Project Not Green Enough? What types of green $$$ can an owner recover?

1. American Bar Association Forum on the Construction Industry 2013 Mid Winter Meeting Project Not Green Enough? What types of green $$$ can an owner recover? Angela R. Stephens, LEED AP +BD&C, GA-CR® Stites & Harbison, PLLC Chris Cheatham ClaimKit

2. Overview • Growth of Green Building • Lack of Litigation • Developments increasing likelihood of suits • Claims, Green $$$ Damages • Ways to Reduce Risks

3. Yes, People are stillbuilding green buildings

4. (Source: State of Green Business Report: GreenBiz Group January 2012)

5. Environmental Economic Social WHY GO GREEN? • Energy/Operational Cost Savings • Tax Incentives • Financing • Healthier Workspace • Increased Productivity • Positive Press • Better for Environment

6. Willis Tower • $350M Renovation • Cut electricity use by 80% • Save 24M gallons of water each year

7. Empire State Building • $20M Renovation • Cut energy costs by 38% • Seeking LEED Platinum Status

8. Why the lack of litigation? • Team Mentality

9. Why the lack of litigation? • Lack of Enforcement • By USGBC • By Owners • Once certified . . . Always certified.

10. Northland Pines High School (USGBC Internal Dispute Resolution) • H.S. bldg committee alleged award of LEED Gold was not justified • Complaint with USGBC • Claim - failed to satisfy energy and atmosphere prerequisites • USGBC hired two engineering consultants to review credits issued • Appeal Denied

11. Why the lack of litigation? Recession Lack of assets to fight.

12. Developments Increasing the Likelihood of Green Claims and Damages

13. Regulations That may lead to claims. . . State Laws Codes Incentives Fed. Laws

14. 20 States Mandate 4 Encourage

15. STATE OF ARIZONA:EXECUTIVE ORDERs 2005-05 2008-292-11-05 / 12-16-08 State Funded Buildings: Design and construct to derive 10% of their energy from a renewable resource. Meet energy efficiency standards established by law. LEED Silver

16. Failure to achieve certification required by State Law? • Common law • Breach of contract • Breach of warranties (express and implied) • Majority of States - No express damages

17. Potential Green $$$ Damages • Failure to achieve certification required by State Law? • Cost to repair v. diminution in value • Operational costs • LEED Certification Premiums paid • Construction or Design Team • LEED Certification fees

18. Green Building Codes

19. CALGreenJuly 17, 2008 • Effective 1/1/11: • Reduced water use • Reduced energy use • Use of recycled materials • Applies to residential construction

20. ASHRAE 189.1PHigh Performance Green Buildings • AHSRAE, USGBC, IESNA • Applies to all buildings except low-rise residential • Similar to LEED

21. International Green Construction Code • Application • Sale of Property** • Change in Occupancy • Repairs/Renovations • Even in minor – HVAC and energy reqs • Not for residential • ASHRAE 189.1 path

22. Federal Codes and Mandates • Executive Order 13514 – Net Zero by 2030 • All federal agencies • GSA currently requires LEED Gold • Creation of Own Code?

23. Potential Green $$$ Damages • Failure to achieve certification required by Codes? • Penalties – each day separate offense • Misdemeanor or civil infraction • Reasonable Attorney’s fees • Plus . . .

24. Potential Green $$$ Damages • IGCC Optional Ordinance – if adopted – forfeiture of: • Performance Bond • Irrevocable Letter of Credit or Cash • Plus . . .

25. Potential Green $$$ Damages • Cost to repair v. diminution in value • Operational costs • LEED Certification Premiums paid • Construction or Design Team • LEED Certification fees

26. Incentives increasing likelihood of suits . . . Green Bonds Tax Incentives

27. Green Bonds • San Mateo, CA • Commercial or industrial buildings > 3000 sq ft • $5,000 bond • If don’t comply = forfeiture

28. Green Bonds • Miami, Florida • All new buildings more than 50,000 sq ft • Amount of performance bond based on sq ft • 50,000 – 100,000 = 2% total cost of construction • 101,000 – 200,000 = 3% • > 200,000 = 4%

29. Green Bonds • Washington D.C. Green Building Act • 2012 – LEED Certification • nonresidential and post-secondary educational facilities • Failure to achieve: • Forfeit Performance Bond up to $3,000,000.00 • Plus fines by Mayor

30. Tax Incentives www.dsireusa.org

31. Tax Incentives • Nevada - Property tax abatements: • LEED Platinum = abatement 35% of taxes imposed • Gold = 30% • Silver = 25% • New Mexico – tax credits • LEED Silver = $3.50 / sq.ft. • LEED Platinum = $6.25/ sq.ft.

32. Potential Green $$$ Damages • Failure to achieve certification? • Lost tax incentives

33. Shaw Development v. Southern Builders • $7.5 Mill – 23 condo units • Attempting LEED Silver • Owner sought $635,000 in lost tax credits under state-level green building program • Case settled

34. Contracts increasing likelihood of suits . . . CD 310 B214 DBIA Exhibit

35. Who is responsible for green goals?What happens if not achieved? Varies by contract

36. Architect = LEED AP • manages the LEED documentation • prepares LEED Certification Plan • ID’s participants and their roles. • crucial in any contract • Green “goals” - not mandates

37. Owners may point to: 2007 AIA Code of Ethics - CANON VI • Members should promote sustainable design and development principles in their professional activities. • Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.

38. Or point to: 2007 NSPE Code of Ethics • Engineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.

39. Potential Green $$$ Damages • Failure to achieve green goals under B214? • Contract Silent

40. GBF – Only party liable?? • Article 7.7 - Project Participants shall perform elected green measures identified as their responsibility • Article 8.3 – No Project Participant other than the GBF shall be liable or responsible for the failure to achieve Green Status

41. No One Party Control of Points/Goals

42. Potential Green $$$ Damages • Failure to achieve Green Status under CD 301? • Refer to underlying contract • If waived in contract, lists consequential damages that are waived: • Lost profits • Increased operating and maintenance costs • Lost tax incentives • Lost marketing opportunities

43. Owner and DB can agree to incorporate sustainable elements or achieve a designated level of certification • Contains a Remedies Section • Parties agree to appeal – pd for by Owner • Selection of Remedies

44. Potential Green $$$ Damages • Selection of Remedies under DBIA Exhibit? • Waiver • Liquidated Damages – sole remedy • Limited Obligations to Cure – max $$$ • Remaining contingency • Share of savings (if GMP contract) • Set amount

45. Case studies

46. Destiny USA • Biggest and most environmentally friendly structure • $2 Billion in Green Bonds from US Treasury

47. Destiny USA • $238 Million in Green Bonds from Syracuse Industrial Development Agency • Private investors purchased in exchange for: • Interest • Tax free status on interest • Developer received tax-free loan • $120 Million in savings

48. Destiny USA • To get $238 million in Green Bonds : • “demonstrate, and provide written assurances” that the project would receive LEED certification. • project had to include “a brownfield site” • meet “goals for conservation and technology innovation.” • Reduced electric consumption • Reduced sulfur dioxide daily emissions • photovoltaic capacity • fuel cell energy generation capacity

49. Destiny scrapped renewable energy features • No plant running on biofuel • No expansive solar panels

50. http://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.htmlhttp://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.html Bonds not dependent on actual achievement of green building and renewable energy goals