2008-12-26, 14:05

Green Building Contracting

By: Multifamily Real Estate Industry Team
Every developer knows that self-protection in the drafting of a construction contract is a key to success (and a good way to avoid financial disaster). But in a new environment of green building incentives and regulation, there are some new twists and turns to be navigated. Navigating this rather uncharted territory will determine the winners and losers in the real estate development world.

In each construction contract to which they are a party, Owners will need to protect the green building-related tax incentives and other benefits they may have built into their budgeting for a given project. In this context, examples of contract-related damages would be loss of rental income, forfeiting of tax credits or deductions and rescission of density bonuses granted due to meeting green building criteria. Because of the nature of these potential losses, Owners should be careful not to agree to limiting damages in the construction contract to direct damages.

Making sure that a project complies with green building regulations that are popping up in cities and states all across the U.S. is essential. With respect to construction contracts, Owners will need to do their own diligence with respect to their contractors to verify that they are aware (and have experience) with navigating green building requirements in a given jurisdiction. This not only affects legal compliance, but also project budgeting. Owners would be wise to shift as much liability as possible to the contractor in the construction contract, and make sure that the contractor’s insurance policies cover losses due to failure to comply with green building legal requirements.

(This entry posted by Mark Polston, a member of the Real Estate Development group)

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