Editorial: State of the Industry, Part 3 – Green Building and Construction Defect Litigation

Here in California the weather is cold (relatively speaking), but the climate is electrifying. Construction defect litigation remains active despite numerous changes to legal strategies and continues to be shaped by the insurance carriers. CA SB800, our Builders Right to Repair laws, under Civil Code §895, et seq., has failed to achieve its stated goals as it enters the eighth year of enforcement. And among most construction defect lawyers, a “green building” is one that features a verdant exterior paint color. This is the state of the industry in the first full week of 2011, as I see it. (Part 1 – Construction Defect Litigation in the U.S., Part 2 – California’s SB800, The “Right To Repair” Law)

Green Building and Construction Defect Litigation

Overview of the San Diego Bay from the rooftop of the El Cortez
Overview of the San Diego Bay from the rooftop of the El Cortez

Parts 1 and 2 of this series on the state of the industry (see links above) were admittedly a little depressing. Truth be told, the construction defect litigation industry seems kind of depressing. I’ve watched as numerous colleagues and counterparts have been laid off and a few firms have scaled back dramatically or shut down altogether. But there is a bright spot I see on the horizon: Green Building.

Energy efficiency, use of sustainable materials and methods, and reducing environmental impact are the goals of the green building movement. Those are also the keywords that are used in marketing everything from homes to bleach to even coal mining. My experience has been that any time sales and marketing executives have influence over product development, risk increases.

Due to the collapse of the mortgage markets and other economic factors, construction and residential construction in particular, have taken a huge hit. Profits have declined and builders are struggling to make payroll or even keep employees busy. The obvious response from the board rooms of developers and builders is to ramp up marketing efforts. You see, something that isn’t widely understood by the general public, is that construction financing usually includes terms related to sales performance. In order to secure a loan on a large development, a certain number of homes need to be under a purchase agreement by buyers in order to proceed. Thus, if a development fails to get a sufficient number of future sales under contract, subsequent phases of development might not be approved for financing. So just to stay active in construction, sales contracts need to progress. What do buyers of homes today want? To save money and if possible, help save the environment.

Without question, the green building movement is the primary factor that is driving construction in this down economy.

Let’s take a step back for a moment and consider in practical terms, just what exactly “green building” entails. As I mentioned, energy efficiency and use of sustainable materials and methods are the main characteristics.

Energy efficiency implies a certain level of performance. This involves a factual, evidence-based assessment. Thus a claim of “uses 25% less water” is a verifiable claim that can be measured, versus a claim of “light and airy with great views” for example. Such performance guarantees made in the course of selling a property could arguably result in a bona fide claim for damages if that level of performance is proven to be false.

Another factor contributing to risk in green building is that it involves materials and methods that may not have the familiarity and track record of more conventional techniques. Whereas 50 years ago construction involved a higher percentage of artisans pursuing quality over quantity, modern construction crews take on more of an assembly-line approach. Most actual construction is performed by less-skilled laborers willing to work for the relatively low pay. Skilled workers with plenty of experience are promoted to supervisory positions. The industry standards of quality in typical residential construction are well-established, yet green building techniques necessitate tighter levels of tolerance and compliance. For example, in a typical single-family home, as long as there is insulation in most of the stud bays of the exterior walls, the home will generally be in compliance. However, even a small gap in insulation at an exterior wall could adversely impact energy efficiency in a “green” home. These performance guarantees and new materials/methods will require better supervision and more attention to detail than ever before.

How does this fit into construction defect litigation? Easy. With more stringent requirements for the construction of homes, as well as increased awareness on the part of homeowners, green buildings create many more potential “defects” that would not have existed even just a few years ago. As more potential defects exist, an increase in construction defect claims is virtually guaranteed. And that’s not all. Many green building projects are being subsidized in part through various tax breaks and other governmental and/or third party incentives. The closest corollary I can draw to this would be with accessibility issues. I’ve been involved in construction defect lawsuits where ADA violations were alleged that resulted in a separate cause of action involving Federal jurisdictions. The complexity of such cases requires more participation by counsel and experts alike.

Sadly, there doesn’t seem to be much interest in learning about green building among professionals in the construction defect litigation industry. At the Veritext seminar I attended in San Diego a couple months back, the participants on the panel turned discussion to the future of construction defect litigation. I mentioned green building to the audience. The response was like something out of a movie: one attorney actually said, “you mean like a house that is painted green? Is that a defect?” A defense attorney approached me later and said, “next time keep the green building thing to yourself – we don’t want to give plaintiff attorneys anything else to go after.” It was this response that made me rethink my plan to publish an article discussing the topic of that seminar. I was floored. Elsewhere in construction law, attorneys are actively discussing green building and its implications.

Clearly, there will be a bit of a learning curve for professionals in the construction defect industry. Here are some excellent resources for learning about the legal aspects of green building:

In the meantime, stay tuned right here to More From Less. At the end of this week, I’ll be announcing a new email newsletter that enable you to stay aware of what is happening in construction defect law, construction consulting and green building. Please feel free to contact me with any questions or leave a comment.