Back in the mid-1990s, the Denver, Colo.-based company decided to install cutting-edge heating systems in its Indian Peaks community outside of Denver. McStain chose what was then a state-of-the-art, high-efficiency heating system for the homes. Designed for multifamily communities, it was a ducted, forced-air system that derived heat from a hot water heater via a heat exchange coil. The problem was, in a multifamily installation, the system used a large boiler as opposed to a typical residential hot water heater. In the single-family application, water heaters of the time were not capable of providing sufficient BTU values consistently.
"It was a poor piece of engineering," says Hoyt. "We had 189 of them installed before we realized it."
By then, there was no chance of retrofitting the systems to make them perform better. Homeowners wanted heat, not necessarily technology. To preserve the company's reputation, McStain replaced all the hot water systems with conventional, gas-fired, forced-air furnaces that were both efficient and proven over time.
Lesson learned. Now McStain experiments with new technology on one or two homes at a time, creating real-life beta tests for innovations and new products.
"Really, it's a shame how much the liability world stifles innovation," says Hoyt, an architect by training who has been working to build sustainable "green" houses for 40 years. "You need to be so careful." It's a lesson attorneys, those who advise builders about liability and keep an eye out on trends in liability claims, are working to inculcate in the many newbie builders jumping on the green building bandwagon.
When production home builders pick the wrong product and install it on a big scale, the cost of a misstep is exponential. Because many green building products and techniques are unfamiliar, the risk is even greater. Then add on the risk associated with exposure to liability on new products.
"You have all the normal risks and responsibilities that always exist [in home construction], plus some new elements in terms of methodologies, requirements, and products," says Keith McGlamery of Ballard Spahr Andrews & Ingersoll, one of 100 LEED® accredited attorneys in the country. "Any time you add that many new elements, you can have some confusion and the possibility of error. … You increase the stakes dramatically."
The stakes get even higher during an economic downturn, like the one seen in the housing and financial markets in 2008.
"As economic conditions worsen, there is less margin for error," says McGlamery. "Budgets are restricted and suppliers, subcontractors, and so forth may have financial difficulties; there are certainly lots of impacts on the project, and sometimes those impacts can put a project or developer in such peril that they end up in litigation."
While the risks may be great, the potential rewards of differentiating your product from others are as well, says Hoyt.
"The worse [the market] gets, the more convinced I am that our platform, where we have really focused on trying to be the leading edge of production green, is the place to be when we come out of this," he says. "When the market comes back, it's going to be a different market."
"Green building is happening now," says Jay B. Freedman, a construction litigation specialist with Newport Beach, Calif.-based Newmeyer & Dillion LLP. "The goal is to make sure it's done right. … I think the industry is going to educate itself over the next three years."
In the meantime, here are five places where attorneys experienced in green building practices and pitfalls say builders seeking to go green can go seriously astray.
1- Piecemeal Green
"The No. 1 way of preventing problems is to go with green building from the very beginning of a project and [ensure] the entire team–all of the players, including the vendors, suppliers, and designers–are aware so everyone understands what their role is and how it fits into achieving green certification," says McGlamery. "It's both expensive and more difficult if you decide partway through the project to go green."
That's because a truly green house can't be cobbled together on the fly. Its design and construction take into account every aspect of the house, from where it's built and how it sits on the lot to the materials used in its construction and how they work together. More than a collection of sustainable parts, it is a series of systems that work together to create a high-performance machine. Replacing, altering, or failing to correctly install any links in that chain can create a house that isn't green.
"Putting Energy Star appliances in a house with glazing on the windows that allows the house to roast in the afternoon and cause you to run the air conditioning 24-7 [won't make a house green]," McGlamery says.
The integration and education of the entire team, from site development through sales, can't be overemphasized, lawyers say. Every team member should know the role they are playing to make the house sustainable and environmentally friendly, even to the point of specifying it in their contracts.
McGlamery offers an example from a commercial office project that shows what can happen when even one part of the team isn't clear on its duties.
An office building that had promised tenants LEED certification was nearing completion and a major tenant was days from moving in when the painter ran out of paint, and his supplier was out of the low-VOC paint required for the LEED rating. So the painter, concerned only with matching the paint's color, finished the job with paint that was't low-VOC. That one act disqualified the building from receiving the certification, and the tenant, promised a building with a certain certification, threatened to sue.
