Sustainable projects present a plethora of unique issues which must be addressed by an attorney prior to and during construction of the building in order to minimize the potential for future litigation.While design professionals carry insurance it is paramount to consider whether the insurance carried by the design professional is adequate in light of the sustainable nature of this project. Sustainable design is different from the traditional design that many professionals such as engineers and architects engage in and is also in its infancy therefore, giving rise to a greater probability that there could be problems inherent in the design for which the owner may wish to sue the design professional. Likewise, it is important to evaluate the warranty and guarantee language of the products and materials being utilized in the construction to ensure that green construction procedures and installation techniques do not void the warranty for a product. Closely related to the warranty and guarantee issue is the potential for intellectual property infringement or the need to protect intellectual property. Sustainable building is still in its infancy and new techniques and methods to achieve LEED credits are being still being developed. The owner, general contractor, and architect must be aware of the potential for intellectual property infringement by utilizing techniques pioneered by others as well as aware of the need to protect innovative strategies or methods that might be developed during the construction of their building. Clients need to be advised of the importance of contractually defining who is responsible for infringements of other’s rights as well as who will own the intellectual property rights to any techniques developed during this project. Sustainable buildings have both short term performance goals, such as obtaining certification as well as longer term performance goals such as reduced energy use or the use of energy from renewable resources. The performance goals of a sustainable building must be discussed with the client and if necessary contracts must be drafted to ensure these long term performance goals are met by tenants and other parties. It is important that the client realizes that in constructing a green building, obtaining LEED certification is just one small step and that without the proper education and operation guidelines and contracts in place the true energy savings will not be achieved. The owner must also consider whether traditional insurance will be adequate to compensate them and permit them to rebuild to LEED standards in the case of a loss, or whether they should obtain an insurance policy which specifically addresses the sustainable nature of the building and provides adequate funds to rebuild a LEED building in the event of a loss.
Today it is my great pleasure to present a guest post by Mark Rabkin of Althans Insurance Agency. Mark can be found on twitter @MeRabkin and is a very valuable resource to all involved in the construction world when it comes to insurance.
When a large, publicly funded construction project is sent out to bid, each contractor that is vying for a piece of the pie must submit a bid and performance bond in conjunction with their application. The bid and performance bond is underwritten by a surety company and provides a financial guarantee to the owner of the project that the contractor will comply with the terms of the construction contract. Should a contractor fail to perform, the surety company will either pay the current contractor to complete the project or hire another contractor to either fix the errors caused by the first or complete the job if the original contractor becomes insolvent. The surety company will then pursue the original contractor to collect on the defaulted amount.
As indicated above, a surety bond is meant to guarantee the performance of a contractor as per the construction contract. The surety underwriters evaluate a “risk” based on their financial position, overall industry expertise including managerial experience and familiarity with the construction methods upon which they are bidding. It is important to note that the most critical component of a final bond is the actual contract that is entered into between the various parties involved. Should the contract contain language that is onerous to either party, a surety will either refuse to bond the contract or seek to have that specific language excluded or stricken from the contract. For example, extended warranty periods or usurious liquidated damages clauses are significant red flags to surety underwriters and legal departments.
Building projects that are registered for certification by an independent third party such as the US Green Building Council are rapidly growing in number. Many federal, state and municipal entities now either require or encourage new construction, major renovation or leased space to demonstrate some level of environmental stewardship throughout the construction process or energy efficiency within the subsequent operation of the facility. There has been much debate within risk management circles regarding the possibility that a project could fail to either achieve certification or attain a specified level of achievement. These situations could result in lost revenue opportunities for the loss of tenants, lost tax incentives, utility expenses higher than promised or any other failure to achieve an expected benefit of the proposed project. To protect themselves, project owners will look to transfer the risk to the design team or construction contractors and subcontractors. It should be noted that most if not all sureties will refuse to bond a contract that contains language that guarantees certification by a third party entity such as the US GBC or seeks to guarantee a specific level of energy efficiency.
Traditional general liability insurance defends and protects contractors for bodily injuries or property damage caused by the insured party’s negligence. It does not provide for defense or indemnification for claims due to breach of contract. Should a third party claim financial injury due to the negligence of a contractor, professional liability coverage (also called errors and omissions) could respond. This coverage is available in the market for construction companies and is increasingly necessary as more contractors are obtaining accreditation as “specialists” upon successfully earning their LEED-AP designations.
Mark E. Rabkin is a triple bottom line risk manager for Althans Insurance Agency in Cleveland, Ohio. He counsels clients on the risks faced everyday that impact his client’s financial, social and environmental exposures.
Today I am starting a new blog series which will focus on major developments in the sustainable design and construction world that occur each week. Please feel free to either send me email or send me a message on twitter @richcartlidge with any developments you feel are worthy of a mention.
