Real estate lawyers are hearing the terms LEED and LEED certified with increasing regularity. Though new to many lawyers, LEED will likely impact their legal practice, projects, or clients in the near future.
LEED is an acronym for Leadership in Energy and Environmental Design. It refers to standards for environmentally sustainable construction promulgated by the U.S. Green Building Council (USGBC). The LEED system "encourages and accelerates global adoption of sustainable green building and development practices through the creation and implementation of universally understood and accepted tools and performance criteria," according to the council's website (www.usgbc.org).
LEED rates buildings based on environmental friendliness (or "greenness") attained through design, construction, or renovation. The certification system awards credits based on a variety of objective factors. For example, new construction and major renovations can earn up to 69 credits for a variety of activities, such as developing a sustainable site; achieving water and energy efficiency; using recycled building materials; and creating healthy indoor environmental quality. The accumulated credits result in one of four progressive LEED certification levels. For new construction, those levels are: Certified (2632), Silver (3338), Gold (3951), and Platinum (5269).
LEED may affect your practice in many ways. You may be called on to negotiate a lease that allocates responsibility for achieving and maintaining LEED status. You may also negotiate the use of tenant-improvement funds to achieve LEED certification goals.
Attorneys also will play a role in resolving disputes involving builders, engineers, and architects working on LEED projects, or with respect to due diligence in the financing, acquisition, or disposition of such projects. Counsel should have a working knowledge of the LEED certification process before undertaking a LEED-related case.
At the outset, determine how LEED-related issues might impact your client. For example, if a lease calls for the landlord to provide tenant-improvement funds for LEED Silver certification, what will be included? Will the landlord pay for construction costs ("hard" costs); design, engineering, and permit costs, including USGBC costs ("soft" costs); or a combination of both? What if the building fails to obtain the desired certification? You might want to consider a liquidated-damages provision, given that damages associated with the failure to obtain a specified certification may be difficult to ascertain.
Various insurance issues may arise. Exclusions from coverage may allow a carrier to avoid paying for rebuilding a damaged structure to its previously attained LEED certification level. You should inquire whether special endorsements are available or applicable.
When representing professionals such as architects or engineers (or conversely, their employers), be mindful of liability and insurance issues if you are tempted to use a "standard" legal form that likely does not even mention LEED.
As in most real estate negotiations, the allocation of risk is essential. For instance, assume that your client has been hired to perform architectural services on a project in which the developer has contracted with a general contractor to deliver a LEED Gold building. Because your client is not constructing the building, the possibility exists that the general contractor, subcontractor, or landscape architect will not implement your client's architectural plans as specified, thereby jeopardizing the LEED process. Your client's contract should provide protection against that possibility.
Another issue may be a tenant's failure to maintain an existing LEED certification level. Landlords have reason to be concerned about tenant actions that conflict with continuing LEED certification, given the large up-front costs involved with obtaining it. Moreover, LEED certification can be a valuable marketing tool to future lessees. Consider lease covenants (with specific remedies) that provide the tenant with incentives to protect LEED certification.
Be prepared for LEED requirements contained in government regulations. In 2004, Governor Schwarzenegger mandated LEED Silver certification for all new and renovated state-owned buildings. (See www.dot.ca.gov/hq/energy/ExecOrderS-20-04.htm.) Local governments have joined the trend. Many now require LEED certification for new commercial construction, and clients will likely require assistance from experienced counsel to guide them through the maze of government regulations.
Real estate lawyers are quickly appreciating that when it comes to LEED certification, the light is green and the process is moving forward with a full head of steam.
Ryan Gustafson, an associate attorney with the Los Angeles office of Ballard, Spahr, Andrews & Ingersoll, is part of the firm's Real Estate Practice Group.