A new study shows “there is a higher value and an increased demand for green, and in particular for LEED® certified buildings, which is demonstrated by increased occupancy and rental rates” when compared with the general market.
In particular, data on LEED certified buildings over three years shows “an average 3.1% improvement in both rental rates and building occupancy when compared to the general market”. The 2011 report also reinforces earlier findings that demonstrate sub metering of utilities for tenant space reduces energy costs by 21% on average.
CBRE multi-year study with Univ of San Diego
Toronto, October 6, 2011
Top 10 Actionable Opportunities
for Attorneys in Green Building
Huge opportunities for you and your business ..
I have received a number of requests for copies of my Greenbuild Legal Forum presentation and in response I decided to publish my prepared remarks. It has been suggested that green building law is too important to leave to lawyers and with that in mind, while I was addressing an audience of lawyers from across the globe, the 10 actionable opportunities in green building that I describe are applicable to many engaged in green building and sustainable business, not just lawyers.
I have a question? How many of you speak Mandarin? How many of you speak Portuguese? Well, then we’re screwed. As we will see, China and Brazil are key in the future of LEED® and may offer some of the greatest business opportunities for green building.
As you have heard, for those of you I don’t know, my name is Stuart Kaplow and I am a sustainable business and green building attorney.
In the next few minutes we’re going to identify a Top 10 List of actionable opportunities for attorneys in green building. In all candor, you do not need a legal sheepskin to take advantage of most of these opportunities.
I have been asked to make prognostications. Let me be clear I am not clairvoyant. I do keep a Magic 8 Ball on my desk it and I am a little embarrassed to admit that, when discussing difficult decisions with client, more than one of my clients has suggested we consult the Magic 8 Ball.
For today though, I have had input from Susan Dorn and David Tanner. I had the great assistance of GBCI staff. I have had input from many of you. I solicited input from the more than 200 attorneys.
And I hale from Maryland, the state with the 1st green building litigation, Southern Builders v Shaw Development. And the 1st LEED Platinum building and the now pending litigation over that building, Chesapeake Bay Foundation v Weyerhaeuser. I taught counsel in both cases in law school.
But more relevant to your concerns, what does this guy know about the future of green building law, as many of you know, for 5 years I have exclusively practiced sustainable business and green building law. This year we worked in 18 states and 4 countries.
We are going to touch on the single opportunity that subjected my modest law firm to the G force of a corporate legal ascent without precedent, to find us in an environment where old rules didn’t apply. This is an incredibly fast growing and evolving field of law. It has all but completely remade itself every 2 years and the same portends for the future.
In a changed legal profession
When I moved into this practice area, LEED submittals were on paper, and as Thomas Friedman has observed, Twitter was still a sound, a Cloud was something in the sky, 4G was my parking space, Apps were applications to college, and Skype was a typo.
As this group certainly knows, Information Technology (IT) has also changed the legal profession, and dramatically.
Today, not only is this a thriving practice area for attorneys, but if there is a message in my comments, it is that it is necessary that attorneys become more active in creating this emergent area of law for green building to continue to advance and thrive.
So, onto 10 actionable opportunities for attorneys in green building. With apologies to the Late Show and David Letterman, the Top 10 ..
Number 10 – Globalization
Of the more than 7 Billion square feet of Registered LEED projects (including Homes), almost 2.5 Billion is outside the United States. Over 40% of the square feet of LEED Registered projects this year are outside the U.S.
In its 2007 Strategic Plan the USGBC identified international market expansion as a top priority. USGBC has succeeded.
USGBC now publishes a Mandarin Chinese language membership brochure.
China’s 1st LEED Certified building, in April 2006, was Beijing’s Ministry of Science headquarters. And now, China has more square footage of LEED projects, with almost 600 Million square feet, than any country outside of the U.S. A recent World Bank forecast concluded that in 2016 more than half of all non residential construction worldwide will be in China. China is now slated to build the equivalent of 30 downtown Manhattans every year.
