Green building brings with it promises of many good things: energy efficiency, water conservation, reducing the use of hazardous materials, cleaner air, increasing the use of recycled materials and more.  As government agencies and private developers increasingly demand green construction, the issues of how to measure compliance and who bears the risk of failure will loom larger.

The U.S. Green Building Council (“USGBC”) has been at the forefront of establishing standards for green construction, with its LEED certification system, which it designed to accelerate the adoption and business advantages of green building.  The USGBC claims to be the driving force of an industry that it projects will contribute $554 billion to the U.S. gross domestic product from 2009-2013. 

With so many dollars at stake, it is not surprising that the marketing of “LEED certification” recently has come under attack in a class action lawsuit in New York.  A group of design professionals has sued the USGBC claiming that its LEED certification system does not ensure more energy efficient buildings than non-LEED certified buildings.  The plaintiffs further allege that the LEED system also does not actually verify that certified buildings are designed and built in a manner that leads to energy savings.  As a result, the plaintiffs, as design professionals who are not LEED certified, claim that they are losing customers due to false advertising and deceptive trade practices by USGBC.

Although this case is in its earliest stages, it promises a critical look at the relationship between LEED certification and actual environmentally friendly results achieved.  Real estate owners and tenants are certainly more concerned with actual energy efficiencies, for example, than they are with certifications alone.  With such concerns in mind, all parties involved in green construction should make sure the governing contracts carefully allocate the risk and responsibility for actual green results.  As demands for such results rise, so will the risk of failure to meet them and of consequent litigation.

An example of such a risk is occurring with the Destiny USA shopping mall being constructed in Syracuse, New York.  In that project, the mall developer procured $228 million in tax-exempt, “green bonds” to help finance construction.  With those bonds came promises to provide state-of-the-art energy efficient technology.  According to recent news reports, those promises are not being met, throwing the tax-exempt status of the bonds into question, and potentially costing the developer over $100 million in savings.  Although no lawsuit has been filed yet in the matter, the loss of the tax-exempt status of the bonds could make litigation much more likely.  Such litigation could easily include claims based on who was responsible for failing to achieve the promised green results.

As with all construction risks, the best way to address these “green” risks is through careful contracting and risk allocation at the front end of the project.  Otherwise, instead of green, you may be seeing red.