In recent years, many types of businesses—including the commercial retail industry—have focused increasingly on constructing and operating buildings in an environmentally sustainable manner. This trend is often referred to as the “green building” movement and has been fuelled not only by customer demand and concern for the environment, but also by the increasing potential cost benefits associated with energy efficiency and the use of sustainable materials. This article describes some general history and background with respect to green building, including attempts to define “green building,” as well as some of the legal issues that often arise in the “green building” arena. These legal issues include: (1) contractual promises or guarantees with respect to the efficacy of energy performance or savings measures; (2) contractual promises or guarantees with respect to certification of buildings under Leadership in Energy and Environmental Design (LEED) or other rating systems; (3) the veracity of claims by various companies of being “green” despite evidence to the contrary, popularly known as “greenwashing”; and (4) the allocation of risk and other transactional issues with respect to distributed renewable generation, such as rooftop solar panels.
The concepts that underlie “green building” are not particularly new. Vitruvius, as far back as 15 B.C., articulated some of these primary concepts in his book De Architectura, known today as The Ten Books of Architecture. In his book, Vitruvius describes many innovations aimed at improving indoor environmental quality, including a type of central heating where hot air from a fire was channelled inside the walls and under the floor. He also provides designs for buildings aimed at maximizing fuel efficiency.
In the early 1700s, Sir Christopher Wren attempted to use the stack effect to improve natural ventilation in the Palace of Westminster, a design that was made more successful in 1723 by adding trunking to the system. Guedes, P. ed (1979).The Macmillan Encyclopedia of Architecture and Technological Change, The MacMillan Press Limited, London. In the temporary House of Lords building, displacement ventilation was used, and environmental control became a central issue in the rebuilding of the House of Lords following a fire in 1834. Structures like London’s Crystal Palace (1850–1), designed by Sir Joseph Paxton, and Milan’s Galleria Vittorio Emanuele (1865–77), designed by G. Mengoni, also used passive systems such as roof ventilators and underground air-cooling chambers to moderate indoor air temperature. Of the Modern Movement architects, Frank Lloyd Wright is perhaps the “greenest” of them all and could, in many ways, be described as the real “father” of the green building movement.
In reality, most modern buildings may, to a varying degree, also be described as “green.” Currently, the application of “Best Practice” will almost always result in a new building subscribing to some of the primary concepts of green building. The founding concept of green building was energy efficiency, which came into sharp focus in the 1970s as a result of the oil crisis. The drive to energy independence resulted in the exploration for alternative energy sources as well as a major initiative to reduce energy consumption in automobiles, industry, and buildings.
In the 1980s, research into building energy efficiency began in Europe to develop energy efficient building methods and rating tools, culminating in 1990 with the release of the PassivHaus method in Germany and British Research Establishment Energy and Environmental Assessment Method (BREEEAM) by BRE, in the United Kingdom. The U.S. Green Building Council (USGBC) was launched in 1990, and its LEED green building rating tool was released in 1993. Subsequent rating tools have also been developed, most notably Green Globes and Greenstar. However, the underlying methodology in most of these tools remains founded on the essential principles of BREEEAM.
One of the main challenges in the green building domain is to define what is meant by “green building.” While there may be general consensus around green building characteristics, there is no one-size-fits-all system. Green building is thus defined more by the assessment system than systemically. In the market place, a green building will often be defined as a “LEED-certified” building, meaning that the building in question meets the criteria described by LEED. Other certification processes exist, however, and outside of the certification process, anyone can build a building and call it “green.”
The Office of the Federal Environmental Executive defines green building as “the practice of (1) increasing the efficiency with which buildings and their sites use energy, water, and materials, and (2) reducing building impacts on human health and the environment, through better siting, design, construction, operation, maintenance, and removal—the complete building life cycle.” Office of the Federal Environmental Executive, White Paper, The Federal Commitment to Green Building: Experiences and Expectations, at page 8, available at www.ofee.gov/Resources/Guidance_reports/Guidance_reports_archives/fgb_report.pdf. Green buildings therefore aim to better manage environmental resources and to reduce environmental impacts while creating healthier environments for building occupants. In this sense, green buildings aim “to do least environmental harm” rather than “do no harm.”
