LEED in Litigation 2010

Date: May 5, 2010

To date, there has been little reported litigation relating to green building certification issues. Recent filings in two cases, however, give us a taste of the green building issues that may be litigated in the coming months.

  • Failure to obtain certification. A series of lawsuits relating to sales of newly constructed condominium units in New York City have raised this issue. The developer of a condominium project in West Chelsea terminated sales contracts into which it had entered with several prospective purchasers of condominium units, citing the failure of the purchasers to close on the units. In so terminating the sales contracts, the developer kept the substantial down payments made by the purchasers. The purchasers have responded by suing to get the down payments back and for the sales contracts to be rescinded. Among the purchasers' arguments is that the failure to close is excused by the developer's failure to keep its end of the bargain in making material changes to the project, including an alleged failure to obtain the promised LEED certification touted by the developer in marketing the units. LEED certification is just one small part of the significant problems between the parties (like many condominium projects of the past few years, this one apparently had be substantially reworked), but the inability to meet promised standards may be important evidence of the materially changed nature of the project. One of these Complaints, filed last month in Barber v. West Chelsea Development Partners LLC, Index No. 16104615/10 in the Superior Court for New York County, can be found here; the LEED-related allegations are on pages 19 and 20.
  • Cost of meeting LEED or equivalent standards as potential damages. More local governments are requiring LEED or equivalent compliance for private projects. As these new mandates come online, they are often pegged to filing of permit applications. Those projects for which the process is already underway when the new requirements become effective do not have to meet LEED or equivalent standards, but those not yet started are subject to such standards. Delays in financing or closing, then, could result the incursion of increased costs resulting from LEED compliance. Such increased costs were cited by a jilted seller of land in JLB Realty, LLC v. Capital Development, LLC, Case No. 1:09-cv-00632-BEL in the United States District Court for the District of Maryland. After the prospective purchaser backed out of the sale of land to be developed for a relative large residential project in the Washington Hill neighborhood of Baltimore, the seller kept the earnest money paid by the prospective purchaser. The prospective purchaser then sued to get the earnest money back. In defending against this claim, the seller stated in a court filing (click here; the LEED-related allegations are at pages 4 and 5) that one of the reasons for requiring a substantial deposit of earnest money was the potential increased cost of meeting LEED or equivalent standards. New private construction in Baltimore is under such a mandate as of July 1, 2009, and the seller suggested that the cost of LEED or equivalent compliance could be as much as $4 million. Green building issues were not central to this case, however, and Judge Benson Legg did not address them in deciding earlier this year on summary judgment in favor of the prospective purchaser on the grounds that it had properly exercised a termination right under the terms of the sales contract; the case is on appeal to the Fourth Circuit. Still, given the potential for cost increases resulting from new mandates of compliance with LEED or equivalent standards, such increased cost may become one component of damages where one party is alleged to have delayed the development of a parcel of land by its actions or failure to act.