This is just a brief summary of recent developments in the sustainable development and construction world. If you find this interesting please let me know and I will make sure to continue to compile interesting stories throughout the week.
We live in a wonderful world! However, one needs to wonder what will the world look like for future generations if we don’t take action to change it for the better? The passion I have for sustainable building, design, and renewable energy powers me through each day and encourages me to crush it! However, I have realized that this passion is worthless unless it helps to educate others, share information, and inspire individuals to do whatever it is they can to spread the message. Today as part of the construction update presented by Konstructr one of the speakers said that green should not be an add on to a project but should be the project. That is precisely the message that needs to be spread! Green is not an add on benefit, a premium option, or a special feature that should be added to a building, every building we build should be sustainable, efficient, and capable of lasting for thousands of years. The word green needs to vanish from our vocabulary and each one of us needs to do whatever we can no matter how small to spread the word that sustainability is not just viable but necessary. Let us use the collective power of the Konstructr network to spread the word, educate others, and facilitate the flow of information that will ensure the world we leave behind for future generations is a bright one indeed!
If you are involved in the design or construction of a green building there are a plethora of legal issues which you should be considering. The best known issue is how to define who is responsible for achieving certification if the building is pursuing LEED certification. Traditional contract documents such as the AIA forms do not adequately address the nuances of green design and construction, a problem which was partially brought to light in the Shaw case as discussed by Stephen Del Percio. It is important that as a designer or contractor you seek legal counsel regarding the potential litigation that can arise if a building does not achieve certification. As Chris Cheatham has explained at GBLU there are currently no available mechanisms to ensure certification. In addition to the issue of certification the following issues should also be addressed:
- Does the design professional have adequate insurance coverage considering the green nature of the project?
- Will product warranties and guarantees be voided by green construction procedures or installation methods?
- How will long term performance goals be delegated amongst future building occupants?
- Are there intellectual property infringements from copying installation methods or designs from other green buildings?
- What is the availability of green building materials and their cost of replacement? Will a traditional insurance product cover the rebuilding to green standards if a loss occurs?
Previously we have discussed the use of The Interstate Land Sales Act (ILSA) as an escape mechanism for purchasers trying to walk away from contracts to purchase either homes or condominiums. Today we will examine the Act in greater detail.
In order for the sale of a condominium in Florida to be exempt from the federal act, the contract must unconditionally obligate the developer to complete construction within two years and must not limit the purchaser’s remedies of specific performance or damages. A developer may not claim an exemption under the Act when damages for a violation of a two-year construction provision are limited to the return of the deposit or specific performance.
According to 15A Am. Jur. 2d Condominiums and Cooperative Apartments § 15:
The Interstate Land Sales Full Disclosure Act is applicable to the sales of condominiums. The Act prohibits a developer from selling or leasing land in a subdivision through the use of means or instruments of interstate commerce or of the mails, unless a statement of record is in effect and the developer has furnished each purchaser with a printed property report. This property report must be provided before the purchaser signs any contract for sale or lease of the property. If such a report is not furnished in advance of the transaction, the purchaser has the option of voiding the contract.
The Department of Housing and Urban Development has stipulated that the condominium will come under the Act if the unit will not be completed within two years, or if the significant recreational or other common facilities are being constructed which will not be completed within two years from the time the first purchaser signs a contract. For a condominium unit sale to be exempted from the reporting requirements of the Act, the construction of the condominium must be completed before it is sold, or it must be sold under a contract obligating the seller to erect the unit within two years from the date the purchaser signs the contract for sale. It is immaterial that a condominium may have actually been completed within two years for determining whether the sale is exempt from the reporting requirement, and if there is no specified date of completion in the purchase contract the sale does not come within the exemption provided under Act, and the purchaser may exercise the statutory right to withdraw from the sale.
Under §1702 the following exemptions from the Interstate Land Sales Act are established:
· (a)(2) Sale of land on which there is an improvement or a contract obligating seller or lessor to erect a building within 2 years
· (b)(1) There are fewer than 100 lots
· (b)(2) If in the 12 month period starting with the sale of the first unit not more than 12 units or lots are sold or leased
§1703 Establishes the Requirements Respecting the Sale or Lease of Lots
· (a)(1)(B) Property report must be provided in advance of signing contract for purchase
· (c) When the report is not provided prior to signing the contract for purchase, the contract may be revoked within 2 years from the date of signing
The Interstate Land Sales Full Disclosure Act is a valuable tool in the arsenal of any attorney representing a purchaser seeking to revoke a contract. With the reemergence of the Interstate Land Sales Full Disclosure Act developers must rethink their traditional sales contracts as well as learn about the proper process for registering a project with HUD so that their project is outside the scope of the Act.
This post can also be found at the author’s other blog here.
