost worthless to China.

China has long had an official standard that contaminants in imported waste not exceed 1.5% by weight, but it wasn’t enforced. In 2013, China announced Operation Green Fence under which enforcement would be stricter.

And in March, 2017 China announced its new National Sword standard although the details were not clear to many in the West until the July 18 notice that the level of contaminants in plastic and paper recyclables China buys must be no more than 0.3%. Effectively, that standard is in place now because it takes months to ship recycling to China.

In the WTO filing China also announced “by the end of 2017, China will forbid the import of 4 classes, 24 kinds of solid wastes, including plastics waste from living sources, vanadium slag, unsorted waste paper and waste textile materials.”

The recent Chinese trade pronouncements have already dropped the price of recycled products to levels below anything this law firm has ever seen in more than a decade of corporate sustainable plans. Prices for mixed recyclable paper plummeted last month more than any single month in the 40 years data has been kept.

China characterizes these moves as efforts to address its staggering pollution problems, but many see this as a larger strategic geopolitical move for control by China. The impact in the U.S. is most recycling no longer makes any economic sense under existing metrics.

The good news is, at the same time China is imposing bans of certain solid waste, on September 7, 2017, the U.S. Green Building Council’s sister organization, Green Business Certification Inc., announced it was entering the waste recycling certification business with TRUE (Total Resource Use and Efficiency), the new brand identity for its zero waste rating system. The TRUE Zero Waste rating system helps businesses and facilities define, pursue and achieve their zero waste goals through project certification including professional credentialing.

TRUE is a systems approach that helps organizations understand how materials flow through their facilities and identify redesign opportunities so that all products are reused. TRUE certified projects meet a minimum of 90% waste diversion for 12 months from landfills, incinerators (waste-to-energy) or the environment.

The TRUE Zero Waste certification, previously administered by the U.S. Zero Waste Business Council, was acquired by GBCI in 2016. And now TRUE is administered by GBCI as a complement to LEED. View the Guide to Certification to learn more.

That is the good news in the realm of solid waste. Such is significant when according to the EPA, the average American generates 4.4 pounds of trash each day, and that number is not falling but the amount recycled had been increasing.

Against the backdrop of China’s aggressive mercantilist policies, with no good market in which to sell many recyclables, while barring domestic reuse, it is now time to rethink the solid waste practices that are largely unchanged since the 1960s.

EPA Ends Perverse Practice of “Sue and Settle”

“The days of regulation through litigation are over,” according to EPA Administrator Scott Pruitt.

In fulfilling his promise to end the practice of regulation through litigation that has harmed the American public, the EPA Administrator issued an agency wide directive on October 16, 2017  designed to end “sue and settle” practices within the Agency, restoring public participation and transparency in EPA rule making.

We will no longer go behind closed doors and use consent decrees and settlement agreements to resolve lawsuits filed against the Agency by special interest groups where doing so would circumvent the regulatory process set forth by Congress. Additionally, gone are the days of routinely paying tens of thousands of dollars in attorney’s fees to these groups with which we swiftly settle.

Over the years, outside the legislative and regulatory process, special interest groups have used lawsuits that seek to force federal agencies, especially EPA, to issue regulations that advance their interests and priorities, often based on questionable science or just plain junk science.  EPA gets sued by an outside party that is asking the court to compel the Agency to take certain steps, either through change in a statutory duty or creating timelines, and then EPA will acquiesce through a consent decree or settlement agreement, creating some new Agency obligation.

More specifically, EPA either commits to taking an action that is not a requirement under its governing statutes or agrees to a specific, unreasonable timeline to act.  Oftentimes, these agreements, many of which are broad public policy matters where Congress has expressly declined to act, are finalized with little to no public input or transparency. That is regulation through litigation that is inconsistent with the authority that Congress has granted, the responsibility of government to operate in an open and fair manner, and exceeds the proper role of the judicial branch.

“Sue and settle” cases establish Agency obligations without participation by states or the regulated community; foreclose meaningful public participation in rulemaking; effectively force the Agency to reach certain regulatory outcomes, unduly burden owners of land, and cost the American taxpayer millions of dollars with little if any environmental efficacy.

