LEEDing to Unintended Consequences – The Ghost of LEED Future

Real Estate, Land Use & Construction Law

LEEDing to Unintended Consequences – The Ghost of LEED Future

Sep 21, 2009 | Real Estate, Land Use & Construction Law

As discussed previously, USGBC has imposed extended reporting requirements as part of its minimum program requirements for LEED. It appears the extended reporting already adopted may only be an initial step. We may see extended reporting requirements backed up by decertification; we may see on-going recertification as a basic part of LEED program structure. I admit this is speculative, but we may be seeing a shift from LEED using energy modeling towards an actual performance model.

Given the overall goal of improved building performance implicit in LEED, these changes and speculated upon shifts may make sense technically. These changes, however, raise some significant questions regarding risk and responsibility. The ultimate impact on risk, and thus embedded costs, of these changes may vary dramatically from state to state because of each state’s underlying legal framework. Placing these changes into the complex network of construction contracts, contractual allocations of risk, and shared responsibilities raises some interesting observations and questions:

  • States whose limitations period runs based on “injury”, such as Virginia, may experience extended limitations triggers where building performance is alleged to be the failure; such results could be different for the various players depending on their roles
  • In damage trigger states, courts may find that “injuries” were suffered far earlier than owners even suffered performance problems, so results in these states are difficult to predict and there could be big winners and losers
  • States with discovery based limitations accrual, such as Maryland and the District of Columbia locally, will present cases with ever longer, potentially plausible, arguments regarding why the owner “reasonably did not know” of a problem for years after occupancy of the project
  • The timing issues presented by extended performance questions mean that contractual agreements on statute of limitations and when they start to run should be focal points of contract negotiations; negotiations regarding extended warranties will be pivotal as well
  • The growing use of LEED certification in various local zoning approvals means decertification may carry unintended consequences. If a project is decertified, is there a possibility that its occupancy permit is threatened?
  • The potential for decertification, or a failure to participate in recertification if that becomes standard, may place commercial landlords at potential for extended risk of breaches of lease agreements depending on the LEED requirements imposed
  • Lease agreements in turn need to be carefully worded so that all parties are on the same page as to exactly what is the yardstick and time frame for complying with LEED related terms

These are just a few of the wrinkles that come the mind when one places an overlay of extended performance obligations into the context of LEED. We will keep a close watch on these developments moving forward. We believe that continued movement on the extended performance axis by USGBC will have some serious economic impact on the financial aspects of LEED projects, who “wins” and who “loses” based on these changes, and where bottlenecks may develop on the economic risk side of the equation in reaction to extended performance obligations.


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