On April 1 I spoke at the Apartment Finance Today Conference regarding the future of green in the multifamily housing industry. At this roundtable panel session the question of what potential legal issues owners/managers may face due to green practices peaked attendees interest so I will address it here today.
Green real estate methods are still fairly new in the U.S.; therefore little formal legal analysis exists regarding the subject. Nonetheless, a handful of civil suits have been filed in a few states, and most attorneys expect to see more in the coming years. With this in mind, below are a few (but certainly not all) of the legal issues multifamily developers and managers may want to consider when “going green.” In the future I will post more entries on other areas of this topic.
Green Construction Contracting
One of the main issues faced by building owners, contractors, and design professionals is that they fail to recognize that there are key differences between a standard development project and a sustainable building project. Because of this many often rely on standard construction contracts that do not address the unique risks related to green building. Failing to address these risks within the contract creates the potential for disputes and litigation down the road.
In order to avoid these disputes owners will need to develop a new, more detailed, level of thinking when drafting green project contracts. For example, what if your green consultants promise you a project that will achieve LEED Gold certification, but the project only achieves LEED Silver- what are your damages? Do you have a legal duty to your investors to ensure the project achieves Gold vs. Silver certification? Who is responsible for filing and administering documentation with green certifying bodies-owner or contractor? The answer to these questions is that it all depends on how the contracts are written. Without well drafted contract provisions owners who find themselves in these situations, and many others, could become involved in costly protracted litigation.
In light of these new risks, owners would be wise to shift as much liability as possible to the contractor and/or consultant in their contracts. Additionally, you should double check that their insurance policies cover losses due to failure to comply with green building requirements. Other items multifamily owners will want to address in terms of contract related damages may include loss of rental income, forfeiting of tax credits, and/or deductions of density bonuses granted due to meeting green building criteria. Because of the nature of these consequential losses, owners should be careful not to agree to limiting damages in green contracts to direct damages.
Marketing
Outside of green building code compliance the area that is most likely to attract regulatory agency legal action will be deceptive marketing claims. Multifamily professionals should be aware that because there is a lack of uniform definition as to what constitutes “green” and the fact that it is still an emerging science they could expose themselves to liability if they are not careful in their marketing. For example, to the average informed person, a certified green building could mean energy efficiency to one person, clean water or clear air to another. As there are so many meanings and aspects to green if you don't clearly state what it means for your residents it could be possible that the marketing is misconstrued. Just because you, as an apartment industry professional, are well versed in the terms and concepts of green buildings do not assume that potential residents are also. Because of the potential for misunderstanding multifamily managers, as with any other marketing message, should take steps to ensure they are not making promises regarding energy performance, water conservation, health, etc which they can’t back up with provable facts. Doing so is a guaranteed path to litigation.
As previously mentioned, these are both a few of the legal issues facing the industry as a result of the green movement. Until these issues become well settled multifamily professionals who become involved in green would be wise to seek out legal counsel knowledgeable in this practice area before proceeding.
If anyone has any questions regarding these topics feel free to contact me anytime at scot@naahq.org.
Scot Haislip - State & Local Policy Manager, NAA