As Goethe said “Knowing is not enough; we must apply!” Simply being aware of the Interstate Land Sales Act is not enough, we must learn what It means and then apply that knowledge to rescind contracts or protect ourselves from law suits in the future. Have you heard of the Interstate Land Sales Act? This is a question that developers may soon be facing in courtrooms and arbitrations across the nation.
The Interstate Land Sales Full Disclosure Act 15 U.S.C. §1701 et seq. is being used by home purchasers across the nation but particularly in Florida, Tennessee, Nevada, and New York City as a grounds on which to escape contracts for the purchase of a condominium.
In West Palm Beach, Florida the Palm Beach Post recently announced three lawsuits were filed against the developers of Two City Plaza, City Place South Tower, and City Palms. To date only 166 of the 1.175 units marketed during the height of the Florida real estate craze have closed. The buyers allege that the developers failed to deliver the units within 2 years and are therefore in violation of the Interstate Land Sales Act. Interestingly, several of the plaintiffs said they would have been able to close on the units if they were delivered when promised but due to the current economic situation are unable to do so now.
In Nevada, the Las Vegas Business Press recently reported that a suit has been brought on behalf of 200 homebuyers for condominiums at the Cosmopolitan a 2,998 unit condo-hotel. The Cosmopolitan project which has undergone an ownership change and several interior redesigns is now slated to open in June of 2010, approximately a year behind schedule. The attorneys representing the condo purchasers have amended their complain to include a violation of the Interstate Land Sales Act as the purchasers were never provided a property report as required by the Act prior to signing their purchase contracts.
The Press Register of Alabama has also reported that a condominium project in Orange Beach is now scheduled to open 18 months behind schedule. The developers have obtained extensions from 40 of the 69 owners but are potentially facing a law suit based on the Interstate Land Sales Act. The developers are claiming that they will not be liable under the Act as the units experienced delays due to Hurricane Katrina which destroyed a facility manufacturing pilings for the condo project and that Force Majeure clauses in the contract allow for delays due to an act of God such as the Hurricane. The developers are making efforts to work with the purchasers including partial rebates of the purchase price and $10,000 worth of complimentary upgrades. I will continue to monitor the Phoenix West II project and update my readers if any law suits involving the act are filed.
The Nashville Post has reported several Interstate Land Sales Act law suits against the developers of Ashland City’s Braxton and the Gulch’s Terrazzo and Icon condominium projects. The plaintiffs in these cases allege that the buildings were not constructed within 2 years and that the developer’s failure to provide a property report allows for them to walk away from their contracts with their deposits.
Stay tuned this week for a more in depth discussion of the Interstate Land Sales Act and its various provisions.
Great River Enegy recently released a white paper detailing the construction of their Maple Grove, Minn. headquarters, the first building to achieve LEED Platinum in the state. The text of the white paper can be found here.Great River Energy not only built a sophisticated building which scored 56 points but also built a structure which can be used to educate others.
The key features of the Great River headquarters are:
- Uses 50% less energy and 90% less water than a structure built to just state codes
- Utilizes an in lake geothermal HVAC system
- In floor displacement ventilation system
- Daylight harvesting
- 72 kilowatts of on site solar power and a 200 kilowatt wind turbine
- Only cost 10% more than a traditionally built structure
The Great River Energy headquarters is an excellent example of how proper research, communication between all team members, and follow up evaluation and corrective action can create a building that is not only sustainable and efficient but also an excellent educational tool to spread the message that green building does not need to break the bank.
We need to rethink the way we evaluate buildings and energy usage for as the CEO of Green River Energy said: “At Great River Energy, we know the cheapest—and cleanest—kilowatt-hour is the one we don’t have to produce. So conservation and energy efficiency have become our first
fuel.”
The past week Chris Cheatham at Green Building Law Update (GBLU) has produced an excellent series of posts regarding the stimulus and the availability of funds for green construction projects. These posts have caused me to think of a great deal about how the disbursement of Billions of dollars of funds will be managed and regulated. I am curious as to what mechanisms you would suggest!
As has been seen with the use of TARP funds, the government is throwing around Billions of dollars in an effort to stimulate the economy but is often not accounting for the funds and how they have been spent. Under the most recent stimulus, Billions of dollars have been earmarked for projects which either provide for new construction of energy efficient buildings or the retrofitting of existing buildings to increase their energy efficiency. As Chris pointed out some of these projects specify that they will be built to LEED standards. Anyone familiar with LEED will immediately recognize a potential problem with conditition receipt of funds on building to a specified standard. LEED certification cannot be granted until a project has been completed! If a project fails to reach its required level of certification it is too late to retract the funding! While encouraging building to “green” standards is laudable and something I firmly support, I am concerned with Billions of dollars of taxpayer money being tossed around without the ability to enforce. Perhaps, a performance bond should be a requirement for receipt of government funds (Chris, feel free to shred that idea!).