The ICC’s Green Building White Paper describes green building as “building with a conscious effort to minimize the negative impacts and encourage positive impacts of buildings on both the indoor and outdoor environments.” The White Paper goes on to state that green building typically includes attention to the following primary concepts and systems: (i) sustainable/durable/low-maintenance building design and operation; (ii) energy efficiency and conservation; (iii) site/land management, sustainability, reclamation, and conservation; (iv) water efficiency, management, and conservation; (v) indoor air quality (IAQ); (vi) outdoor air quality (OAQ); (vii) material and resource management, recycling, and conservation (including the reuse of building materials and products); and (viii) innovation.
Green Building in the Retail Industry
Retail commercial buildings account for the largest energy costs in the United States, totalling nearly $20 billion each year. Together, the more than 21,000 new retail facilities built in the United States every year, from shopping malls to banks to supermarkets and department stores, constitutes 23 percent of all new commercial building projects. See Introduction, LEED 2009 for Retail: Commercial Interiors, USGBC. Accordingly, businesses and commercial retail spaces are increasingly looking to construct “green” buildings for both offices and retail spaces. Although the impetus for many “green building” efforts may have originally been for marketing purposes, commercial retail businesses are increasingly realizing the economic benefits of energy savings over the lifecycle of their buildings. Companies such as Home Depot, Starbucks, Kohl’s, Wal-Mart, and several others have engaged in Silver, Gold, and Platinum LEED-certified retail and commercial office projects. For a spreadsheet list of LEED-certified projects such as the ones referenced above, go to www.usgbc.org/LEED/Project/CertifiedProjectList.aspx.
Although multiple green building and design ratings systems exist, currently the most widely used rating system in the United States is the LEED system. Under the LEED system, different types of buildings or projects (e.g., new construction, commercial interiors, neighborhood development, or schools, healthcare, and retail) can receive credits in various categories (e.g., sustainable sites, water efficiency, materials and resources, energy and atmosphere, indoor environmental quality).
LEED ratings categories now exist to address retail buildings. The LEED Green building Rating System for Retail includes both new building and major renovations (Retail for New Construction) as well as renovations to tenant space within existing retail buildings (Retail for Commercial Interiors). The LEED Rating systems provide a number of prerequisites and credits for improvements in seven categories: Sustainable Sites (SS), Water Efficiency (WE), Energy and Atmosphere (EA), Materials and Resources (MR), Indoor Environmental Quality (IEQ), Innovation in Design (ID), and Regional Priority (RP), which allow for specific credits addressing geographically specific environmental priorities.
Points may be earned for incorporating certain features into the retail space. Some are simple, whereas others are more sophisticated. For example, points may be earned for: (1) using roofs that are covered or that are painted a certain color or material with a minimum solar reflectance index (SRI) to reduce the heat island effect in urban developed area; (2) installing low-flow toilets and faucets in restrooms to increase water efficiency; (3) using landscaping that does not require permanent irrigation systems; and (4) using recycling bins to reduce waste. In the building process, points may also be earned for using certain woods and materials, or even for using materials that are extracted or manufactured locally, which reduces the environmental impacts resulting from transportation. To improve indoor air quality, there are certain prerequisites regarding smoking policies to reduce the harm from environmental tobacco smoke, and for using indoor materials (e.g., carpet adhesives) low in indoor air contaminants known as volatile organic compounds (VOCs).
LEED points are awarded on a 100-point scale, and credits are weighted to reflect their potential environmental impacts. Bonus points are also available for innovation in design and regional priority. If a project is awarded 40 or more points, it is LEED-certified; 50 or more earns LEED Silver certification; 60 or more earns LEED Gold; and 80 or more earns LEED Platinum certification.
