Too Green to be true?
How to avoid green-building litigation when marketing and promoting ''eco-friendly'' and ''sustainable'' real estate.
Until recently, many people have not viewed green-building litigation as a significant threat. It was either a conference topic or an issue raised by attorneys in the board room. In a lagging construction market, green building provided a much-needed niche selling point and so, to many, all that was green was gold.
That all changed last year, however, when a class action was brought against the United States Green Building Council, and the first reported case against a developer was filed by residents claiming that a sustainable condominium project did not live up to its “green” promise.
Given that the threat is now a reality, if you or your company is going to represent that a
construction project has certain sustainable features, or will receive third-party, green-building certification, there are certain factors you will want to consider to avoid liability.
ENVIRONMENTAL MARKETING CLAIMS AND POTENTIAL LIABILITY
“Green-washing” is a term used to describe the deceptive use of green marketing to promote a perception that a company’s policies, products, goods and/or services are environmentally
friendly. The Federal Trade Commission (FTC) has the authority to intervene when businesses misrepresent their products, goods, services or practices. To deal with green-washing specifically, the FTC issued Guides for the Use of Environmental Marketing Claims (also known as the Green Guides), which outline general principles that apply to all environmental marketing claims.
The Green Guides state: “It is deceptive to misrepresent, directly or by implication, that a product, package or service offers a general environmental benefit. Unqualified general claims of environmental benefit are difficult to interpret, and depending on their context, may convey a wide range of meanings to consumers. In many cases, such claims may convey that the product, package or service has specific and far-reaching environmental benefits.”
As explained in the Commission’s Advertising Substantiation Statement, every express and material
implied claim that the general assertion conveys to reasonable consumers about an objective quality, feature or attribute of a product or service must be substantiated. Unless this substantiation duty can
be met, broad environmental claims should either be avoided or qualified, as necessary, to prevent deception about the specific nature of the environmental benefit being asserted.
Last October, the FTC proposed revisions to the Green Guides. “In recent years, businesses have increasingly used ‘green’ marketing to capture consumers’ attention and move Americans toward a more environmentally friendly future. But what companies think green claims mean and what consumers really understand are sometimes two different things,” said FTC Chairman Jon Leibowitz. “The proposed updates to the Green Guides will help businesses better align their product claims with consumer expectations.”
WALKING THE GREEN WALK
The revised Green Guides caution marketers not to make general claims that a product is “environmentally friendly” or “eco-friendly.” Such claims suggest that a product has specific and far-reaching environmental benefits, but are nearly impossible to substantiate. The revisions also place limitations on the use of certain terms and caution against unqualified certifications or seals of approval.
For example, if a product is advertised as “degradable,” it should decompose within one year. Although the comment period on the proposed revisions has closed, a final version of the Green Guides has not been released. Even though marketing real estate as eco-friendly or sustainable can be something of a gray area, recent FTC prosecution of fraudulent environmental claims, coupled with two recently filed cases, demonstrate that even the building industry needs to ensure that if it is going to talk the green talk it also walks the green walk.
TAKING THE HEAT: THE U.S. GREEN BUILDING COUNCIL
In the early 1990s, the Washington, D.C.-based United States Green Building Council (USGBC)
developed the Leadership in Energy and Environmental Design (“LEED”) Environmental Rating System in response to growing concerns over the amount of resources consumed by buildings. LEED certification provides independent, third-party verification that a building (new or existing, commercial
or residential) meets certain green-building design and construction measures.
A building earns LEED certification through points awarded based on the integration of specific green-building or performance characteristics, such as site selection or energy efficiency. Based on the number of points a building accumulates, the building can achieve recognition at the certified, silver, gold or platinum level.
On April 27, 2009, USGBC launched “LEED v3” to take into account new technologies and the need for additional transparency in the accreditation system. For example, the Green Building Certification
Institute (GBCI) assumed administration of LEED certification for all commercial and institutional
projects registered under any LEED rating system. To date, the 501(c)(3) non-profit reports that there are more than 34,000 commercial projects participating in the LEED green-building certification system and some 155,000 LEED Accredited Professionals in the U.S. and abroad. Yet, despite this success, 2010 was a tough year for USGBC. Last October, a class action was brought against USGBC, asserting false advertising claims under the Lanham Act and antitrust claims under the Sherman Antitrust Act, among other statutes.
