Emerging Legal Requirements and Incentives for Going Green

27 August 2007 Publication
Authors: Cherie S. Raidy

California Real Estate Journal

Residential and commercial buildings account for 40 percent of total U.S. energy consumption. In response to high energy costs and dramatic environmental deterioration, developers are adopting "green building" methods. Green projects, also known as "sustainable" building, maximize energy efficiency while minimizing the overall negative impacts of buildings on the environment and human health. Local, state and federal governments increasingly are providing financial and legal incentives as well as requiring developers to build green.
Legal Incentives
The U.S. Green Building Council's Leadership in Energy and Environmental Design system is regarded as the national standard for green building design. It has motivated many organizations and individuals to construct green buildings and homes. The LEED system rates the effectiveness of "green" building across several categories to determine the certification of a building. The certification range from lowest to highest is certified silver, gold and platinum.

For attorneys, one of the most significant areas of interest in green building is the indoor air quality category of LEED. The U.S. Environmental Protection Agency classifies indoor air quality as one of the top five environmental health risks today, and evidence is growing that poor indoor air quality affects the health and performance of the people who work, live and study in buildings. Therefore, liability for poor indoor air quality can arise in the context of workers' compensation claims, intentional torts or even governmental regulatory violations.

The LEED standards mitigate the possibility of indoor air quality litigation by ensuring that ventilation and airflow are at a level that minimizes the potential for adverse health effects within a building. In addition, a building owner, manager or developer can argue against a claim of injury from poor indoor air quality by demonstrating that the building meets the LEED standard for indoor air quality, which could be powerful evidence against causation.

A green building project also can be used as part of the resolution for companies that have environmental enforcement actions brought against them. Federal or state governments sometimes accept supplemental environmental projects as means to mitigate penalties in environmental enforcement cases. For example, the EPA allows a supplemental environmental project penalty mitigation credit for those agreeing to use or support the use of green building methods at a nearby contaminated property.
Legal Requirements
Although obtaining LEED certification is primarily voluntary, local, state and federal governments are encouraging and requiring developers to build green by providing incentives. Therefore, knowledge of green standards, including LEED, is necessary for developers and builders because governmental entities increasingly are requiring that green standards be met for public building projects.

A recent trend is requiring green certification standards, both for public and private development. The Los Angeles Unified School District decided that all its new schools must be "high-performance schools," both academically and environmentally. The district therefore mandated that every school designed after the year 2003 will need to meet the tough sustainability standards set forth by the Collaborative for High Performance Schools, which is a green-rating program especially designed for schools. LAUSD was the first district to issue such a mandate.

In the private development arena, some cities require certain "green" elements as part of their standard conditions of approval for private projects. For example, the California cities of Pleasanton, Livermore and Novato all enacted mandatory residential green building ordinances, requiring LEED-based green building standards for private development. The city of Pleasanton was the first in the state and one of the first in the nation to require that large commercial buildings meet minimum LEED standards and that civic projects qualify for LEED silver certification.

On Dec. 14, 2005, California Gov. Arnold Schwarzenegger signed Executive Order S-20-04, creating a Green Building Action Plan to improve the energy performance of all state buildings and reduce grid-based energy usage in state buildings by 20 percent of 2003 levels by 2015. Under this order, all state-funded buildings must be rated to at least LEED silver-level certification.

The state Legislature has introduced a triumvirate of bills concerning green building projects and standards, referred to as Assembly Bill 888, Assembly Bill 35 and Assembly Bill 1058. These three bills, if adopted, would set standards for nonresidential commercial buildings, construction and renovation of state buildings and best practices for residential home construction.

Congress passed the Energy Policy Act of 2005 on Aug. 8, 2005. The act attempts to combat growing energy problems by providing tax incentives and loan guarantees for energy production of various types. Under the act, owners or designers of new or existing commercial buildings can claim a tax deduction of up to $1.80 per square foot for structures that save at least 50 percent of the heating and cooling energy of a building that meets prescribed efficiency standards.

In addition, the Energy Star Program, created by the Environmental Protection Agency and Department of Energy in 1998, certifies buildings in the top quarter of comparable buildings for achieving energy efficiency, meeting certain performance criteria and satisfying minimum standards for healthy indoor air quality.

With the marketplace changing rapidly, the real estate industry needs to adapt promptly to these new regulations and incentives. "Going green" is no longer just the right thing to do. In more and more jurisdictions, it has become the only thing to do.

The development and adoption of green building standards has occurred rapidly. Given the increasing level of environmental awareness and the prospect of continued high energy costs, the green building movement, with its legal requirements and incentives, seems poised to become a long-term force in the real estate development and building industries. Attorneys with clients in real estate, construction, development, building operation and management should be alert to green building developments in order to maximize benefits and avoid liability.

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