"If you think about it, that painting subcontractor probably had one of the smallest contracts on the project," says McGlamery. Yet his decision probably cost the developer many times the value of his contract.
Because some green products require exacting or unusual installation methods that could lead to failure if done incorrectly, it's imperative to make sure the trades receive training on the techniques with emphasis that the installation needs to be done correctly every time.
"Builders just can't do green projects on a business-as-usual basis," explains Newmeyer & Dillion's Freedman.
2- Green Undefined
Many litigators suggest that builders refrain from using the word "green" when marketing their houses and neighborhoods.
"It doesn't mean anything yet, or it means too many things," says Freedman. "My personal advice would be to market what the green features are, such as if you have installed a tankless water heater. … Market what's there that's a fact."
David Crump, director of legal research for NAHB, agrees. "There are a lot of general, undefined terms associated with green building, and there is no common standard definition of what those mean."
Crump suggests ditching the standard construction contract and defining the terms to eliminate the potential for misunderstanding. "You are going to have to define what you mean by green, whether it's a green certification or sustainability, so there's no confusion on what you are providing under the contract."
Another reason to avoid the terms "green" and "sustainable" is that they have attracted the attention of the Federal Trade Commission as well as the consumer protection arms of state governments, increasing the chances that those agencies will clamp down on companies that advertise their products as green without proof, says Crump.
3- Making Promises
Promising a healthier home or a certain amount of energy savings is risky as well. "Those claims are very difficult to quantify, and the actual experience of individual purchasers will vary depending on the individuals' lifestyle and the climatic region they live in," says Crump. "It's not a good idea."
And those who do make such claims should include disclaimers explaining that results can–and likely will–vary.
"Once the house is constructed and placed in the hands of a homeowner, you don't know what they are going to do," Crump says. "Also, maintenance has a lot to do with the continued performance of green construction. … Unless you have the assurance that the house will be maintained to a certain standard, you can't be sure the house will perform at that level."
"If you represent that people who occupy your building will have substantially fewer respiratory illnesses or that it's a much healthier environment, you had better be able to back it up," adds McGlamery. "If you claim that your project is much more energy efficient, then you had better be able to back it up. More energy efficient than what?"
Promising that a house will meet a third-party green certification is tricky, too. "What is going to happen if you don't get it?" Crump asks.
A lawsuit is one possibility. "Fraud claims or negligent representation claims, none of that is covered by insurance," says Freedman. "They could say, 'You told me this house would be healthier, and my kid is still sick,' or, 'You told me that this house would use less energy.'" Builders who make such promises should probably set aside greater reserves to handle claims that might come up, Freedman says.
4- High Hopes
Builders can get in trouble for what they imply as well as what they promise. Consumers often have high expectations from homes marketed as green and are disappointed if the house isn't what they thought it would be. "The home- owner may end up suing because they didn't get what they expected–even if they weren't promised it," says McGlamery.
Because there's no universal definition of "green" or "sustainable" and there are several ways to achieve certification, there's a strong possibility that a consumer might think the builder is going to deliver something different from what they get.
"Without a definition, a consumer is going to have a much higher expectation of what that home is going to be," notes Jeffrey D. Masters, a real estate litigator and partner at Cox Castle Nicholson in Los Angeles. "They might expect a house free of any defects, or think they don't have to maintain the home because it's green. Or the owner may have an expectation that they will save money on their energy bills, and that expectation might not be realized."
A builder might guarantee to deliver a house that is green certified under a given program while the consumer assumes it will be energy efficient or healthier. However, since certification programs often are based on point systems, the builder may have accumulated all the points through using drought-resistant landscaping, lumber from sustainable forests, and recycled materials, according to Masters. "We really have to manage expectations," he says.
Freedman suggests that sales managers ask customers what they expect from their home and write it down in case litigation should come later.
"Find out what the buyers are looking for, and if that's not what you've got, manage the expectations so everyone knows what's happening," he says.
5- Believing Pretty Lies
"Green" has become one of the most popular words to slap on product marketing materials. Sometimes the claim is true, sometimes it's somewhat true, and sometimes it's an "absolute, flat-out lie," says Freedman. "They say it's an environmentally conscious product when it isn't."
It's the builder's responsibility to make sure what they sell as "green" actually is. "If the claim ultimately proves to be false, they could be liable," says Crump, even if the builder was unaware the claim was false.
"Who says it's green, and why?" Freedman asks. Another question to ask: Is there third-party certification?
