what counsel should know about green building

ChrisCheatham,LEEDAP,Esq.www.greenbuildinglawupdate.com

WhatCounselShouldKnowAboutGreenBuilding

April22,2009

WhatCounselShouldKnow

1. Performance bond not proper

2. Remove security requirement

3. LEEDigation from certification or energy efficiency

Copyright©2009,ChrisCheatham.AllRightsReserved.

• Agenda

• Suretyship 101

• DC GBA “Performance Bond”

• DC GBA Best Worst Case Scenarios

• Green Regulatory Alternatives

• LEEDigation

WhatCounselShouldKnow

Copyright©2009,ChrisCheatham.AllRightsReserved.

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Suretyship101

Suretyship is a “contractual relationship whereby one person engages to be answerable for the debt or default of another.”

-Sterns, The Law of Suretyship 1 (1951)

Mandatory, unintelligible definition:

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•  Three parties - tripartite agreement: Creditor!

Debtor! Surety!

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Suretyship101

Two key surety rules:

(1) Debtor is responsible to satisfy obligation to pay or perform

Creditor!

Debtor! Surety!

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• But what if Debtor fails to pay or perform?

Suretyship101

Creditor!

Debtor! Surety!

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Two key surety rule:

(2) Debtor fails, Surety performs, Surety reimbursed by Debtor

Creditor!

Debtor! Surety!

What does surety get?

1.  Premium paid by debtor

2.  Debtor’s duty of reimbursement (indemnification agreement)

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Suretyship101

Developer Guy!

Contractor Guy! Surety Guy!

Surety Guy promises Developer Guy that Contractor Guy will build according to plans and specs.

Performance Bond:

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BondsinConstructionSuretyship101

1. Green Roof Leaks!

2. Contractor Defaults!

3. Surety Pays ! Developer or

Rebuilds!

•  Fact: Sureties are already bonding green building projects

•  Fact: Sureties are just now assessing inherent green building project risks

•  Fact: No major surety has specific green building bond

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Suretyship101

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• Washington, D.C. - Green Building Act of 2006

•  Section 4 - starting January 1, 2012, private projects greater than 50,000 square feet must be LEED certified

DCGBA“PerformanceBond”

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D.C.GreenBuildingActof2006January1,2012

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Green building regulations require enforcement mechanisms

•  “(b) On or before January 1, 2012, all applicants for construction governed by section 4 shall provide a performance bond”

•  “(g) All or part of the performance bond shall be forfeited to the District and deposited in the Green Building Fund if the building fails to meet the verification requirements described in sections 3 and 4.”

DCGBA“PerformanceBond”

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Surety and Fidelity Association of America and Surety Bond Producers:

•  Letter to Government of D.C., August 13, 2007

•  “The new law incorrectly uses the term ‘performance bond.’ In short, the performance bond assures that the construction contract, and therefore, the project will be completed.”

•  The bond in the Green Building Act “seems to function more in the manner of a license or compliance bond, which typically guarantees compliance with a law or code.”

DCGBA“PerformanceBond”

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Arlington County - Bonus Density Program

•  If developer declares intent for LEED – get FAR variance

•  Enforcement Mechanism: Bond

•  Key differences

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DCGBA“PerformanceBond”

Surety Guy creates the bond

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Best/WorstCaseScenarioDCGBABestCaseScenario:moregreenbuildings

butalso…

Surety Guy creates the bond

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Best/WorstCaseScenarioDCGBABestCaseScenario:moregreenbuildings

But…

LEEDigation™

GreenMandates+EnforcementMechanism

=LEEDigation™

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DCGBAWorstCaseScenario

But…

GreenMandates+EnforcementMechanism

=™

The Vancouver

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DCGBAWorstCaseScenario

But…

GreenMandates+EnforcementMechanism

=™

VancouverMandatedGreenRoofsAndInsurance

InsurersRefusedToIssueInsurance

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DCGBAWorstCaseScenario

But…

GreenMandates+EnforcementMechanism

=™

“No coverage means no new residential

developments. This has left developers caught between the possibility of being mandated by city governments on one hand and shut out by insurers on the other.”

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GreenRegulatoryAlternatives

But…

EnforcementMechanism

1.FinancialSecurity

2.Feebate:

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GreenRegulatoryAlternatives

But…

GreenMandates+EnforcementMechanism

=™

“No coverage means no new residential

developments. This has left developers caught between the possibility of being mandated by city governments on one hand and shut out by insurers on the other.”

ForGreenRegulations

LooktoArlingtonCounty

SpecificLEEDProffers

BonusDensityProgram

LEEDigation™

Shaw Development v. Southern Builders

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LEEDigation™

Energy Efficiency

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“Architects and consulting engineers signed contract that stated that projects would ‘reduce operating costs by 50 percent’ over schools of similar size. Energy usage is comparable to other schools recently designed and constructed. School system is publicly embarrassed, disappointed and blamed as being ‘hoodwinked’ by architect and engineers. School system brings claim.”

“Don’t Let Green Design Cause Red Ink,” Frank Musica

WhatCounselShouldNowKnow

Copyright©2009,ChrisCheatham.AllRightsReserved.

1. Performance bond not proper

2. Remove security requirement

3. LEEDigation from certification or energy efficiency

WhatCounselShouldKnow

Want to learn more?

www.greenbuildinglawupdate.com

ccheatha@wthf.com

Copyright©2009,ChrisCheatham.AllRightsReserved.