Emerging Legal Issues Relating to Green Building
The emergence of “green” building is not without its own controversy, however, most notably about the ability to measure green. Common legal issues that have emerged in connection with green building include: (1) performance claims regarding contractual promises or guarantees with respect to the efficacy of energy performance or savings measures; (2) contractual promises or guarantees with respect to certification of buildings under LEED or other rating systems; (3) the veracity of claims by various companies of being “green” despite evidence to the contrary, popularly known as “greenwashing”; and (4) the allocation of risk and other transactional issues with respect to distributed renewable generation, such as rooftop solar panels.
A major source of contention within the construction industry has to do with whether or not rated green buildings actually outperform their non-green counterparts. Green building councils claim that green buildings outperform their non-green counterparts in a number of areas. Areas that are typically included are energy, water, waste, and occupant health. The challenge this poses is that a client might be tempted to claim compensation from the professional team in cases where the actual performance of the building is worse than the predicted performance, particularly in cases where the capital cost of the building is higher due to the interventions introduced to achieve the predicted performance enhancements.
Part of this conundrum has to with the method of calculation. For instance, it is claimed that rated green buildings can save up to 30 percent of the energy of a typical nonrated building. Most green building rating systems award energy points for a design stage rating based on predicted performance, not actual performance. The method used is to first calculate the energy use of the building under consideration as if it were to be designed in a conventional manner. The calculation is then rerun using various energy saving strategies, and points are awarded in accordance with the degree of improvement.
It is also claimed that rated green buildings can save between 30 and 50 percent of the water use of a typical nonrated building. Again, assumptions are made for calculation purposes. These assumptions predetermine the number of times per day that a toilet or a urinal will be flushed, the number of times a faucet will be used, etc. The water calculator then typically requires that the water use data of the sanitary ware fitting to be used is inputted into the calculator, and a total water consumption quantity is given.
Similarly, it is claimed that waste cost savings on rated green buildings can amount to between 50 and 97 percent. Again the method of calculation is problematic because an assumption must be made of the quantity of waste that would result from conventional building methods. Unfortunately, in this case the client will not be able to readily assess the value—or loss of value—because the number is not known beforehand.
It is further claimed that rated green buildings improve the health of occupants. Claims made include that typical symptoms such as sore throats, irritated eyes, runny nose, etc., are reduced by between 41 and 44 percent. Again it is very difficult to quantify the value of this to a client, and therefore to determine any compensation that may arise. Some claims from green building protagonists do quantify a reduction in absenteeism, which is easily quantified from a client’s perspective.
Predicted performance is, by definition, problematic. A number of assumptions must be made regarding the hours of use, nature of the use, number of people using the facility, nature of equipment used in the facility, etc. To ensure that values aren’t selectively chosen and applied by the applicant, rating systems provide a set series of values that all applications must use. Thus, the overall assumption is that all office buildings operate in the same manner, which is patently not the case.
Some argue that rated green buildings are not necessarily more energy efficient than their nonrated counterparts. For instance, Henry Gifford analyzed a U.S. Green Building Council (USGBC)-funded study on energy improvements in LEED-certified buildings and concluded that some LEED-certified buildings actually used more energy than their noncertified counterparts. Gifford, H. (undated). A Better Way to Rate Green Buildings, available at www.henrygifford.com/.
On February 7, 2011, Mr. Gifford filed an amended complaint against the USGBC, alleging false and deceptive statements regarding the energy-saving performance of LEED-certified buildings. However, on September 6, 2011, the Southern District of New York dismissed Gifford’s complaint with prejudice. Gifford v. U.S. Green Building Council, Docket No. 1:10-CV-07747-LBS (S.D.N.Y Sept. 6, 2011). In the August 16, 2011, memorandum and order preceding the dismissal, the Southern District of New York found that the plaintiffs were not competitors with the USGBC, and therefore lacked standing under either the “strong categorical” or “reasonable commercial interest” tests for prudential standing under the Lanham Act. Memorandum and Order, Gifford v. U.S. Green Building Council, Docket No. 1:10-CV-07747-LBS, 2011 WL 4343815, at *3 (S.D.N.Y. August 16, 2011). Given the dismissal of the federal claims, the federal court therefore lacked jurisdiction over the state law claims and dismissed them without prejudice. The plaintiffs had 30 days to appeal the judge’s decision but did not appear to do so.
