Legal and Regulatory

Legal Risks of Green Building

While green building and sustainable development is the future of the construction industry, there will likely be more (and more complex) claims of contractual indemnity and professional liability.
By Mark D. Shifton
March 3, 2021
Topics
Legal and Regulatory

All construction projects involve elements of legal risk. Insurance and indemnity claims, delay claims and professional negligence claims are simply accepted risks when involved in construction. Green building projects are no exception to this rule, and often involve unique issues that are not present in typical construction projects.

Green building projects commonly employ new or untested construction materials, require construction methods that lack significant track records, and ultimate building performance often fails to meet design expectations. As such, green building projects may give rise to entirely new types of legal risk that should be considered and allocated early in the process.

In the past 15 years, the number of buildings for which green certifications have been sought has grown exponentially, and the growth rate of green building and sustainable construction has far outpaced the growth rate of the construction industry as a whole. As green building projects become increasingly common (and often increasingly required by the federal, as well as state and local governments), the unique legal risks presented by green building projects take on an increase importance.

Building Certification Issues

Green building projects may create unique issues of building certification that are completely foreign to typical construction projects. Ultimately, in a typical (non-green) construction project, the various parties are obligated to deliver a building that may be put to its intended use and that is substantially in conformance with the contract documents.

Developers of many green building projects, however, often aim to receive a specific certification from a green building certifying agency. There are many certifications from several such agencies, such as the LEED® certification (from the U.S. Green Building Council) or Green Globes (from the Green Building Initiative). These certifications are independent verifications that a building, once substantially complete and put to its intended use, meets certain specified criteria, such as indoor air quality, energy savings or grey-water usage. Green building certifications—in addition to providing a certain “cachet” in a competitive market—may allow a developer to qualify for certain tax breaks or favorable financing terms. Failing to achieve a desired certification, therefore, often carries significant negative financial consequences. As a result, significant legal issues may arise after a developer spends significant resources with the intent of developing a building that meets certain green building criteria, yet the building ultimately falls short of receiving that certification.

As a result, owners failing to receive a certain green building certification may seek to seek to shift the blame to their design professionals and green building consultants for their “failure” to achieve a desired result. In allocating for this risk, owners may seek to negotiate with design professionals and construction managers to make green building certification a contractual requirement (with concomitant penalties should the building not qualify for the certification). Accordingly, failing to achieve a desired green building certification (which is often an ever-moving target) can have costly ramifications, and the risk of failure can lead to significant legal issues after substantial completion.

Contractual Indemnity Issues

Green building projects—and the issue of green building certifications in particular—will likely give rise to significant contractual indemnity questions. Indemnity allows a party to shift its liability risk to another party (such as the owner to the general contractor, or the general contractor to its subcontractors), so that the downstream party bears more of the risk. Contractual indemnity and risk transfer issues are significant in any construction project, and are likely to be more complex in green building projects.

In a typical construction project, questions of indemnity (such as which party is ultimately responsible for something, and is thus liable), are generally answered by reference to the contract documents, which usually incorporate the project’s specifications. Because green building projects often incorporate novel construction materials and techniques, however, construction materials and techniques are often determined “on the fly,” based on fit in the field. Because of this, the original project specifications often do not ultimately reflect the building after substantial completion. As a result, when a building fails to achieve a desired certification, the contract documents do not necessarily shed much light on which parties are responsible, leading to complex questions of responsibility and indemnity.

Professional Liability Issues

Finally, as the green building market continues to expand, green building projects are increasingly likely to give rise to significant professional liability issues. As the green building industry is relatively novel (and continues to quickly evolve), issues regarding the standard of care to which design professionals are measured against will be complicated.

In a typical construction project, design professionals are held to a specific standard of care. The American Institute of Architects, for example, holds the standard against which architects are to be measured to be “consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances.” Because green building projects often include novel or untested construction techniques and materials (or at least techniques and materials lacking a significant track record), determining whether the design professional acted with the skill “ordinarily provided” by other professionals may be difficult, if not impossible, and will almost always result in a fact-intensive inquiry. From a design perspective, green building projects often occupy the bleeding edge of the industry, and without a significant track record and history, it can be difficult to determine whether a subsequent failure in building performance is due to professional negligence, or is simply because a novel construction method ultimately did not work.

Conclusion

There is little dispute that green building and sustainable development is the future of the construction industry. As a result, the industry is likely to see more (and more complex) claims of contractual indemnity and professional liability. Many of these claims will ultimately be resolved through litigation. As the market continues to expand, increasing efforts should be taken to recognize and allocate these risks early in the process.

by Mark D. Shifton
Mark D. Shifton is a Partner in the Princeton, New Jersey and New York City offices of the litigation law firm of Gfeller Laurie LLP. Mark represents owners/developers, contractors, and design professionals in construction and professional liability disputes. He also represents a variety of clients, including those in the construction and trucking industry, in catastrophic accident claims. He may be reached at: [email protected].

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