All the new, untested "green" products and techniques introduced at once make lawyers nervous because there is no assurance they will perform well long term–not to mention the possibility that new products could create problems with other products.
"These products weren't available two or three years ago," says McGlamery. "It may be that the product doesn't perform as expected, so there is a problem of redesigning or retrofitting or replacement. And who bears the cost of that?"
For instance, one technique for some climates has builders turning attics into heated/cooled spaces by using spray foam insulation on the roof sheathing. "If you have a roof leak along that insulation, it could take longer to see it and the water could spread," suggests Freedman.
Builders need to be careful that they do not warranty products, and that whatever guarantees are offered go directly to the manufacturer, says Crump.
Performance aside, "you need to make sure that the design professional knows of its availability," adds McGlamery. "If you are dependent on bamboo flooring, make sure there's an adequate amount deliverable in the time frame that you need so it doesn't impact the building schedule."
And sometimes a product is green and of high quality, but it doesn't perform well in a given space or is installed improperly.
While all the legal caveats are enough to discourage even the most gung-ho builder, Freedman has some words of encouragement. "Hopefully by building green we are actually building better. Building green is just building right. As we build better, there should be a decrease in litigation."
Unfulfilled green can lead to red flags and big money.
Nobody really knows how many or what kind of lawsuits green home building will spark. Because the process is so new in residential construction and since many cases are settled quietly out of court, it will most likely be years before patterns emerge. Yet there is a canary in the coal mine–professional liability claims against design firms working in the more mature field of commercial green construction. Attorneys who advise home builders say they can make a sound guess as to what will get home builders in trouble from considering those cases. Below are summaries of claims made against design professionals related to green construction from Frank Musica, senior risk management attorney for Victor O. Schinnerer & Co., a provider of educational programs and management assistance to design firms and contractors with liability insurance.
An architect agreed to design a LEED Gold office building. The developer advertised the building as boasting "reduced operating costs and healthier and more productive occupants" to attract tenants at higher rents. Budget and time constraints prevented the building from achieving the certification, and the developer sued the architect for negligence, breach of contract, and breach of warranty based on the architect's "guarantee" of Gold certification.
A developer received approval for a project based on promises of tightly constrained water use. The design team utilized water conservation systems including rainwater collection and gray water use. Adjoining landowners sued, saying the rainwater collection system violated state law regulating natural water flow. Without the rainwater, the project's water use exceeded the limit agreed to by the developer, forcing it to pay fines. The developer sued the design team for negligence, as well as breach of contract and warranty due to the extra water use.
A design firm used a new green product with impressive promotional information, conducting no research on whether the product would be available and failing to warn the owner of potential problems related to supply. Based on design firm recommendation, the owner agreed to its use. When the product was not readily available, the project was delayed and construction schedule distorted. The contractor demanded more money for overhead, lost profits, and out-of-sequence construction. The owner sued the design firm, as he wasn't informed product delivery would be delayed.
A homeowner asked an architect for a low-cost addition that would provide a healthy interior and save on energy costs. The architect agreed, discussing expertise and how design and service would "assure" satisfaction with an on-time and within budget project. The owner, unhappy with cost, time, and results, sued the architect under consumer protection laws, alleging fraud in the inducement to the contract for services, and demanded rescission of contract and return of fee and legal costs, even though the project was complete.
Lured by the promise of "healthier and more productive occupants" basic to LEED publicity, a tenant rented space in a Silver certified building. At end of the year, the tenant's records indicated greater use of sick leave, increased employee complaints of eye strain and drafts, and reduced output by clerical staff. The tenant demanded rent rebate based on a false promise of a healthy workplace and increased productivity. The owner sued the architect for not designing a healthy workplace. The tenant then sued the architect for bodily injury based on poor indoor air quality.
A green design included "environmentally friendly" sealants to achieve a green designation. The subcontractor used the wrong sealant, then later argued the sealant had been improperly specified and, even if properly specified, would not have worked. The sealant had to be removed but already had off-gassed. The subcontractor declared bankruptcy. The client brought a claim against the architect based on improper specification and negligent construction observation.
A design team agreed to a three-school project to serve as an example of sustainable design and energy conservation. The architects and consulting engineers signed a contract that stated the projects would "reduce operating costs by 50 percent" over schools of similar size. But the schools' energy use was comparable to other schools recently designed and built. The school system was publicly embarrassed and blamed for being "hoodwinked" by the architect and engineers. The school system brought a claim against them.