Law Times

LAw times • August 8, 2011 NEWS LEED presents legal challenges BY JULIUS MELNITZER For Law Times nized green building certifi cation system developed in 1998 by the U.S. Green Building Council. Th e standard calls for third- L party verifi cation that a build- ing's construction has incorpo- rated energy savings, water effi - ciency, greenhouse gas emissions reduction, improved indoor en- vironmental quality, stewardship of resources, and sensitivity to their impacts. LEED now embraces more than 7,000 projects in some 30 countries largely because it's an open and transparent process based on criteria proposed by the 20,000 member organizations of the council. In Canada, however, LEED is a relatively recent phenom- enon that's only now appearing as an issue for lawyers. "LEED is becoming increasingly sig- nifi cant in Canada of late," says Ian Houston of Borden Ladner Gervais LLP. "All new federal bids and Infrastructure Ontario projects must meet LEED stan- dards, and other provincial min- istries, including the Ministry of Health, have embraced them." But while the government can decide as a matter of policy to embrace LEED and it may be desirable to market a building as green these days, accommodat- ing the standard is more contro- versial in the private sector where the core question is whether it translates into a more valuable building that produces a better revenue stream. "From the private owner's perspective, the value equation is not as immediately evident as it may be in the public sector," says Houston's colleague Bruce Reynolds. "Th ere is a continu- ing controversy about whether LEED certifi cation does in fact mean long-term maintenance and operating costs savings." Indeed, a class action suit in the United States, Giff ord v. U.S Green Building Council, is chal- lenging the council's claims that LEED produces energy savings. "Th e case is a direct attack on the science behind LEED and the economics associated with that science," Houston says. What isn't in doubt is that a LEED building is more expen- sive to design and construct. "Th ere's an incrementally higher standard to obtain LEED credit than the normal industry standard requires," Houston says. "For example, there's the cost of hiring a LEED consultant, the costs associated with the delays in the preconstruction phase due to the design complexities, and there may also be issues relating to the availability of LEED-ap- proved components." From the solicitor's perspec- tive, the most challenging im- pact of the LEED phenomenon manifests itself in negotiating a certifi cation clause. "Th e core diffi culty is that no one can know Untitled-1 1 With new ERAssure, your executor clients get peace of mind in an unfamiliar role. eadership in Energy and Environmental Design is an internationally recog- whether LEED certifi cation or what level of LEED certifi cation will be achieved until construc- tion is substantially completed," says Paul Morassutti of Osler Hoskin & Harcourt LLP. "So the issue becomes fi nding a practical remedy if it turns out that the building doesn't meet the crite- ria for certifi cation in the end or doesn't meet the gold or silver or whatever standard the contract stipulates." Morassutti cites the case of a current LEED deal for a large institutional client seeking to lease a large amount of space for 15 years. "It's a chicken-and-egg situation," he says. "Th e lender won't commit to fi nancing until the lease is in place, so the trick is to negotiate a LEED clause that protects the tenant if the build- ing doesn't meet the standard." For a large tenant, backing out of the deal isn't a realistic option. "What's the client go- ing to do after having arranged to consolidate various offi ces and move thousands of employees Th e practical remedy for a major tenant, Morassutti says, may be having a private consul- tant monitor the construction. "Th e tenant can then be given various remedies at various stages if the project isn't measuring up, including perhaps the right to pull the plug at the front end." Infrastructure Ontario's mod- el, also used in British Colum- bia, provides some guidance. "In that model, there's a provision for liquidated damages — in the low seven fi gures for major hos- pital projects — if the contractor doesn't meet the standard agreed upon," says Houston. Th e other element in the A key difficulty is that no one knows whether LEED certifica- tion will result until construc- tion is largely done, says Paul Morassutti. to the new space?" Morassutti asks. "Arguably, all you can do is have the contractor agree to do the most he can do to make the building a green building." Infrastructure Ontario model is a "pain share, gain share" provision. "Here, the private sector as- sumes some of the risk of excess energy consumption on a for- mulaic basis if consumption ex- ceeds 105 per cent or some other agreed percentage of the target," Houston says. "But if consump- tion is less than stipulated, there's a gain share." Th e advantage of the pain- share, gain-share approach is that it doesn't run the risk of being struck down as a penalty provision as liquidated dam- ages might be. As stated earlier, the jury is still out on whether LEED certifi cation translates into building value. "Th ere's at least one arbitra- tion in Australia where the con- tractor failed to meet the green standards, but there were no damages awarded because a com- parative evaluation of the build- ing as a green and non-green building showed no signifi cant disparity," Reynolds advises. Meanwhile, everyone agrees that LEED's legal ramifi ca- tions have yet to fully manifest themselves. "Th e practice hasn't evolved suffi ciently to identify all the issues, let alone the practical and legal solutions, so right now there's a lot of hypothesizing and guesswork," Morassutti says. "It's going to take a lawsuit or two to get the right answers." PAGE 5 www.ERAssure.com Executors need your good counsel – and E&O insurance. The executor, estate trustee, or estate administrator role has always been complex. Changes in our society are adding to the significant risk of liability faced by today's executors. As a professional, you know the benefit of errors and omissions coverage in an unpredictable and litigious environment. Now you can ensure your executor clients are also protected. Current executors are eligible for a limited time, so act today. Call 1-855-636-3777 for more information or to arrange a policy. ERAssure™ is a trademark of Estate Risk Protection Plan Inc. www.lawtimesnews.com 6/14/11 11:12:43 AM

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