Contract Drafting Tip: “LEED” Damages And The Waiver Of Consequential Damages Clause – Actual Property and Building

0
86

United States:

Tip for drafting contracts: “LEED” compensation and the waiver of consequential damage

July 21, 2021

Seyfarth Shaw LLP

To print this article, all you need to do is register or log in to Mondaq.com.

Possible damage

Potential damage that arises from failure to meet legal or contractual requirements in relation to Leadership in Energy and Environmental Design (LEED) or other green building standards is far-reaching and can include: fines, loss of funding or tax incentives, tenant loss, depreciation of the building, decreased employee productivity and increased operating costs.

Direct vs. consequential damage

Damage is often characterized as direct or consequential damage. In general, direct damage is foreseeable and naturally and usually follows the breach, while consequential damage is unforeseeable for the infringer and results from special circumstances. For example, if you had a car accident, the damage to your car and the medical costs of treating whiplash would be direct damage. If you were on your way to an interview and lost your job because you missed the interview due to an accident, the loss of wages would likely be a consequential loss. A fine for not meeting a legal LEED requirement, such as B. a silver certification, is probably a direct damage in our context. Consequential damage can, however, be the loss of income from tenants who withdraw from rental contracts because the building is not LEED-certified.

Why characterizing the damage is important

Contracts often contain a mutual waiver of consequential damage settlement. For example, AIA® Document A201 “- 2017, which contains general conditions for certain AEI construction contracts, says in Section 15.1.7:

§15.1.7 Waiver of claims for consequential damage

The contractor and the owner waive each other’s claims for consequential damage from or in connection with this contract. This mutual renunciation includes

.1 Damage suffered by the owner for rental costs, loss of use, income, profit, financial, business and reputational losses, as well as loss of productivity of management or the employees or services of these persons; and

.2 Damage incurred by the contractor for expenses incurred by the main office, including compensation for staff stationed there, for loss of financial resources, business and reputation, and for lost profit, with the exception of expected profit arising directly from the work.

This mutual waiver applies without limitation to any consequential damage resulting from termination by either party under Article 14. Nothing in this Section 15.1.7 is intended to exclude the determination of liquidated damages, if any, in accordance with the requirements of the contractual documents.

To the extent that “LEED” damage constitutes consequential damage, that language is likely to waive the right to reclaim that damage.

Contractual options

How you view the consequential loss waiver depends on who you are. Contractors benefit from the waiver and will not want to change it with respect to LEED damage. On the other hand, developers and owners are those who may not be able to replace certain LEED damage due to the disclaimer, so they may want to change it. The most beneficial change for the developer and owner could be to state that LEED damage is excluded from the scope of the disclaimer. However, the increased risk imposed on the contractor may lead to a higher fee. A middle ground is to exclude LEED damage from the scope of the waiver, but limit the contractor’s liability for such damage. A more subtle approach a developer or owner might consider is to identify the different types of LEED damage in a section of the contract and indicate that they are predictable. This would later be used to argue that these damages are not consequential because it has been agreed that they are foreseeable and therefore do not fall within the scope of the consequential waiver clause.

Final thoughts

Damage is only relevant if there is liability. Achieving a required level of LEED certification or other green building standard usually involves the duties and responsibilities of multiple parties, such as owners, planners and contractors. Therefore, it is usually not appropriate to state in a contract that the contractor will be liable if the project does not meet the established green standard, any more than it would be appropriate to state in advance that the contractor will be liable if the project is about to comes late because there could be an excusable delay. A better approach is to identify the parties’ respective responsibilities for achieving a green building standard and to provide that they are only liable to the extent that the standard is not achieved due to their failure to meet their obligations.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

POPULAR ARTICLES ON: United States Real Estate and Construction