The meteoric rise of the green building industry seems like a feel-good tale suited for the Disney Channel.
Builders, contractors and tenants all want to be part of projects that are energy efficient. Owners are finding that green buildings are good investments because occupants will pay more to work or live in them. Design professionals and law firms are touting their credentials in lending a guiding hand to those who need “green” advice.
But the bloom is rapidly falling off the rose, according to lawyers familiar with green construction.
As the number of LEED projects continues to proliferate, the likely result lawyers say is increased potential liability and a dawning era of green-construction lawsuits.
Ten years ago, the U.S. Green Building Council (USGBC) launched a voluntary program called Leadership in Energy and Environmental Design (LEED) with the aim of encouraging green building practices – in part from the presumed good public relations generated by a LEED designation.
Owners and builders achieve points by adhering to requisite practices designated by the USGBC and can apply for LEED certification in various levels (Certified, Silver, Gold and Platinum).
Over the years, LEED has evolved into a more “codified” measurement by which construction projects are measured – with substantial money hanging in the balance.
“If you’re selling this thing to your senior management because it’s good for the environment, it’s good for the community, and it’s the right thing to do, that when you eventually get beyond the love affair, this thing better produce,” said Donald Murano, a St. Louis plaintiffs’ lawyer who serves on a risk management task force with the Green Building Initiative, a nonprofit organization in Portland, Ore. “Over the next five or 10 years you’ll see an exponential growth in litigation.”
Lawyers say litigation will rise because more and more building owners are realizing that a green stamp of approval translates into good public relations, higher rents and tax breaks. When contractors or design professionals fail to deliver, owners may be quick to seek payback.
Frank Musica is a risk-management lawyer with Victor O. Schinnerer & Co., Inc., of Chevy Chase, Md., the largest underwriter of professional liability insurance in the country. He said green-related claims against architects and engineers insured by his company are escalating.
“What we’ve seen with green claims so far is that usually it’s not a claim specific to green design, but part of an overall claim,” Musica said. “When a developer has a problem with a project, he’s going to claim a number of things, including ‘You told me I’d get a certification and I’m not getting it.’”
Over the last two years, Musica has developed anonymous thumbnail descriptions of green claims against Schinnerer policyholders.
One describes a lawsuit filed against an architect by a LEED Silver building owner after a tenant demanded a rent rebate after one year. The suit alleges that claims promising healthier indoor air quality proved to be untrue based on increased sick days, poorer production and ongoing complaints by employees about eye strain and drafts.
Another LEED-related case involved a developer who sued an architect after the architect had “guaranteed” LEED Gold certification that was not achieved due to budget and time constraints. The developer had marketed the property, an office building, by touting the anticipated LEED certification in order to attract tenants at higher rents.
While claims may be increasing, Musica pointed out that only 2 percent of liability claims against Schinnerer policyholders are litigated and that no green claims have ever been litigated. (Most claims settle or are dropped, he said.)
But last year, the American Institute of Architects changed its code of ethics and its standard contracts in a manner that “commits the Institute and its members to become experts in sustainability,” he said.
The changes mean that “we are likely to see more claims in a year or two and it is possible that some of those may be decided by litigation.”

‘Marketing, not science’

