On May 5, 2010, unit owners of the 31-story, 264-unit Riverhouse condominium located in Battery Park City, filed a $1.5 million lawsuit against the project’s developer, Sheldrake Organization, and the building’s manager, Centurion Real Estate Partners, for breach of contract under the condominium offering plan and fraud based upon alleged misrepresentations in the offering plan about the building and its units. 

Riverhouse was marketed as being at the cutting edge of green technology and advertised as a LEED Gold-rated building, which is supposed to feature fresh filtered air, filtered water, eco-friendly materials and low energy consumption.  The green features the developer allegedly promoted include a geothermal heating and cooling system, photovoltaic cells, low-E double-pane windows, a green roof, Energy Star appliances, recycled-content and locally-sourced building materials, a $1 million wastewater treatment plant, and a 60kW microturbine installation. 

The complaint alleges that owners consistently experienced cold drafts and insufficient heat in their units and that the air temperature for heating the units was too low, which the plaintiffs claim are signs that the building is not maximizing energy efficiency.  The complaint further asserts that the pipes are not insulated, the heating unit covers are not sealed, and the air filters are clogged. 

It will be interesting to follow this case and see if it paves the way for more green lawsuits based upon contract and fraud theories arising from a developer’s offering plan or pre-sale/pre-construction representations to purchasers. 

Submitted by Jeffrey S. Wertman of Berger Singerman (JWertman@bergersingerman.com).

Submitted  by Peyton White Lumpkin, Esq., LEED AP

The Lumpkin Law Firm P.A.

•   Facility and equipment improvement with energy-efficient and renewable energy (EE/RE) products. Examples of potential opportunities would include a manufacturing or assembly business upgrading or expanding operations with energy-efficient equipment, a data center converting to energy efficient servers or cooling units, or a business seeking to retrofit or upgrade its facilities with energy efficient or renewable energy products and materials.
•  Acquisition or demonstration of renewable energy products. For example, the program would evaluate a business looking to acquire or upgrade a solar or other renewable energy generation system or a technology provider seeking to demonstrate its commercially available renewable energy or energy efficient products for the first time in Florida. 
• Process improvement of existing production, manufacturing, assembly or distribution of operations to increase energy efficiency or reduce consumption. This could include a warehousing, distribution or storage business implementing activities to conserve energy or streamline operations, an industrial materials company upgrading its water usage and treatment processes to conserve energy and improve the efficiency of existing operations, or an agricultural inputs provider improving excavation or handling processes to increase the energy efficiency of its operations.

“The program is a first of its kind for Florida. Beyond the goal of transforming the State’s energy profile, this is also designed to be a catalyst for jobs,’’ said Jennifer Dunham of Florida First Partners, manager of the Florida Opportunity Fund. “We expect to see job growth from businesses that integrate or produce energy efficient or renewable energy products and technologies. We also anticipate that companies will be able to expand their operations and become more competitive as a direct result of the achieved cost savings and other efficiencies.”

In evaluating opportunities that apply for the first series of clean energy investments, the Florida Opportunity Fund will consider businesses that have existing operations in Florida, companies with a significant presence in the State or businesses that are establishing Florida operations using EE/RE products, techniques and technology. Applicants that show significant reduction in energy consumption or are seeking to implement or demonstrate commercially available energy-efficient or renewable energy products and technologies represent the targeted audience of this program.

The clean energy program is managed by the Florida Opportunity Fund, one of the primary State-sponsored efforts designed to generate economic growth and long-term funding for an array of strategic programs. The Clean Energy Investment Program received funding this Spring from the Florida Energy and Climate Commission.

“This is a timely program for Florida businesses to access capital for reducing energy consumption, and to stimulate the adoption of clean energy solutions,” said Jim Murley, Chairman of the Commission. The State also hopes to see private investment increase to provide a capital infusion to this emerging industry in Florida. 

Applications for the program are now being accepted. Interested participants should visit the program’s Web site at www.floridaopportunityfund.com to access the application and additional program details.

Florida’s PACE bill enables local governments to levy non-ad valorem assessments to fund improvements related to energy efficiency,conservation,renewable energy and wind resistance.  This type of program is more commonly known as a land-secured financing district or special assessment, which Florida municipalities have long used as a tool to finance projects that serve a public purpose, including street paving and the creation of parks.  The novelty of the PACE program is that it is not a  mandatory ad valorem property tax, has minimal fiscal impact on local governments, is not linked to the financial credit status of the property owner, and is completely voluntary.  The program shows promise as an innovative, no-taxpayer subsidy approach to financing individual energy efficiency and renewable energy projects without the traditional barriers: large upfront costs and difficulty of financing them.

Under a PACE program, property owners borrow money from a newly established “municipal financing district” to purchase eligible technologies that are determined at the local level.