Among the abuses of this practice have been the Chesapeake Bay TMDL clean water plan, that has no basis is statutory authority nor basis in good science; and similarly regional haze rules and the forced listing of the Lesser Prairie Chicken under the Endangered Species Act.

This is not a conservative versus liberal issue, however, the Obama Administration used “sue and settle” far more than previous presidential administrations to enact new regulations. Obama apparently had 137 “sued and settle” regulations during his Administration.

With this new directive, the EPA is also ensuring the increased transparency when considering a settlement agreement or consent decree by: Publishing all notices of intent to sue the Agency within 15 days of receiving the notice; Publishing any complaints or petitions for review in regard to an environmental law, regulation, or rule in which the Agency is a defendant or respondent in federal court within 15 days of receipt; Reaching out to and including any states and/or regulated entities affected by potential settlements or consent decrees; Publishing a list of consent decrees and settlement agreements that govern Agency actions within 30 days, along with any attorney fees paid, and update it within 15 days of any new consent decree or settlement agreement; Expressly forbidding the practice of entering into any consent decrees that exceed the authority of the courts; Excluding attorney’s fees and litigation costs when settling with those suing the Agency; and, Providing a public hearing on a proposed consent decree or settlement when requested.

The video of the signing can be found here.

The full directive and memo can be read here.

Environmental regulation through litigation is wrong, is often based on junk science, and almost always makes bad public policy. This return to regular order is good for all Americans and good for the planet.

Rhode Island goes for LEED for Neighborhood Development and SITES

The State of Rhode Island is expanding its longstanding Green Buildings Act adding built landscapes to the list of public projects that must be built to recognized green building standards.

Rhode Island has since 2008 mandated the public construction projects larger than 5,000 gross square feet “shall be designed and constructed to at least the LEED certified” or equivalent standard, but not actually certified by GBCI.

Last week the House and Senate passed S952, legislation introduced on June 8, 2017, amending the Green Buildings Act by adding to the definition of public projects, that had regulated new construction or major renovations of buildings, now expanded to include a public building’s “public real property site.” The amended law now also includes verbiage describing “other public improvements of any kind to any public real property.”

And then the amendments go on to alter the definition of what is a green building standard,

Equivalent standard” means a high-performance green building standard other than LEED, LEED for Neighborhood Development, and SITES which provides a rating system or measurement tool, that, when used, leads to outcomes, similar or equivalent to, LEED, LEED for Neighborhood Development, and SITES outcomes, in terms of green building, green infrastructure and green site performance; current accepted equivalent standards include Green Globes, Northeast collaborative high-performance schools protocol; or other equivalent high-performance green building, green infrastructure and green site standard standards accepted by the department;

In a blog post last year, You Need to Review a SITES Scorecard, Now, I explained SITES was developed through a collaborative, interdisciplinary effort of the American Society of Landscape Architects, The Lady Bird Johnson Wildflower Center at The University of Texas at Austin, and the United States Botanic Garden. The U.S. Green Building Council associated Green Business Certification Inc. acquired and relaunched the SITES v2 rating system on June 10, 2015.

The U.S. GSA in its PBS-P100 Facilities Standards for the Public Buildings Services, beginning in 2016 and in its issued April 2017 standard, provides for use of the earlier version Sites (2009) to “meet baseline compliance with all applicable federal, tribal, state and local regulation” on federal projects, (although such may not survive a GSA review of green building standards in the coming months).

To date SITES has not moved the marketplace.

Under the new Rhode Island law the provisions related to LEED for Neighborhood Development and SITES continue only through December 31, 2020, for up to 4 projects:

In order to understand the capacity and cost, the department shall test the application of LEED for Neighborhood Development, and SITES for up to four (4) state projects. The department, with the assistance from the department of environmental management, shall assess the costs and benefits in accordance with subsection (d) of this section and report to the general assembly on or before December 31, 2020.

The new law goes on to provide, regulations for LEED for Neighborhood Development and SITES shall be promulgated after December 2020 based on the assessment, in anticipation of continuation of the use of LEED for Neighborhood Development and SITES by the future General Assembly action.

