Green Building Contracts: Considering the Roles of Consequential Damages & Limitation of Liability Provisions

Loyola Consumer Law Review, Dec 1010

By Darren A. Prum and Stephen Del Percio, Published on 01/01/10

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Green Building Contracts: Considering the Roles of Consequential Damages & Limitation of Liability Provisions

Green Building Contracts: Considering the Roles of Consequential Damages & Limitation of Liability Provisions Darren A. Prum 0 1 Stephen Del Percio 0 1 Arent Fox LLP 0 1 New York City 0 1 0 Darren A. Prum & Stephen Del Percio Green Building Contracts: Considering the Roles of Consequential Damages & Limitation of Liability Provisions , 23 Loy. Consumer L. Rev. 113 (2010). Available at: 1 Faculty, Regis University Part of the Consumer Protection Law Commons - Article 2 DarrenA. Prum & Stephen Del Percio* I. Introduction the real property development arena, one of the major changes in project focus is sustainability. To this end, many owners now tend to opt for greener building designs and corresponding construction processes.' In fact, a recent study for the United States Green Building Council ("USGBC") attributed $173 billion of GDP and 2.4 million jobs to green-related construction during the years 2000 to 2008.2 This study also projected that from 2009 to 2013, green construction will dramatically increase to $554 billion in GDP and bear responsibility for 7.9 million jobs. With this recent philosophical change in the approach to real property development, new issues and risks are emerging for all those involved - contractors, designers, owners, and lenders alike - that require the attention of legal counsel. Regardless of project type, some of the most critical construction contract provisions emanate out of the parties' choices in allocating the risk of consequential damages. Darren A. Prum, MBA, JD, is an Affiliate Faculty Member with Regis University; Stephen Del Percio, JD, LEED AP, practices construction and real estate law at Arent Fox LLP in New York City. ' Booz ALLEN HAMILTON, U. S. GREEN BUILDING COUNCIL, GREEN JOBS STUDY, 2009, available at www.usgbc.org/ShowFile.aspx?DocumentlD=6435 2 Id. at5. Id. Frequently, these damages are not the direct byproduct of one party's breach, but rather those that "flow" from the breach. Claims for consequential damages have the potential to dwarf the total amount of the contract. For example, consider the lost rental premium profits that the developer of a large commercial office building might claim in the event that the project fails to reach the anticipated level of third-party environmental certification, on which both the developer and its lender rely. As indicated by the USGBC study, numerous green building projects were constructed during the past decade, and many more will occur in the future. 'However, during this time period, only one lawsuit pertaining to a project's green building qualities has been reported. In Shaw Development v. Southern Builders,' the use of a form document with a mutual waiver of consequential damages barred the owner from pursuing its lost tax credits under a breach of contract theory.' Despite the unique set of facts relating to the claim in Shaw, the case's applicability appears broad given the pace of green building activity that continues to take place across the nation. Accordingly, firm guidance from the courts with respect to the types and scope of green building related damages that might be deemed consequential is likely forthcoming at some point in the future. Until then, stakeholders involved in green building projects must carefully consider the types of limitation of liability provisions included in their contracts. With the foregoing in mind, this Article examines the role of consequential damages and limitation of liability provisions as applied to green building contracts. Part II begins with a historical background of consequential damages from both common law and Uniform Commercial Code ("UCC") perspectives, and then considers its applicability to various stakeholders, such as owners, design professionals, and contr'actors. Part III examines several of the common design and construction document forms currently employed by most project teams, as well as a green building guarantee that functionally operates as a limitation of liability provision. Finally, Part IV provides recommendations to each kind of construction project stakeholder in navigating these types of provisions in connection No. 19-C-07-011405 (Somerset Cty. Cir. Ct. Md. 2007). Darren A. Prum & Stephen Del Percio, Green Building Claims: What Theories Will A Plaintiff Pursue, Who Has Exposure, And A Proposal For Risk Mitigation,37 REAL EST. L.J. 243 (2009). . Green Building Contracts with green building projects. II. ConsequentialDamages Where parties to a green building construction contract wish to minimize the risk of future litigation, they should first consider that construction claims are generally asserted under either a tort or contract theory.' Green building-related causes of action may accrue due to a raised expectation level for a particular project, but may also arise due to the lack of a national standard with regard to performance or certification, failure to achieve a specific goal, or some other difference in (...truncated)


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Darren A. Prum, Stephen Del Percio. Green Building Contracts: Considering the Roles of Consequential Damages & Limitation of Liability Provisions, Loyola Consumer Law Review, 1010, Volume 23, Issue 2,