LEED certification can carry risk for contractors

Canadian contractors need to be aware of the risk factors associated with the U.S. Green Building Council’s Leadership in Energy & Environmental Design (LEED) Rating System, says a construction lawyer with one of the country’s leading legal firms.

REGINA

“The primary risk factor arises out of the fact that LEED certification is issued by a third-party and a contractor may have little or no ability to manage that risk,” said Geza Banfai, a partner in Heenan Blaikie’s Infrastructure and Construction Litigation practice group.

Banfai made this statement to a group of general contractors at the Canadian Construction Association’s spring meeting in Regina, Saskatchewan.

He explained that this risk factor gives rise to a couple of potential problems.

“The first is that the certificate will not be issued at all by the third party, due to no fault of the contractor,” he said.

“The second is the certificate is going to be delayed. I understand that it is not unusual to have a LEED certificate issued weeks, if not months, after substantial performance.”

This means that if the contractor has unwittingly entered into an agreement that holds up payment pending LEED certification, the contractor may have to finance this payment for an extended period of time.

According to Banfai, if the contractor has assumed that risk, then the contractor may be liable for the damage sustained by others.

Also, the LEED certificate might not be issued under circumstances where the contractor had nothing to do with the problem.

“The key for the contractor is to carefully review the contract with the owner to make sure he has not unwittingly assumed these risks,” said Banfai. “For example, by promising that a LEED certificate is going to be issued by guaranteeing that result.”

Construction lawyer Harvey Berman said the first reported “green lawsuit” occurred in 2008 and involved the Captain’s Galley Luxury Condominiums in Crisfield, Maryland.

The developer was seeking LEED silver certification for its $7.5 million building and $635,000 in tax credits, which were tied to achieving the certification.

The contractor made the mistake of filing a lien and then suing the developer to obtain payment on a relatively small unpaid sum.

The developer then counter sued the contractor for $1.3 million, claiming that the contractor was responsible for the developer’s failure to achieve the LEED certification and the loss of tax credits.

The developer claimed that the contract required that the contractor construct an environmentally sound “green building” in conformance with a “Silver Certification Level according to according to LEED. It also alleged that the contractor was nine months late in completing the project.

Berman, a partner in the Ann Arbor office of the law firm Bodman LLP and is head of the firm’s Construction Law practice, said the contract did contain a waiver of consequential damages.

However, the contract documents attached to the developer’s counterclaim contained no provisions limiting the contractor’s liability relating to any “green building” aspects of the project, did not discuss the role of the developer or the design/construction team regarding obtaining LEED certification, and did not discuss the LEED process or the effect of a project delay on the attainment of tax credits.

The case was settled in 2008 and the terms of the settlement were not made public.

The LEED program, which builders and property owners enter into voluntarily, certifies that a building is constructed in ways that help the environment, by saving energy, for example.

LEED is a rapidly evolving rating system that currently certifies existing buildings (operations and maintenance), new construction, homes, commercial interiors, core and shell projects, neighborhood development (in pilot), and schools, healthcare, and retail projects.