Green Building Contracts: Considering the Roles of Consequential Damages & Limitation of Liability Provisions

Darren Prum, Regis University
Stephen Del Percio, Pace University

Abstract

The green building market continues to grow, but so do the corresponding legal risks which are only now being explored by scholars and practitioners. Lurking in the shadows behind any green building risk management strategy is how consequential damages - damages which may flow from a party's breach of a design, construction, or consulting contract - should be allocated among project stakeholders. This allocation is particularly critical on green building projects, whose unique and novel nature can create an increased potential for consequential damages. For example, green building tax credits, premium rents, and even energy savings might fall within the definition of consequential damages, creating disproportionately large liability for parties that fail to protect themselves by contract.

However, guidance from the courts on exactly what might constitute green building-related consequential damages is likely years away. Only one lawsuit to date provides any relevant insight, but its applicability is broad, particularly given the pace of green building regulatory activity that continues to take place at the state and local levels. After tracing the history of consequential damages and reviewing their potential sources on green building projects, this Article reviews how major industry organizations have treated the topic in form green building contract exhibits, and suggests general risk management strategies for different green building project stakeholders who allocate the risk of consequential damages in their contracts.