The potential legal issue created by claimed energy savings is that a client, convinced at the design stage by his professional team to make additional energy saving investments on the basis of the predicted behavior, finds out that the building in operation performs nothing like what was predicted. Under this scenario, the client would potentially be tempted to seek compensation from the building professionals for the lack of improved performance.
It should be noted that LEED certification is about the building being designed to achieve certain energy savings, not whether the energy savings is actually performed. LEED certification is about designing buildings in energy efficient and sustainable ways, but in many cases the achievement of some energy performance goals may depend on how the building will be subsequently used by its occupants, which cannot be controlled or predicted at the outset. For example, a house may have a programmable thermostat, but if the occupant ignores its energy-saving capabilities and instead chooses to blast air-conditioning at frigid temperatures all summer, the energy savings for which this installation was designed cannot be achieved. Similarly, low-flow toilets may be designed to save a certain amount of water per flush, but if the occupant increases his or her flushes per visit or increases the number of visits per day, the predicted energy savings will begin to decrease.
Therefore, when negotiating contracts between the client and his or her professional team, attorneys should ensure that the contractual obligations with respect to energy savings either (1) stipulate in great detail to how the guaranteed energy savings will be calculated as well as what the preproject inputs are; and/or (2) include terms as to the energy-efficient design specifications to be included in the project, instead of the percentage of energy savings to be gained.
Aside from measuring the actual energy savings, legal issues still arise in attempting to get a green building system certified under a given ratings system such as LEED. Any construction project involves several entities participating under various contracts and subcontracts throughout the phase of the project: architects, engineers, consultants, general contractors, and subcontractors, to name a few. Both for marketing and for energy-saving purposes, having a green building certified by LEED or another rating system may be a primary objective of the entire project. Therefore, if a building fails to achieve its desired certification, what began as seamless cooperation can often devolve into a finger-pointing exercise.
An attorney can play an important role in obtaining the sufficient credits to achieve a given LEED certification. As with any ratings system, questions inevitably arise as to the interpretation of certain language and whether a given strategy will be able to achieve credit in a particular category. During the certification process, if it is unclear whether or not a strategy applies to a given credit, a Credit Interpretation Request can be submitted for a ruling to determine whether the approach is suitable. Similarly, if a project team feels that sufficient grounds exist to appeal a credit that has been denied in the final LEED review, it may appeal within 25 days after the final LEED review. At the outset of a project, because there is an inherent degree of uncertainty as to whether a given project will achieve the desired LEED certification, lawyers should advise their project teams to plan on designing for more credits than necessary, so as to provide flexibility as the project continues and issues potentially arise.
It is also important, when advising a client participating in a project where LEED or other certification is a primary objective, to ensure that the responsibility for achieving such certification is clearly laid out in the contracts and subcontracts and allocated appropriately. If your client is a general contractor, for example, who is in a position to guarantee certain design specifications to achieve LEED Silver certification, the subcontracts should include flowdown provisions that allocate those design guarantees or the relevant portions thereof to the subcontractors performing work on the general contractor’s behalf. Similarly, if your client is a subcontractor performing only a certain portion of a project that is striving to achieve LEED certification, you should make sure that your client is not obligating to him or herself more responsibility than appropriate, given the scope of your client’s work on the project.