PACE programs are funded through the issuance of local revenue bonds.  A PACE bond is a bond where the proceeds are lent to commercial and residential property owners to finance energy retrofits (efficiency measures and small renewable energy systems) and who then repay their loans over 20 years via an annual special assessment on their property tax bill.  The bonds therefore act as a lien on the property until the amount is paid off.  If the consumer sells the property, the tax would then be paid by the new owner.  For many home and business owners, the annual energy cost savings from the retrofitting will exceed the cost of the annual repayment.

Unfortunately, on July 6, 2010, the Federal Housing Finance Administration (FHFA), the agency that regulates mortgage finance giants Fannie Mae and Freddie Mac, issued a letter effectively bringing PACE programs across the Country to a screeching halt.  The July 6th letter expresses FHFA’s new requirement position that it will not purchase loans subject to PACE liens.  The tension lies in FHFA’s concern with the “senior liens” or “first liens,” which result from the tax assessment on properties participating in a PACE program.  The significance of the senior PACE lien is that if the property goes into foreclosure the PACE lien must be satisfied before the mortgage lender gets any money.  In short, FHFA has “safety and soundness concerns” resulting from a combination of “first liens that disrupt a fragile housing market and longstanding lending priorities, the absence of robust underwriting standards to protect homeowners and the lack of energy retrofit standards to assist homeowners, appraisers, inspectors and lenders [to] determine the value of retrofit products.” 

From a practical standpoint, FHFA’s blanket rejection of residential loans subject to PACE liens eliminates or restricts one of the most appealing aspects of the PACE program: the ability to make energy efficient improvements today and either pay the costs off over time or pass the costs off to future purchasers.  Banks generally want to sell their loans to Fannie Mae or Freddie Mac, so under FHFA’s new rules, whenever a homeowner with a PACE loan seeks to refinance, the homeowner will have to pay off the PACE lien in full.  In addition, whenever a homeowner with a PACE loan seeks to sell their home to a buyer using financing, the homeowner will have to either pay off the PACE loan or negotiate full payment of the PACE lien by the purchaser.  The restrictions created by the FHFA’s position and the orders it has issued to Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks have served to bring PACE programs everywhere to a complete halt.

There will have to be a significant push in favor of PACE programs on a state and federal level if one of the most promising renewable energy programs to date is going to be saved. Some commentators believe the only way to cross the proverbial “line in the sand” drawn by the FHFA is for Congress to take action on this pressing issue. If implemented in Florida, PACE programs could rev-up the state’s economic engine. The promises of an accelerated rate of renewable energy production, energy independence, green job creation, and greenhouse gas emissions reductions are all reasons to fight for PACE programs.

Submitted by Stephen A. Liverpool.  Mr Liverpool is a third year law school student from Tampa, Florida. This December, he will graduate from the Levin College of Law at the University of Florida with a certificate in environmental and land use law. He is currently a summer associate at the law firm of Hill Ward Henderson and can be contacted at salpool@ufl.edu.

 Invitation to Collaborate: Do you know of a local government provision not included in this index? Please send to Nicole Kibert (nkibert@carltonfields.com) for inclusion in the next update.

Submitted by Nicole Kibert, Carlton Fields, P.A.
nkibert@carltonfields.com
ph : 813.229.4205
fax : 813.229.4133

Recent attempts to establish aggressive renewable energy incentives in the Florida Legislature similar to those that have created booming markets in California and New Jersey have fallen by the wayside. In 2007, Governor Crist backed a mandate for Florida’s utilities to increase their use of renewable energy to 20% by 2020, a requirement that would have propelled the state to become one of the nation’s top producers of clean power. The proposal was met with enough resistance from utilities and legislators to kill its potential before it even had a chance. Florida Power & Light and Progress Energy, two of the state’s largest power companies, argued that such mandates were too costly and would raise consumer rates. In the meantime, both utilities were planning to request their own rate hikes to cover the nearly 40 billion dollar combined costs for construction and expansion of risky nuclear power plants that had no guarantee of ever being built. Over this same time period, the State of New Jersey, known more for its cloudy skies and cold winters, increased its production of renewable energy exponentially, becoming the nation’s second leading producer of solar power behind California. Using similar mandates proposed by Governor Crist, New Jersey now attracts new investment and businesses on a daily basis.
Current debate in the Florida Legislature focuses on significantly scaled-back proposals which would allow local municipalities to create so-called “green energy corridors” through a financing mechanism known as Property Assessed Clean Energy (PACE). Under this program, property owners can install solar panels on their roofs and have the cost of the system spread out over several years as an additional item on their annual property tax bill. Other proposals under review would allow (not require) the state’s four major utilities to generate over 700 megawatts of energy from renewable sources over the next three years, without any clear guidelines or requirements dictating whether that energy will ever be developed, nor does it answer how, when, or where it will be built.
While these current proposals are a step in the right direction toward a green and prosperous future for Florida, they fall dramatically short of the foundation needed for a robust renewable energy economy in our state. While other states establish aggressive incentives and the federal government works toward national renewable energy standards, Florida will increasingly lag behind upcoming energy and economic trends. As a result, more companies and the revenue they generate will continue to spurn Florida and turn to those states that are seriously committed to a clean energy future.

