The Office Diggs

Written By: Ari Scharg (Associate at Querrey & Harrow)

email address: ascharg@querrey.com

Now is the time to build green.  The Daley Administration has ramped up their effort to turn Chicago into the “greenest city in the country” by awarding valuable incentives to promote sustainable and environmental construction.  Not surprisingly, builders and developers who have shied away from the green arena in the past are now organizing new construction teams to navigate Chicago’s green construction code.  While the new opportunities are exciting and promising, new legal issues may arise that could devastate any potential success.  It is, therefore, imperative that all parties involved in the construction process understand the Chicago green construction standards and incentives in order to plan for every step of their venture.

Chicago’s Green Construction Standards

Chicago’s green construction standards are principally based upon the U.S. Green Building Council’s Leadership in Energy in Environmental Design (LEED) rating system.  The LEED rating system provides nationally accepted benchmarks for the design, construction and operation of green buildings. 

Presently, LEED offers four levels of certification: “Certified,” “Silver,” “Gold,” and “Platinum.”  The standards comprising these different levels are considered to promote a healthy environment, provide long term cost benefits through efficient use of energy, optimize building performance and create healthier workplaces for employees.  A project can earn points in each of these areas and the number of earned points determines which of the four levels the project will attain. 

LEED standards are being used to promote green building in both the public and private sectors.  For instance, Chicago requires all new public buildings to achieve at least LEED “Silver” status.  Moreover, substantial tax credits may be awarded to LEED certified buildings.  Even private projects that receive city assistance must pursue LEED certification. 

Legal Implications

While the LEED construction standard is a success story to the public, it has the potential to wreak havoc on the construction industry.  Unfortunately, in the world of construction, the LEED standards are relatively new and there is little legal analysis regarding green building disputes.  As cities all over the country continue to implement LEED, developers, builders, owners, architects and engineers must understand the new risks and be prepared to deal with unique legal implications by planning ahead.

At the outset, all parties need to be wary of the unique risks posed by the LEED certification process.  The Green Building Council provides an online submittal process for projects seeking LEED certification that requires extensive documentation of design and construction activities.  Therefore, contracts must be drafted to clearly reflect each project stakeholder’s role in obtaining the certification.  These contracts must clarify which parties will be responsible for tracking, collecting, assembling and submitting support documentation and which parties will are responsible if a project fails to meet a desired sustainability rating.  Of course, a thorough contract will not solve all problems, but it is a critical starting point. 

The LEED certification process also poses significant timing issues.  Often times, the inspection process associated with certification can be arduous.  Consequently, budgeting extra time for completion becomes essential.  In addition, the timing of the receipt of certification can have major implications for green building tax credits.  An owner may expect certification to be awarded during a certain tax year and a delay may have disastrous consequences. 

For example, last summer, in the first reported instance of LEED litigation, a general contractor in Maryland filed a lawsuit to foreclose a $54,000 mechanic’s lien.  The owner counterclaimed for $1.3 million, based in part upon the failure of the project to qualify for state tax credits that were based upon LEED silver certification.  The owner’s LEED claims were settled outside of court, leaving them untested.  However, the litigation illustrates the vital role and importance of the timing of the receipt of LEED certification. 

Developers must also consider the possibility that LEED certification may be denied when the project is complete.  Failure to obtain the certification could have catastrophic consequences.  Consider the situation where a new condominium complex is advertised during construction as LEED compliant but fails to obtain certification.  In addition to breach of contract claims, buyers who purchased condominium units in reliance on the LEED representations may also have claims for consumer fraud, resulting in exposure to liability not contractually assumed.

The issues discussed above are by no means an exhaustive list of legal implications and are, instead, meant to provide examples of issues that may arise in the course of a green construction project.

The Bottom Line

While green construction standards have the potential to create legal smog, construction companies will quickly realize that the incentives are too valuable to ignore.  In Chicago, there are government contracts, tax credits, expedited permitting and various other financial enticements to build green.  Not to mention the fact that more and more consumers are seeking out green buildings because of decreased operating expenses.

The key is preparation.  Experienced legal counsel should be engaged from the very beginning of any green project to ensure that all available green building incentives are realized and that all legal hurdles are minimized.  Developers and builders must be proactive and address potential issues before they arise.  With the proper planning, the green construction industry will thrive and green buildings will continue to sprout up all over Chicago.