“Greenwashing” and the FTC Green Guidelines
In many instances, “green” is the new advertising buzzword, especially where the product is being aimed at the ecoconscious. With a few notable exceptions—Energy Star appliances in particular—few standards exist against which to evaluate the claimed environmentally friendly nature of the product. False claims are being called “green-washing” in the market, and a claim may potentially be made against a product manufacturer or service provider who advertises a green product or service despite using a material, product, or process that is blatantly harmful to the environment.
The pressure is thus on the government to set environmentally friendly standards for construction products, which then can be used as a benchmark for evaluating claims. This is a very complex field, typically addressed through Life Cycle Assessment (LCA) methodologies, all of which are open to disputes such as determining where assessment begins (i.e., cradle-to-grave), traceability, and where liability ends.
Most often, disclosure is the key component. In 1992, the FTC issued its “Guides for the Use of Environmental Marketing Claims,” commonly known as the “Green Guides,” and updated them in 1996 and 1998. On October 6, 2010, the Federal Trade Commission (FTC) released a proposed revised set of “Green Guidelines.” The FTC is currently reviewing them to ensure that they are “appropriately responsive to change in the market place and in consumer perception of environmental claims.” Although the Green Guides are administrative interpretations of the law, without the force and effect of law (and therefore are not independently enforceable), the FTC has brought law enforcement actions targeting “allegedly false or unsubstantiated environmental claims.” The FTC has stated that if a marketer makes claims inconsistent with the Green Guidelines, it can take action under Section 5 of the FTC Act, which prohibits unfair or deceptive practices. The FTC has made available a number of brochures and other educational resources for consumers and businesses, which are available at www.ftc.gov/opa/reporter/greengds.shtm.
If a client plans to make certain environmental claims about its products or processes, or to claims to be “green,” the attorney should maintain familiarity with the Green Guidelines as they continue to evolve. Care should be given to the language used in marketing materials and other disclosure documents, such that it optimizes the “green qualities” of the company’s products and services while steering clear of potential claims by the FTC or others that such documents are false or misleading.
Distributed Renewable Generation
The drive to promote renewable energy is creating new entrepreneurial opportunities to find suitable sites for the installation of renewable energy installations. In many countries, energy providers are leasing spaces, such as individual roof space, to install renewable energy fittings (wind turbines, photovoltaic panels, etc.) from which they sell energy to the grid. The roofs of large shopping malls and other large retail establishments are ideal for such installations; however, in more historic towns and villages where this opportunity is not readily available, conventional roof space is also being used.
Existing lease agreements will be required to be amended and new lease agreements put in place to sectionalize roof areas and to allocate risk associated with possible failure and/or threat. With respect to renewable and other variable intermittent generation resources, many of the cost-benefit aspects of a given contract may be dependent on the ultimate power purchase agreement with the utility, which in turn, is probably conditional upon state public service commission approval. The term of the power purchase agreement with the utility, along with capacity payments and penalties, construction schedules, and commercial operation dates, among other terms and conditions, may affect the payments contained in contracts between the vendors and the owners of the rooftops being used. Therefore, terms and conditions within the contracts between the rooftop owners and the renewable distribution aggregators may need to reflect these contingencies.
The green building trend is expected to continue among businesses of all types into the foreseeable future. Practitioners should, therefore, be prepared to assist clients in identifying and addressing the many issues that will continue to arise in connection with these projects. Among the most significant issues arising from rated green buildings is the difference between predicted (claimed) performance and actual performance. If possible, an attorney should advise a professional team not to make claims for the actual performance of the building, and to take a conservative approach when calculating payback periods for the additional expense occurred. At a minimum, the contract should make clear that the actual performance of the building will be determined by the manner in which the party uses the building, and if the manner of use is outside of the performance criteria used for the predicted performance, no liability is accepted. For the reasons discussed above, legal issues related to the energy-saving performance guarantees, representations, or warranties with respect to LEED or other ratings system certifications, marketing claims of being “green,” and contingencies with respect to payments for renewable or other alternative generation, need to be addressed in contracts throughout the chain of services and supplies in creating green buildings.