Posted by Joe Naroditsky, Vice President of Operations and Market Research for BAM Energy Group, a Miami-based energy management company. www.bamenergygroup.com

The system has overlap with green goals, and encompasses a similar conceptual shift away from the operational separation of traditional tenants in a building (each with their own communications, internet, and other systems) to shared building-wise infrastructure, which can be more efficient in cost and operation, plus provide a unified level of compliance with “green” (e.g., LEED) operational requirements.

Connectivity is treated like a new utility. The single network requires less design, engineering, installation, and operational work, increasing initial and ongoing efficiencies in time and cost, and allowing for much greater flexibility in reconfiguring space within the building. It allows for the control of building-wide systems such as HVAC, security and energy management. The building-wide performance data provides feedback and validation, providing a sensitive gauge of what is working well and what can use a tweak.

Posted by Peyton White Lumpkin, The Lumpkin Law Firm P.A.

A second reported lawsuit, filed in federal court in 1998, arose from the City of Albuquerque, New Mexico’s enactment of a new green building law.  The case, The Air Conditioning, Heating, & Refrigeration Institute v. City of Albuquerque, Civ. No. 08-633 MV/RLP (D.N.M.), involves the novel application of federal preemption doctrine, in which federal law trumps local-level green-building legislation.  The Air Conditioning, Heating and Refrigeration Institute and several distributors sued the City of Albuquerque alleging that the city sets energy efficiency standards for furnaces, water heaters and air conditioners that are more stringent than those allowed under federal law.  The U.S. District Court agreed with the plaintiffs and issued a preliminary injunction temporarily stopping the city from enforcing the law.

There are other potential areas that may give rise to green building litigation, which are not as obvious as the failure to achieve a certain designated LEED standard.  They include:

1.         “Green washing.”  Building owners, landlord representatives and real estate brokers need to be careful on describing a building as “green.”  There is no legal definition of what a green building is and if not carefully limited, this could give rise to a claim of a breach of warranty or fraud.

2.         Failure of a building to achieve expected energy performance and savings, which a purchaser or tenant may assert were either explicitly promised or implied, failure to achieve zoning bonuses or other preferential development approvals, utility rebates, and the like.

3.         Claims by design professionals asserting that they have the experience and expertise necessary to serve on a green design team. In many areas of the country, there have not been enough green projects to justify a large number of experienced professionals.  Specific background and experience should be carefully disclosed.

4.         Fitness of new materials for their intended use as well as issues related to durability and reliability.  There are many new products involved in green building which do not have proven reliability, which could give rise to claims.

5.         Increased burden of ownership and maintenance of a green building.  The design of a LEED building, particularly a gold or platinum, can include many new and complex systems, such as vegetative roofs, new building materials and the like. The responsibility and liability for these type systems needs to be carefully addressed.

The number of green building lawsuits and reported decisions is certain to change as state and local governments continue to enact green building statutes and regulations, the number of LEED projects proliferates, and the means and methods to measure post-occupancy performance are refined.

Posted by Jeffrey S. Wertman of Berger, Singerman and

Terence J. Delahunty, Jr., Esq., LEED AP of Gray Robinson, P.A.

The U.S. Green Building Council and other green building professionals recognize the loophole and expect future LEED rating systems to incorporate a comprehensive recertification procedure.  See Some Buildings Not Living Up to Green Label.  Although the recertification benchmarks are in the works, owners should be prepared to take steps from the inception of the project in order to maximize the recertification opportunity and document compliance with recommended operations and maintenance procedures.  Ultimately, this means hiring a reputable commissioning agent to monitor and document operations and maintenance of the building systems throughout the life of the building.  Therefore, when determining projected profitability and costs for the project, the owner should budget for continuous commissioning.

 Counsel should draft the commissioning agent service contract to require the maintenance of records of compliance with all recommended building operation and maintenance (“O&M”) procedures.  This documentation can be crucial if the project fails to obtain recertification and leads to litigation due to underperformance of building systems.  The owner will want to point the finger at the design professional and/or the contractor for design/construction defects.  A likely defense by the design professional and contractor will be improper O&M.  As a result, documentation of compliance with O&M procedures will be essential to proving the owner’s case.    

 From a practical standpoint, the specific types of documentation necessary to show compliance may not be identified until the design and construction teams have completed their scopes of work.  Therefore, the owner may want to enter into separate agreements: one for the initial commissioning stage of the project and one for ongoing commissioning after the O&M procedures are developed.

 Counsel should also advise the owner of the risks of hiring a commissioning agent that includes a limitation on liability clause in its contract for services.  For example, if the commissioning agent’s damages are limited to its fee, the owner may lose out on a significant pocket for recovery if damages exceed the amount of the fee. 

Submitted by Desiree Noisette, Hill Ward Henderson.