Rhode Island’s expansion of its Green Buildings Act to include LEED for Neighborhood Development and SITES may be a first for a state, but will no doubt improve the landscape beyond the state’s borders.

50 Shades of Green in Montgomery County

Green building will remain mandatory for new construction in Montgomery County, Maryland and effective December 1, 2017, the International Green Construction Code 2012 will be a permitted alternative.

Montgomery County was among the first local jurisdictions in the country, in 2008, to adopt a mandatory green building law for private building, requiring most new construction be LEED Certified. In large part, as a result of that law, Montgomery is touted as the county with the most LEED building in the nation.

On September 19, 2017, the County Council in Montgomery County enacted Bill 19-17 repealing the existing green building law. And the Council approved Executive Regulation 21-15 which adopts the IgCC 2012.

Commencing December 1st, 2017, the new regulatory scheme expands the scope and breadth, including adoption of the IgCC 2012, to now apply to all new construction and additions over 5,000 square feet (being many more projects than had previously been required to be green). Significantly, the new green law allows multiple shades of green that are alternative compliance paths to IgCC 2012. Buildings may in the alternative be LEED Silver certified (an increase from the previously require LEED Certified level), including achieving certain minimum energy credits; residential and mixed use buildings of 5 stories or more may comply with the ICC-700 2012 National Green Building Standard at the Silver performance level; or structures may comply with ASHRAE Standard 189.1 2011.

Okay, there are not 50 shades of green, but given that the original draft of the Executive Regulation was IgCC or nothing, including abandoning the decade long LEED requirement, there are now many shades of green in the County that may be available to a property owner. Credit should be given for the move from the proposed IgCC or nothing to the adopted version of the law that allows options, including significantly retaining the ability to construct a LEED certified building, to the County Department of Permitting Services, who after over 2 years of process brokered the compromise.

Note, that Montgomery County is not adopting the 2015 version of the IgCC. While the IgCC 2015 was approved 3 years ago, that current code is not approved for use by the Maryland Department of Housing and Community Development which requires each jurisdiction in Maryland use the same edition of the same building codes. Maryland is expected to approve the IgCC 2015 early next year when it approves the 2018 version of the other I codes.

It is significant that since July 1, 2015 all building in Montgomery County must comply with the International Energy Conservation Code 2015, with its energy consumption reduction requirements and many of those now existing requirements ameliorate the impacts of the proposed (5 year out of date) IgCC 2012. However, the County amended the IgCC to use a zEPI scale score of 50 (the baseline from the more recent IgCC 2015) or energy efficiency approximately 5% below ASHRAE 90.1-2013.

The County adopted a modest number of amendments to the form IgCC. Most are being positively received and if there is a criticism, it is that they do not go far enough when some of the mandatory elements of the code are being moved to appendix A and made optional.

There is no grandfathering in the new law, however, as explained by Mark Nauman, a senior staff specialist in the Department of Permitting Services, there is a 6 month phase in when “it is our policy when transitioning into a new code or code cycle, that projects significantly into the design phase during the regulatory transition period be allowed to apply under the code or regulation, ..”

As progressive as this bill is, Montgomery County is one of a very limited number of jurisdictions mandating new construction and renovation of privately owned buildings must be green. The City of Rockville, within Montgomery County, adopted mandatory use of the IgCC effective July 1, 2015.

It is worthy of note that a relatively few jurisdictions have adopted the IgCC with only a handful of IgCC new construction buildings having been completed. Not a single IgCC new building has yet to be constructed in the City of Rockville, nor under the State of Maryland or Baltimore City IgCC regulatory schemes (i.e., instead each of those two regulations allow alternative compliance paths and most, if not nearly all new construction is opting for LEED or the ICC 700).

The IgCC as adopted in Montgomery County will not be as widely read as an erotic romance novel, but the ramifications of adopting the IgCC in this longstanding LEED only jurisdiction have national import. Montgomery County is not only the most populous county in Maryland, it is one of the most environmentally progressive jurisdictions in the nation. It has also been ranked by Forbes as the 10th richest in the United States and accordingly first construction costs do not have major economic implications. Politically, the County is heavily Democrat with a Democrat County Executive and County Council. Observers note, if the green luster is off of LEED there, it will spread elsewhere.