While at first blush, the UAE has the most LEED projects with 748, the real estate economy stalled in the UAE in 2011. China with 686 LEED projects (and the Chinese projects are larger in size than those in the UAE) .. is the LEED powerhouse.
While clearly dropping a tier, after China and the UAE, the next most significant country is Brazil, with 318 projects for a total of more than 100 Million square feet. Rounding out the top tier of countries in terms of numbers of projects are our Canadian hosts. Canada now has over 300 LEED projects.
There are LEED projects from South Korea to the Czech Republic; from Nepal to Israel and in 128 other countries. Globalization presents huge opportunities for attorneys.
Number 9 – The dynamic tension between Codes and LEED
Arguably the hottest issue in green building law today in that dynamic tension.
The International Green Construction Code is spreading across the country, both as a mandatory code and an optional alternative compliance path for those that want to build green.
But the code having the largest impact is the International Energy Conservation Code. As a pre condition to receiving ARRA Stimulus funds, Governors were required to write to the U.S. Energy Secretary committing to adopt the IECC 2009.
The impact of CalGreen in California cannot be overstated. On the other side of the continent, there is widespread energy code implementation in Massachusetts.
But make no mistake this is all good for LEED. More green buildings driven by the IgCC, by the IECC, or otherwise, the more LEED projects.
These codes set the floor and LEED establishes the higher ceiling.
With over 1.5 Billion square feet of LEED certified commercial space; and GBCI certifying more than 1.6 Million square feet a day, every day, the LEED brand is here to stay.
Number 8 – Who is best suited to warrant that the building will be LEED certified?
This is an action item ripe for immediate work as the construction industry must modify its contract documents to address the new realities; and it has been slow to do so. Warranting that a building will be LEED certified is becoming the norm.
There is no one answer to who is best suited, just as there is no one homogenous building type. But this issue is real and is dealt with every day.
In GSA new construction projects that must achieve LEED Gold. In hundreds of school districts around the country that must by law build LEED certified schools. In jurisdictions where there are mandatory green building laws that require private buildings achieve LEED certification. In projects where an owner signs a lease with a prospective tenant committing to deliver a LEED certified space. Or simply because an owner wants a LEED seal on the front door.
In most instances the answer is the architect is in the best position to be held responsible for LEED certification; it is an issue of control. Many architects serve as the LEED AP on the project and register as the Project Administrator on LEED Online. But that many architects do not carry significant dollar amounts of insurance is a Don Quixote distortion of perceptions. They carry large responsibility for LEED related issues, and they are in a best position to remedy a LEED related problem.
And in the majority of projects the general contractor should also be held responsible; and to some degree, as should all members of the project team.
This is done every day, including that construction performance bonds are today common, not only for government construction, but on larger private projects.
Energy performance (one of the Black holes in LEED) is already the subject of warranties. Energy Service Companies (ESCOs) are entering into Energy Savings Performance Contracts allowing businesses and government to accomplish energy savings projects without up-front costs. The ESCO warrants that the improvements will generate energy cost savings.
And there are also warranties in the marketplace for utility savings in commercial PACE transactions. Contractors offer a warranty and 3rd party insurance guarantees those energy savings necessary to save utility dollars to amortize the loans.
The non-legal affiliate of my law firm, ajhon, has even warranted LEED certification.
Warranties require correctly worded contracts so that there is insurance coverage, including such that the LEED certification requirements are bonded, but this is not a new issue.
Number 7 – Tax incentives
I am not a tax attorney and we heard from Jeffrey Lesk whose firm was a pioneer in putting together low income housing tax credits with solar energy credits. My firm copied their structure is a series of transactions.
I can tell you, we are leaving too many tax incentives on the table and not assisting our clients in advantaging the tax incentives.
