Category: Construction Law

Assessing Your Current Leases for Implementation of LEED®

Recently featured on the National Law Review as a featured blogger Hannah Dowd McPhelin of Pepper Hamilton LLP reviews some things to look for in your company’s leases as related to LEED  implementation. 

If you are the owner of a multi-tenant commercial building and you are considering implementing LEED or another green building rating system, consider these four aspects of your existing leases before making the leap.

First, what costs associated with new sustainability efforts can be shared with the tenants?  A threshold issue in your decision to implement new measures will likely be cost and whether any of the cost can be shared with tenants.  Take stock of what expenses are permitted to be passed through to tenants under the current leases.  In particular, consider the treatment of capital expenditures and similar “big ticket” items.  A lease may allow at least some of the cost (perhaps on an amortized basis) of capital expenditures that are energy saving devices to be shared.

Second, what latitude do you have to impose new operational procedures on the current tenants?  A common example of a new operational procedure is a recycling program.  A good rules and regulations provision will be helpful here because it may allow you to stretch the four corners of the lease a bit to add new sustainability measures and ensure tenants’ compliance.  If you are planning to pursue certification or recognition through LEED or another green building rating system, then this will be an important consideration as the tenants’ compliance and cooperation may mean the difference between achieving certification and not.

Third, where will sustainability defaults fit into your leases’ current defaults and remedies provisions?  With respect to sustainability measures that are law, it is often appropriate for you to mandate tenants’ compliance.  For those measures that are not yet law, consider whether your tenants have an obligation to comply under the leases and when noncompliance becomes a default.  It is likely that any noncompliance would be a covenant default, which may be subject to a longer notice and cure period.  Practically, consider what remedies you are willing to exercise for noncompliance with sustainability measures.

Fourth, which party will reap the benefits of any rebates, credits or other incentives that accrue due to the new sustainability efforts?  Often, a standard lease form will not address the allocation of these items.  It is often assumed that the landlord receives the benefit but consider your tenants’ contributions to your sustainability efforts and also consider that for tax purposes and otherwise each party may benefit more from certain incentives.

Finally, and perhaps most importantly, you must communicate with your tenants and they must buy in to this process.  It will make the implementation of sustainability measures infinitely easier if your tenants are on board and enthusiastic – involve them early and often so they can share in the success of your building’s transformation.

Copyright © 2010 Pepper Hamilton LLP

About the Author:

Ms. McPhelin is an associate with Pepper Hamilton LLP, resident in the Philadelphia office. Ms. McPhelin concentrates her practice in real estate matters and other business transactions, including the acquisition and sale of commercial real estate properties and leasing of office, retail, warehouse and industrial space, representing both landlords and tenants. She is a LEED® (Leadership in Energy and Environmental Design) Accredited Professional and a member of the firm’s Sustainability, CleanTech and Climate Change Team.  215-981-4597 /www.pepperlaw.com

Renewable Energy Financial Incentives: Interested Parties Scramble for More Time

The National Law Review’s featured guest bloggers this week are from Pepper Hamilton LLP.  Jane C. Luxton provides a ‘heads up’ on important deadline which is quickly approaching.  Read on:  

When Congress passed the American Recovery and Reinvestment Act – familiarly known as the “stimulus bill” or “ARRA” – in 2009, it specified that funding would expire on September 30, 2011.  Any project not “shovel ready” by that date is out of luck, and application deadlines for available money fall due even earlier.  Renewable energy funding under ARRA comes principally under Department of Energy loan guarantee programs and Treasury Department grants in lieu of existing tax credits.

Originally, DOE established a cutoff date of August 30, 2010, for part 1 applications for the multi-billion dollar loan guarantee fund for commercial-scale renewable energy projects added under ARRA as Section 1705 of the Energy Policy Act of 2005.  Giving away all that money turned out to be harder than expected, however, and under pressure from critics, DOE recently extended its deadlines, but not by much.  It is possible further extensions will occur, but for now applications for renewable energy generation projects must be filed by October 5, and for proposals based on manufacture of renewable energy components, by November 30.  Further, DOE recently clarified that only large projects will qualify for manufacturing grants:  those totaling $75 million or more.  Details are available at  http://www1.eere.energy.gov/financing/.