The Second Best Way to Mitigate Your Risk in Green Building

The best way to mitigate risk in your green building project are properly drafted contract documents prepared by this law firm or by another attorney with green building experience. That may sound self serving, but it is true.

As I posted in this blog less than a year ago, Less than 20% of Green Building Contracts are Properly Drafted.

So, accepting that most readers of this blog will not engage our law firm to draft their contracts, the second best way to mitigate your risk in a green building project is to utilize The American Institute of Architects, 2017 Documents: New Sustainable Projects Exhibit.

This is not a paid endorsement. The document is simply that good.

And while the Sustainable Projects Exhibit, E204-2017, is drafted to work as an exhibit to other AIA A201 family owner, architect, contractor, consultant agreements, even if you do not use their nearly 200 contact documents, this Exhibit, separately purchased, may still be a good choice for you.

The American Institute of Architects has published standard form construction industry documents since 1888.

For the first time, beginning in 2007, there was a single short clause in B101 contract document about sustainability in the project. In response to the significant increase in the number and scope of sustainable projects, in 2011, AIA released the Sustainable Project Guide, D503 (.. that many suggest is still the best single guide to sustainable contracting). In 2012, the sustainable contract provisions from the Guide were incorporated into the A201 family of agreements issued as “SP” Documents. Earlier this year, AIA moved from provisions within the contract documents to this Sustainable Projects Exhibit.

The Sustainable Projects Exhibit creates a process, arguably a LEED v4 IPc1: Integrative Process, by which the project team works to achieve the owner’s green building goal.

The Sustainable Projects Exhibit contains specific defined terms and provisions that allocate the roles, responsibilities and risks encountered on the sustainable project to the project team member, including the owner, architect and contractor in the best position to perform or assume the role, responsibility or risk, including a specialized scope of services for the architect.

The defined terms, the same from the Guide, are the crux of the process. A Sustainable Objective is defined as the owner’s goal. Why does it want a green building; to improve energy efficiency or enhance the health and well being of building occupants or, .. The Sustainable Objective may, or may not, include seeking a specific type of certification.

A Sustainable Measure is the specific item that must be completed by a team member in order to achieve a Sustainable Objective.

A Sustainability Plan is a document prepared by a green building consultant or architect depicting the allocation of Sustainable Measures to team member.

Another 3 definitions relate to certification. Sustainability Certification is a term that refers to a specific certification, such as LEED, Green Globes, ICC 700 and EnergyStar or required by the IgCC or ASHRAE 189.1.

Sustainability Documentation are the writings required a Certifying Authority to document compliance or achievement of a Sustainable Measure.

The Certifying Authority is the entity that is responsible for granting a Sustainability Certification. For example, this could be GBCI for LEED certification.

All of this works to allocate the legal risks of the green building project.

The legal risks addressed in the Sustainable Projects Exhibit include:

Substantial completion as it relates to completing any Sustainable Measures;

Final completion of Sustainability Measures including Sustainability Certification;

Evolving standard of care as green building becomes mainstream;

Addressing warranties that a project will achieve a Sustainable Objective which is made complicated by mandatory laws and codes;

Use of new materials with limited testing which are a hallmark of green buildings;

Approving substitutions that may impact Sustainable Measures; project registration fees and authorization to act on behalf of the owner; and,

A specific waiver of consequential damages that may be encountered in green building.

Unfortunately most, green building projects fail to utilize contract documents that properly incorporate provisions necessary and proper to address the legal risks inherent in sustainable projects. It is suggested that this new short six page Sustainable Projects Exhibit, when properly completed, will be user friendly and remedy that disjunction.

The Sustainable Projects Exhibit is available at

Again, the new AIA Sustainable Projects Exhibit is the second best way to mitigate risk in your green building project. It may be shameless self promotion, but the very best way to mitigate risk is a properly drafted contract document prepared by this law firm or by another attorney with green building experience.