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Real estate: Real estate lawyers find it isn't easy being green

|Written By Kevin Marron
Real estate: Real estate lawyers find it isn't easy being green

Real estate lawyers may feel that they have enough to worry about already, but here''s one more thing — green buildings. If there were a concept that seems totally benign and positive, you''d say this is it. 

Follow the latest environmental building standards to make your condo or office building energy efficient, use recycled and recyclable building materials, and add features such as green roofs covered with soil and vegetation to limit run-off and help clean the atmosphere. Your building gets a silver, gold, or platinum rating from a certification body. Maybe you pick up a few tax rebates or get some breaks from planning authorities.

Your tenants or condo unit owners save money on energy and everyone's happy to have done their bit toward staving off global warming.

What on earth could be wrong with that? Ask the insurance industry in British Columbia

and the lawyers representing the Olympic Village or other developments that were

recently stalled because no one would insure a condo with a green roof.

"It's an excellent example of the potential for things to come out of the blue," says

Vancouver real estate lawyer Jason Hicks of Davis LLP. No one could have foreseen that

insurance providers, spooked by past experiences with British Columbia's notorious

leaky condos, would have decided not to insure condo developments with green roofs,

despite the fact that this environmentally friendly technology has been tested and

accepted elsewhere in the world.

The insurance industry will eventually warm to green roofs, once it learns more about

them, Hicks says. In the meantime, the situation creates all kinds of legal issues. "If you

can't get insurance, you can't sell your property. And if you promised a green roof, are

you in breach of development contracts and disclosure agreements?" he asks, noting that

legal disputes are possible in situations involving developers that have promised a green

building to environmentally conscious purchasers who may want to pull out of the deal.

"Do people have the right to rescind contracts? Do people have the right to sue for

damages? Has the value of the building been materially affected by failure to reach that

goal? And are those actionable damages?"

Hicks says these questions are just some of the many complex and sometimes unforeseen

issues that lawyers may get entangled with as they venture into the hitherto unexplored

territory of green property law.

Co-generation challenges
Co-generation and heat exchange technology is another area fraught with uncertainty.

Some large condominium complexes are now being developed with facilities that supply

power and heat to all unit owners.

This is a big step away from the norm, in which power is provided by a big utility that

has a very strong liability shield and high standards of reliability, says Hicks, who

anticipates lawyers having to grapple with issues such as: "Who owns the power

generation plant? Who's liable if it breaks down? How will the costs be allocated? How

will the liabilities be allocated?"

In Toronto, Harry Herskowitz of DelZotto Zorzi LLP is already addressing such

questions as he draws up documents for his client, Tridel Corporation, a condominium

developer with a strong commitment to green building standards.

In dealing with co-generation plants, he says, "I have to spend days and days with

representatives of the engineering firms that are proposing this to figure out how it will

work and how it will work in the realm of a condo, as opposed to a private freehold

building with one corporate-commercial landlord."


Green loan program

A new concept in financing green building design features is also adding a layer of

complexity to Herskowitz's work. This involves a "green loan" program created by

Tridel and the Toronto Atmospheric Fund, where a builder receives a loan that is

conditional on a development meeting the international benchmark standard Leadership

in Energy and Environmental Design Standards (LEED).

Once the building is completed and sold, the condominium corporation takes over the

loan and repays it over a seven-year period, using the money it saves from energy conservation measures.

"It's a perfect model," Herskowitz says, as "it's good for the environment and makes

business sense." But it is certainly more work for the real estate lawyer, who has to

disclose the details of the loan, the purpose of the loan, and how it's actually funded and

secured.

Jeffrey Lem, a Toronto-based real estate lawyer with Davies Ward Phillips & Vineberg

LLP, says he's watching the emergence of green-building standards very closely, since it

is something that few clients know or care about now, but may well become a routine

matter of due diligence in years to come.

"Lawyers should be observant of trends and make sure that if it looks like your clients are

really needing this stuff or wanting this stuff or valuing it, you'd better be protecting

them," he says.

It's a potential liability issue for lawyers in the future, according to Lem. "Right now, I'm

pretty safe. Nobody's going to sue me because I didn't look for LEED compliance."

But Lem believes it is important to educate his colleagues in the real estate bar about the

issues and pitfalls they may encounter if green building standards become the norm.

"I want lawyers to be mindful enough to know when this is happening and not be the first

guy to get dinged."

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