The 179D deduction for high performance buildings affords a $1.80 a sq ft deduction. Many if not most LEED Gold new construction projects will qualify for $1.80 per sq ft. Other projects will qualify for 60 cents for lighting. I am aware that law firms take 179D tax deductions as the designer of qualifying property installed in government projects; where the government has assigned the $1.80 per ft to multiple players, including to the attorneys.
On a related note, I rarely see architects and designers pursuing an R&D tax credit for a LEED building; why not?
The Federal tax credits for 30% of the cost of solar are nice; but how many of you have suggested to a client that as an alternative to taking the tax credit, that the client apply to the Treasury for a grant for that dollar amount. Treasury acts within 60 days and we have clients with checks in hand less than 120 days after installation of the photovoltaic array.
There are a host of state and local government grants and rebates, but all of that is small.
The future may be bundling state and local tax credits in the way that Historic Tax Credits drive much historic preservation today. But this may not be fast coming out of Washington DC today. State bundling has limited efficacy, but we need consistent language between state enabling acts to make this a reality. So the jargon is “a high performance building which is defined as LEED Silver or better or an equivalent rating system”. And the state enabling act needs to provide the credits are “assignable”.
Number 6 – LEED EB: O&M
LEED is no longer a new construction standard. As recently as 2007, new construction standards were 80% of the floor area in LEED.
Last year LEED EB: O&M certified more than half of all domestic floor area in the LEED system; and a quarter of the International projects.
From the 1st two EB projects registered in 2002, last year there were 1,921 EB projects registered. This year, thru August 30th, there are already 1,330 registered EB projects; and 435 EB projects have been Certified so far this year.
This year EB registered projects will exceed all other rating systems, by far. Today of a total of 6 Billion square feet of Registered commercial projects, over 1.8 Billion square feet are EB.
A heads up, there are major changes proposed to EB in LEED 2012, so familiarize yourself with the proposed rating system.
It should not be surprising that EB will make further inroads in the more than 60 billion square feet of already constructed building stock in the U.S. Greening the operations and maintenance of those 4.5 million existing commercial buildings can not only provide competitive advantage for that newly greened building, but also can make a significant environmental contribution.
To that end, every commercial lease in North America should have a provision requiring the tenant to participate should the owner determine to pursue EB certification.
I suggest real estate law is cool if not cold, however retrofitting existing building and leasing law are hot.
Number 5 – Sustainability
Sustainability is the newly coined term for this emergent area of law, which includes green building. Sustainability is a new specialization. Sustainability is obviously much broader than green building including “.. economic, environmental, and social performance.” It includes, Corporate Social Responsibility.
In August, USGBC joined the Global Reporting Initiative as an Organizational Stakeholder. GRI drives sustainability reporting by organizations across the globe.
We have assisted businesses with their Corporate Social Responsibility reports, from the agricultural industry to sports apparel to the defense industry.
Of import, some corporations soliciting legal work are now inquiring about law firm’s own CSR programs.
Number 4 – Legal Opinions in Green Commercial Transactions
In commercial transactions, particularly in the context of the sale of real estate, or financing, including the sale of bonds, the lender or purchaser will require an opinion, generally issued by the borrower’s counsel and increasingly attorneys are being asked to opine to matters of green building.
I was working on an opinion last night in my room, on a green building transaction. This is a modern application of good old legal work.
And on a related matter, on January 27th of this year, the Securities and Exchange Commission required publicly traded companies to start reporting climate change risks in their 2010 annual financial reports; many of which reports had already been approved to go to the printers.
For the next 30 days my modest law firm was subjected to the G force of a corporate legal ascent without precedent. We staffed up with over a dozen extra lawyers spread across the country, many who worked round the clock, supporting many dozens of law firms and hundreds of publicly traded companies, responding to the SEC mandate and creating a body of law for climate change risks.
As an interesting side bar, law firms are second only to existing clients, as our largest referral source for new business.
Number 3 – Energy Law
Energy law is not new. Many of us did solar access easements for rooftops 20 years ago, of course we did not know that among the big early adopters of photovoltaics were indoor marijuana growers eager to conceal their heavy energy use.
