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
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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)