Green Building Series: Green Building Litigation: Southern Builders v. Shaw Development

The green building movement has yet to be riddled with litigation from construction disputes. Most commentators, myself included, expect the current paucity of litigation to change as more parties focus on the financial elements of green building. One of the first cases evidencing such a dispute is Southern Builders, Inc. ("Southern Builders") v. Shaw Development, L.L.C ("Shaw Development"). This dispute arose from a condominium project in Somerset County, Maryland known as The Captain's Gallery Condominiums (the "Project").

Shaw Development desired the Project achieve a USGBC LEED Silver certification, which would have resulted in $635,000.00 in green tax credits per Maryland law. In addition to a multitude of other problems, Shaw Development filed a counter complaint against Southern Builders for its failure to deliver a LEED Silver certified project. Unfortunately, for the sake of this blog post, the parties settled this dispute outside of the courtroom and thus there is no precedential value to this case. There are, however, multiple lessons to be learned from the facts of this case.

First, building professionals must carefully define the "green" services they will provide. Shaw Development and Southern Builders utilized an AIA A101-1997 Standard Form of Agreement Between Owner and Contractor (the "Contract"), which Contract did not specifically contain any green building provisions therein. A Project Manual, an exhibit to the Contract, did, however, specifically provide:

Project is designed to comply with a Silver Certification Level according to the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) Rating System, as specified in Division I Section "LEED Requirements".

The above-referenced provisions do not clearly detail that Southern Builders had a specific responsibility to deliver a LEED Silver property. It does acknowledge the initial intent for the project to be LEED Silver. Owners, contractors and architects would all be better served to clearly define their requirements in meeting expectations, especially in regard to LEED certification. As the USGBC is a third party to the contracts, it is not proper for a party to provide any guaranty as to achieving a certain LEED certification. The parties should, however, define the specific actions they will take in the attempt to achieve such certification.

Secondly, each of the parties should enter into a contractual relationship with a full understanding of the consequences of attempting to achieve a certain LEED certification level. In this instance, Shaw Development was financially motivated to have a LEED Silver project due to the green tax credits. Those tax credits were likely a critical consideration of Shaw Development when it decided to undertake the Project. Incentives, or in some cases, green building requirements are becoming more widespread. When a party needs a project to obtain a certain LEED or other green certification in order to be either financially viable or legal, it becomes even more important to work with qualified and experienced professionals. Owners, contractors, architects and other building professionals would all be better served by providing clear language in their contracts detailing the potential damages associated with a failure to achieve the applicable green standard.

As green building continues to grow, property owners, contractors and architects should all think carefully about how their contract documents are drafted in order to help (i) understand who is responsible for certain actions in working towards achieving a certain green building standard and (ii) protect themselves from unexpected liabilities, especially if they are outside of that party's control.

Geoff White is a Senior Associate in the Commercial Transactions and Real Estate Group at Frost Brown Todd, which has a Resource Conservation Committee that is helping it go green. Mr. White is licensed to practice law in Kentucky and Ohio and is a member of the Kentucky Chapter of the U.S. Green Building Council. Learn more about Geoff White, click on link above.

Posted by: Geoffrey M. White