As expected, the lawsuit received significant attention, much of it criticizing the filed complaint
for its shortcomings, such as an inability to maintain status as a class or provide evidence of fraud. Whether in direct response to criticism or on their own volition, the plaintiffs filed an amended complaint on February 8, 2011.
Under the amended complaint, the plaintiffs– building design and construction professionals — seek injunctive relief and monetary damages, asserting that USGBC’s “false advertising misleads consumers and damages Plaintiffs.” As of the date of this writing, USGBC has not filed its
answer to the amended complaint.
Although the outcome of this litigation is uncertain, the result could have far-reaching effects,
not only on third-party certification systems but on the green-building industry as a whole.
OWNERS VERSUS DEVELOPER: RIVERHOUSE, BATTERY PARK CITY
USGBC is not the only entity facing litigation for green-marketing claims. In May 2010, purchasers of units in a New York City condominium building filed a $1.5 million lawsuit against the project’s
developer, Sheldrake Organization, and the building’s manager, Centurion Real Estate Partners. Gidumal v. Site 16/17 Development LLC, et al., N.Y. County Index No. 105958/10 (New York County Supreme Court, May 5, 2010).
Riverhouse, a waterfront luxury condominium in the Battery Park City neighborhood, is advertised as a truly sustainable building (http://the-riverhouse.com). Built between Rockefeller Park and Teardrop Park, the 31-story building was built to LEED-Gold standards and boasts a range of environmental design features, such as photovoltaic solar panels, a geothermal heating and cooling system, and a stormwater collection system to irrigate the building’s landscaping and green roofs. Condos feature filtered air, filtered water and recycled-content, locally sourced building materials. There is even an on-site yoga studio. It is touted as an eco-friendly mecca and many, including celebrities such as Leonardo DiCaprio and Tyra Banks, invested in a home.
Yet, according to the plaintiffs, Riverhouse is neither so great nor so green. The plaintiffs argue that they have experienced many issues with the building, such as cold drafts and insufficient heat in their units, and allege the building fails in several green respects — issues that are “materially different from those represented by the project sponsor and its principals in the condominium offering plan.” The plaintiffs argue these deficiencies constitute a breach of the condominium offering and, further, that the representations about the building and its units were false and are therefore legally actionable as fraudulent.
The litigation demonstrates the very real threat of liability from “green-washing” in the context of green building.
AVOIDING EXPOSURE TO LIABILITY
Regardless of the outcome, the increase in litigation — coupled with the increase in legislation– highlights the fact that green building is no longer just a passing fad. From marketing and
tax incentive programs to land use approvals and compliance with building codes, there are many issues, existing and emerging, that need to be considered. Project developers and managers are well advised to consult legal counsel about allocating risks and responsibilities before beginning a green project.
Even where a developer intends to live up to its claims and can back up its marketing materials, a potentially costly issue can still arise when a developer or builder inadvertently offers a warranty to the purchaser. Such an unintended warranty can occur when a builder identifies himself as a “green builder” whose buildings have received LEED or similar green-building accreditation.
Such statements, even if true, can create expectations in a consumer that can lead to liability.
For example, assume a family with asthmatic children moves into an “environmentally friendly” home based on an expectation that indoor air quality will be better than in a non-green building, but the children’s asthma actually gets worse. Will the building’s designers or construction
contractors be liable in that situation?
Because sustainable, green building implicates a wide range of potential legal issues, before beginning
a green project developers and managers should ask the following questions:
- Which party will be responsible for administering the time-consuming LEED certification process?
- Which party will be responsible if the project fails to achieve LEED certification?
- If a lender provided financing at a discounted interest rate for green development, what will
happen to the financing if the project fails to achieve certification or meet local and state building ordinances?
- Which party will be responsible for ensuring there is sufficient insurance coverage for
the project, including materials that meet green-certification requirements but may be more expensive to replace?
- How will the contract be drafted to ensure that each party understands what its responsibilities are to achieve a “green building”?
- What, if any, disclaimers should be included for state-of-the-art green-building components and techniques?
Green building is here to stay, and it’s important that those in the industry stay abreast of litigation and federal, state and local regulation.