Is LEED "Leading" to More Litigation in 2011?

Anyone in the construction industry, particularly those involved in LEED/green building projects, has probably realized to date, green building litigation has been pretty infrequent. However, sustaining a theory of liability for breaches of contract or warranty may now be easier than first thought. Green or LEED-oriented buildings are much more costly to build than conventional buildings, and owners and developers pay a premium for this LEED branding. So they are clearly not going to be happy if a project does not obtain the certification that was expected (Breach of Warranty). However, this may not be the only theory of liability in the green building arena. 

In 2009 a case out of Maryland, Shaw Development v. Southern Builders, suggests that the scope of potential liability may be broader. The Shaw case arose in connection with a condo project in Maryland that included a number of green design features that were intended to support a LEED Silver application. The owner sued the general contractor seeking, among other things, over $600,000 in lost tax credits under a state green building program. Maryland law stated that it would provided tax credits to owners for building eco-friendly buildings. The procedure to receive this credit was to initially apply for a sort of preliminary certification of the project. The project would be built and then, when completed, it would be evaluated for final approval. The preliminary certification, however, contained an expiration date, and the condo project at issue in Shaw was not completed before that project’s preliminary certification expired. Assuming the Shaw facts–that a project failed to receive significant tax credits because it was completed late–who would be liable for those lost tax credits? 


In 2010 in the greater New York Area there were a series of lawsuits related to the sales of new condominium units in West Chelsea. In sum: the developer chose to terminate several contracts with prospective purchasers arguing that the purchasers were dragging their feet on closing. Subsequently the developer kept a portion of the down payments. The purchasers sued to recover the down payment and rescind the contracts citing the developer's failure to obtained a promised LEED certification. 

In conclusion the shifting of liability should be expressly laid out in the contract documents, including who is liable if a project fails to obtain certain certifications. By properly defining these items at the outset of the contractual relationship, parties may be able to avoid the litigation that comes with uncertainty in contract provisions.