There is a Darker Shade of Green

Under the current version of the LEED building rating program (3.0), there are a few interesting wrinkles that should give pause for concern among owners, developers, contractors and subcontractors.  For instance, Version 3.0 provides for Minimum Program Requirements (“MPRs”), which may present some legal issues for project teams to consider when drafting construction agreements in an effort to avoid, or at least reduce, the amount of risk undertaken on LEED projects.  These MPRs are the basic requirements that a project must satisfy to be certified under the LEED rating system.

In the introduction of the MPR Supplemental Guidance (rev. 2), the Version 3.0 program provides the Green Building Certification Institute (“GBCI”), the entity responsible for administering the LEED certification process, with the authority to revoke LEED certification or halt the certification process upon learning “that a LEED project is or was in violation of an MPR.”  Additionally, if GBCI finds noncompliance with any applicable MPR, “registration and/or certification fees will not be refunded” (LEED 2009 Reference Guide). Thus, given the GBCI’s authority to revoke LEED certification, project teams must comply with every MPR, especially if the project seeks to take advantage of state or local LEED incentive programs that are tied to certification.  While it is unclear whether the GBCI has ever revoked certification for noncompliance with MPRs, an interesting legal issue may emerge if a state or local government that provided financial incentives seeks to recoup, disgorge or discontinue those incentives because certification was revoked or the process was halted by the GBCI.  These legal issues could impact the rights, responsibilities and liability exposure of downstream parties like design professionals, contractors, subcontractors and suppliers, who may have had little to do with the failure to comply with the MPRs.

A Closer Look at Some Troublesome MPRs

The MPRs require closer examination in light of the potential risk they pose to project participants.  For instance, MPR 1 requires every prospective LEED project to “comply with applicable federal, state, and local building-related environmental laws and regulations in place where the project is located.”  This MPR includes “laws at the federal, state, and local level” and “new laws, regulations, and ordinances as they are enacted” (MPR Supplemental Guidance).  Thus, based on this broad language, the parties will need to conduct legislative surveys and draft contractual language that will safeguard against, or allocate the risks related to, noncompliance with the applicable regulations. 

MPR 6 is perhaps the most concerning for all parties. It requires that

[a]ll certified projects must commit to sharing with USGBC and/or GBCI all available actual whole-project energy and water usage data for a period of at least 5 years . . . .  Sharing this data includes supplying information on a regular basis in a free, accessible, and secure online tool or, if necessary, taking any action to authorize the collection of information directly from service or utility providers. This commitment must carry forward if the building or space changes ownership or lessee.

How and to what extent are future owners or tenants required to report on a building’s energy or water usage?  Although the purpose of the requirement is laudable (USGBC plans to use the data to compare proposed and metered energy performance and usage within the context of different LEED buildings and interiors), it is unclear how the threat of decertification may be wielded for noncompliance with the MPRs.  For instance, “GBCI retains the right, in its reasonable discretion, to revoke LEED certification from any project where it is denied access to, or for which it is not provided with, energy and water use data on an ongoing basis after LEED certification is conferred . . . ” (LEED Certification Policy Manual (rev. Sept. 1, 2010)).  This underscores the need for project owners, as well as contractors working on LEED projects (particularly MEP contractors and those directly involved in water or energy saving measures, including the commissioning of systems), to develop sound policies and practices relative to document retention.

And some of us shudder to think about the prospect of third-party actions to initiate noncompliance proceedings or certification challenges by the GBCI, which creates another level of potential risk to owners, contractors and/or design professionals involved on a project that may have been completed years ago.  Indeed, the LEED Certification Challenge Policy, reflected in the Certification Policy Manual, provides that the basis for a certification challenge can include a third party (or GBCI, on its own initiative) reporting “an event or condition that would prevent a project from satisfying a particular credit, prerequisite, or MPR.”  These can represent serious issues that may confront LEED project owners hoping to enjoy tax or other financial incentives realized only after the project achieves a certain level of certification.  To mitigate against these risks, LEED project participants should pay particular attention to how project responsibilities and work scopes are defined and allocated in their respective contract documents.

"There is a Darker Shade of Green" was originally published June 18, 2014 by the Daily Journal of Commerce.