Meanwhile, interested parties have secured bipartisan congressional support to extend the Treasury Department program that allows taxpayers to obtain cash grants in lieu of renewable energy tax credits, authorized under Section 1603 of ARRA.  Whether this support is sufficient to win passage in the waning pre-election days of a turbulent Congress is an open question.  Developers, investors, and other interested parties should monitor these developments closely.

While time may be growing short for the ARRA programs, other sources of federal and state incentive money remain available and continue to play a key role in promoting renewable energy deals.

Copyright © 2010 Pepper Hamilton LLP

About the Author:

Ms. Luxton is a partner in the Environmental Practice Group of Pepper Hamilton LLP, resident in the Washington office. She is chair of the firm’s Sustainability, CleanTech and Climate Change Team. Ms. Luxton has practiced for more than 20 years in the field of environmental law, and she is actively involved in climate change and renewable energy matters. 202-220-1437 / www.pepperlaw.com


Considerations for Design Services Agreements for Projects Seeking LEED® or Similar Certification

The National Law Review’s featured guest bloggers this week are from Pepper Hamilton LLP.  Wendy Klein Keane outlines things that need to be considered for LEED® or similar certifications:  

If you are contemplating pursuing certification under the LEED (Leadership in Energy and Environmental Design) Green Building Rating System or another green building code or standard for a construction project, it is important that you integrate these objectives and requirements into your design services agreement. It is equally important that these issues be integrated into the construction services agreement(s) for the project as well, but those issues will be addressed in a future post. As a starting point, you should consider the following questions and ensure that they are covered by your design services agreement.

1) What kind/level of certification are you seeking for the project? While you may not know the precise level of certification that you will obtain, you should include a provision in the contract that identifies the governing standard that has been chosen (or is required) for the Project.

2) Does the agreement permit you to use the instruments of services to obtain that certification? You need to make certain that your agreement with the design professional permits the underlying design documents to be used to apply for and obtain certification, without constituting a breach of the contract or violation of copyright laws.

3) What additional scope of services will be required as a result of seeking LEED or similar certification? Obtaining LEED or similar certification is dependent on not just the design professional’s performance, but also a variety of other factors including the contractor’s performance, the budget, the documentation, and the institution responsible for the certification process. As a result, the agreements for the project should be carefully drafted to make sure that the required scope is correctly and completely allocated amongst the parties. There are currently only a few standard forms that address a design professional’s scope of services for a project seeking LEED or similar certification. One example is the American Institute of Architects (“AIA”) Document B214-2997 (Standard Form of Architect’s Services: LEED Certification) (http://www.aia.org/contractdocs/AIAS076745). Article 2 of the AIA-B214 includes services that could be provided by the design professional for projects seeking LEED certification. The B214 can be modified and made an exhibit to your design services agreement. Another example is the ConsensusDOCS 310, Green Building Addendum, (http://consensusdocs.org/catalog/300-series/), which is appropriate for use on any green building project. You could also review and integrate parts of the LEED Green Building Rating System or other relevant written codes or standards into the agreement. All of these sources are starting points only and must be evaluated and made suitable for your project.

4) How will achieving LEED or similar certification be guaranteed or incentivized in the agreement? Owners and design professionals should consider the risks and benefits of obtaining certification and develop contractual provisions to ensure that the desired certification is obtained. One way to encourage performance is through a liquidated damages provision where the design professional bears some financial responsibility if certification is not obtained due to his or her acts or omissions. Another possibility is to include a bonus payment tied to completing the application process or obtaining actual certification.

These questions touch on only a few considerations that can be integrated into your design services agreement to make certain that the necessary contractual framework is in place to successfully achieve the desired green certification for your project. The specific facts and goals of each project should be considered and included in the design services agreement for that  project.

Copyright © 2010 Pepper Hamilton LLP

About the Author:

Ms. Klein Keane is an associate in the Construction Practice Group of Pepper Hamilton LLP, resident in the Philadelphia office. She also is a member of the firm’s Sustainability, CleanTech and Climate Change Team. She is one of the few attorneys who passed the Green Building Certification Institute’s exam to qualify as a LEED® (Leadership in Energy and Environmental Design) Accredited Professional. Ms. Klein Keane has experience counseling clients through all phases of the construction process on both public and private projects, including contract drafting and negotiation, bidding, contract administration, and litigation and alternative dispute resolution proceedings.  www.pepperlaw.com / 215-981-4982