Ujjval Vyas, a lawyer with the Alberti Group, a Chicago-based consulting company focusing on sustainable building, characterizes the USGBC as “essentially driven by marketing, not by science.”
He refers to LEED as a “green-building rating system product.”
“It is a product developed by a group that has particular predispositions, both in terms of their ideology and their technical rigor,” he said. “It is not neutral science.”
Stephen Del Percio, an associate at Zetlin & De Chiara in New York City, said LEED began as a voluntary certification program intended to encourage green building practices.
“But there’s been a real push at the local level to do what the federal government hasn’t done to mitigate climate change,” he said. “Legislators are turning to the LEED system and are either incorporating it by reference, or adopting their own local version of it. So instead of this voluntary system, it’s something that’s being legislated.”
Earlier this year, Boston and Dallas adopted the most stringent LEED legislation in the country by passing ordinances requiring that all new commercial and residential construction must be LEED “certifiable.”
The process of achieving LEED certification is akin to “filling out a checklist,” according to Madison, Wis. Attorney Brian D. Anderson.
“Typically, people pick off the low-hanging LEED fruit – things like bicycle parking facilities, labeled parking lots for hybrid vehicles, some minimal water savings, and purchases of green power,” said Anderson, whose practice focuses on commercial real estate. “You can get those points relatively easy.”
But acquiring LEED points doesn’t necessarily translate into a green building, he said.
“It’s dangerous to make a claim that because your building has achieved a certain level of LEED certification that it’s going to produce these specific benefits,” he said. “There are a lot of exaggerated claims. As an attorney reading through these things, I think, ‘Oh my goodness, somebody’s going to get sued.’”
Environmental claims related to occupants in LEED-certified buildings are particularly suspect, Anderson said. These claims essentially state that workers in LEED-certified buildings are healthier and more productive. But Anderson said the research to support those conclusions is lacking, “and once plaintiffs’ lawyers get hold of these kinds of claims they’ll rip them to shreds.”
LEED places preferences on the use of materials that are manufactured within close proximity to construction sites to reduce transport emissions. But Anderson said Commerce Clause issues may arise related to that kind of restriction.
“What if someone a little further away can manufacture the product more efficiently, has better employment practices, and discharges less into the environment?” he said. “I don’t know if it’s supportable to say that a locally produced product is a better good than anything else.”
Another area for potential litigation, Anderson said, is shareholder action.
He said LEED is unveiling a new program in which large retail companies can “bulk certify” large numbers of stores on the basis the stores share the same design. Broad-scale investment to achieve LEED certification will require public companies to disclose those investments to the Securities and Exchange Commission
“And anything that it submitted to the shareholder and to the SEC can enter the very fertile grounds of securities litigation,” he said.

Contracts need to be specific

Jeffrey D. Masters, a Los Angeles real estate litigator, said he is advising builders and developers to avoid just characterizing a building as “green.” Instead, they should be specific about the particular product or technology they use, he said.
Green building litigation, according to Masters, will likely involve not only breach of contract, but negligence and fraud as well.
Michael W. Nelson, a LEED-AP lawyer with Green Building, Inc., a Milford, Mich. environmental services company, stressed that LEED projects should spell out the responsibility of each person on the team.
“Whether it is in a design-build relationship or a contract management approach, the responsibilities for achieving a certain level of LEED certification should be expressly identified,” he said. “The responsibility for attaining LEED may be a performance specification that states a precise LEED objective or it could be a ‘best efforts’ type standard. LEED objectives should also be incorporated into various other documents, including drawings and specifications, which are integrated into the project’s governing contract.”
Lawrence Ostema, a LEED-AP lawyer in Charlotte, N.C., said owners and tenants alike are savvier about LEED and are drafting flexibility into contracts to cover its uncertainties.
He said tenants are increasingly taking the position of, “‘we will sign a lease before you get your certification, but we want to have a rent reduction if you miss the targeted level of green. Or, if you entirely miss it, then we can terminate the lease.’ A smart landlord or developer would say, ‘Okay, if we exceed LEED Silver and we get LEED Gold, then you’ll pay us more.’”
If the owner missed the LEED certification, Ostema said, that could mean his lender’s angry because he had covenants that LEED certification was necessary.
“Now I’m going to go to my general contractor and my architect and possibly look at pursuing them,” he said.
The liability quest could trickle further downstream all the way to product manufacturers, Ostema said.
From the plaintiff’s perspective, Murano said it won’t be necessary to identify who’s responsible when a building doesn’t get its anticipated certification or it doesn’t perform up to snuff.
“You don’t have to pick among the carnage. You just throw everybody into the mill and say, ‘You didn’t collectively perform. You guys flesh it out. All I know is that I asked for a LEED Platinum building, you said okay, and you didn’t meet that.”
The Federal Trade Commission is changing its guidelines on how the Federal Trade Commission Act should apply to environmental claims, according to LEED-AP lawyer Tricia J. Sadd of Philadelphia
The FTC is expected to issue “green guides” on environmental marketing for all products later this year.
“One of the things they want to look at is how well do consumers understand green building claims,” she said.
“It’s all about substantiation,” she said. “If someone makes a claim, how well can they substantiate it?”

(Douglas J. Levy and Diana Smith contributed to this article.)