Energy consumption law with clean energy and including rising climate threats is a red hot practice area.
Here is a startling set of numbers. Think of all the potato chips consumed at law firms. In 2009, U.S. consumers spent more on potato chips than the Federal government devoted to energy research, .. $7 Billion versus $5 Billion.
The market place will lead where the Federal government has not. Energy technology (ET) will be the new information technology. ET law will thrive!
Number 2 – Government projects
The role of the Federal government in furthering green building will become geometrically more prominent and the single largest market driver for green building law in 2012.
The Federal government is the largest tenant in North America. It is also the largest landlord.
From the GSA, building and leasing LEED Gold space to considering vendor GHG emission calculations and the Army using less energy as a mission strategy to adopting ASHRAE 189.1 as its green building standard; the impact will be far greater than the footprint of the Federal government’s vast real estate holdings.
Number 1 – The GBCI Confirmation Of Agent’s Authority form
The #1 immediate opportunity for attorneys is to amend green building industry contracts so that parties in LEED projects correctly use the LEED Online documents.
As of August 30, only 217 projects have submitted Agency forms, .. of the thousands of projects Registered this year. The form is not only required, but necessary to protect the interests of the parties.
My firm reviewed proposed contracts for 83 architectural firms this year, and not one, not a single one had the necessary and proper language to the effectuate execution the GBCI’s Confirmation Of Agent’s Authority form.
And I have never seen anyone use the GBCI Change Of Owner Agreement.
That form is of particular import when a building changes hands after the LEED project is registered but not yet certified; or even when submitted for certification, but has not yet achieved certification. But it is intended to be used whenever a LEED project is sold.
There are many more opportunities
Among those assembled in this room, you are well aware of other opportunities for attorneys and non attorneys alike, from green intellectual property to materials certification, from green consumer claims to green branding, and more.
We know that this year, more than one third of U.S. construction starts will be green building. That almost unbelievable share of commercial construction is up from less than 2% of construction starts in 2005 (tracked in the same Dodge Report index). The precise percentage may move if the economy improves in the 4th quarter and construction starts rebound, but the growing market share and business opportunity for attorneys is clear.
One subtle change you can make immediately upon returning home is, as I noted in my discussion of Sustainability, increasingly corporations are now inquiring about their vendors (yes, even their law firms) Corporate Social Responsibility programs, including what plans you have for calculating your firm’s greenhouse gas emissions.
In conclusion
Green building is not only a bright spot in the broader economy, but sustainability and green building law is exploding. Sustainability and green building presents huge opportunities for you and your business.
And it is necessary that attorneys become more active in creating this emergent area of law for green building to continue to advance and thrive.
Join those who have been at this podium today and join me advancing green building law. Thank you.
We have the knowledge and experience in green building and sustainable business to advantage your company. Do not hesitate to contact Stuart Kaplow.
We work with a broad breadth of businesses across the country, giving each company ‘an edge’, including in emergent sectors such as Green building and sustainable business, greenhouse gas emission, renewable energy, clean tech, green investing, and environmental land use; much of that work being done by ajhon Sustainable Systems Integrator, a non-legal affiliate of our law firm.
We have the knowledge and experience to assess risk and identify opportunities offering innovative solutions creating the potential for new efficiencies and new markets. If we can be of assistance as you determine what decisions must be made, now in this time of rapid change, to take advantage of and thrive in this environment, please give me a call or email. Stuart Kaplow
E-Real Estate Briefs are an infrequent publication of Stuart D. Kaplow, P.A. intended to provide clients with information on current legal issues. The information is for general guidance and is not legal advice nor a legal opinion. Individual factual situations should be reviewed with an attorney.
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Circular 230 Notice: In accordance with Treasury regulations which became applicable to all tax practitioners as of June 20, 2005, please note that any tax advice given herein is not intended to be used, and can not be used by any taxpayer, for the purpose of (i) avoiding tax penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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