MCBA News By Rick R. Troy, Executive Director
of the Macomb County Bar Association Circuit Court Corner By Keith R. Beasley, 16th Circuit Court
Administrator
Saving the Middle Class from Extinction By Arthur A. Garton, MCBA President
By the time this article is reviewed, the auto task force will have had thirty days at trying to run the domestic autoobile industry. ?This circus is led by the Secretary of the Treasury who doesn’t recognize that he has to pay taxes like everybody else. These clowns, who mostly drive foreign-made automobiles, come to town imposing conditions on an industry they know nothing about and which is the main stay of American manufacturing. These clowns are hell bent on lowering wages and eliminating benefits which will have a devastating effect on everybody in the country. The middle class, created in large part by the automobile industry, is shrinking exponentially and with it our standard of living and way of life. Our leaders have failed to think through their plan and the dire consequences created by that plan. While the middle class is continually and systematically dismantled, the giant sucking sound that Ross Perot warned us of if NAFTA was enacted has turned into a thunder beyond belief.
What I don’t understand is who benefits from this course of action. Manufacturing jobs have disappeared altogether. The remaining auto workers’ wages have been slashed by fifty percent bringing their pay down to approximately $14.00 per hour. Their benefits have been drastically reduced as well. Their pensions are in peril. These people no longer have the financial ability to purchase any luxury items and can barely make ends meet. These people can no longer fuel the economy because they no longer have any money. Those who don’t think that everybody will not be affected should go talk to boat dealers, RV dealers, restaurant owners, waitresses, home and commercial builders, advertising agencies, lawyers, and the soon-to-be-crushed medical and dental professions. Ask them how this plan is working. Anybody who thinks they aren’t standing in line needs to wake up.
No country has ever survived for any length of time with just an upper class and a large lower class. What distinguished the United States from all other countries is the working middle class. As it shrinks, and the lower class expands, the rich will not be immune from the repercussions. The tax burden of supporting the low income households will not be supported by the middle class as their incomes shrink. The burden must fall on the rich, thereby reducing their disposable incomes. The products consumed by the middle class will decline and the net profits of the rich will likewise decline. Eventually it all collapses. Do you hear Nero fiddling?
This happens because voters have blindly and faithfully marched to their own demise and failed to do anything about it. Bi-partisan politics cause people to walk in lockstep because of party ideology and fail to challenge our elected officials who routinely bicker with one another across the aisle, more concerned with criticizing the other side than finding constructive solutions to the dilemmas faced by the American people. This can no longer be tolerated.
“How About This?”
We cut elected and appointed officials’ pay by 25%. We eliminate their health care benefits. We eliminate their pensions. Let them feel the pain and experience the struggle first hand. How about we make our voices known and give these clowns the ultimatum that they perform or they can’t feed at the public trough any longer. How about we hold them to a strict liability standard and refuse to accept “I tried” as an excuse for failure. How about we give them the opportunity to share in the struggle that they preach but do not live? I am pretty sure that if we held them truly accountable and they shared in the sacrifices that we do, they would stop bickering and find solutions instead of compounding the problems. It can’t hurt.
“Failure is not an option” is a line most remembered from the movie Apollo 13. However, I choose to remember a more profound statement. In a scene where the space ship suffers extensive damage and the astronauts’ lives are threatened, the bureaucrat assigned to the project breaks into a cold sweat, tries to hide and ultimately points his finger at everyone other than himself, declaring the mission a failure. The character played by Ed Harris responds “I respectfully disagree, Sir. I feel this will be our finest hour.” The result was that everybody, except the bureaucrat, pulled together, accomplished the task at hand and the astronauts returned home safely. We can do the same.
MCBA News
By Rick R. Troy, Executive Director of the Macomb County Bar Association
Dear Members,
Now, more than ever, is the time to belong to your local bar association. Why? Because we work every day to bring you:
• Education Opportunities • Economic Opportunities • Advocacy for your Profession
The MCBA is YOUR organization. You are a MEMBER and that means that you have many people working to bring you the benefits of membership. Your four staffers, fifteen board members and forty plus volunteers are dedicated to bringing you value and advocating for the profession.
Membership is so much more than getting your dues back. Membership is about being a collective force that is ready and able to assist the profession and you personally. I am just as proud of the every day accomplishments of the MCBA as I am of the successful efforts that the MCBA has put forth on several statewide issues.
“I Am Still Learning” - Michelangelo
Over this past year the MCBA hosted six Continuing Education Seminars including the successful practice management series. The brown bag lunch series connects lawyers with court staff and provides a one on one learning opportunity with judges. The Bench Bar Conference proved once again to be a meaningful exchange of information between the bench and bar. In May and June we have Family Law, Juvenile and a PI CLE featuring Dr. Richard Klein and Dr. Alan Robertson. The point is, if these educational opportunities save you an hour of your time, if they help you become more efficient, if they help you help your client, it was well worth your membership dues. “Time is Money” - Unknown
After fighting traffic and parking to get into the Circuit Court the last thing you want to discover is that you left a file back at the office or, you have a boisterous client that you just want to have a confidential conversation with, or you need copies right away. There is just no time to go back to the office. The MCBA offers members conference rooms, computer service, notary public, fax and copy service. We even have a projector for your PowerPoint presentations. These services are saving members time and money every day.
“A Penny Saved is a Penny Earned” – Benjamin Franklin
The simplest way to double the return on your dues investment is to participate in the cost savings programs that your bar association has in place for you. Enroll in the merchant account program built by lawyers for lawyers and begin accepting credit cards and debit cards. Contact Janelle Benefield at 1800-644-9060 ext 6971. Save money and time on your office supplies through your office supply program. Contact Brittany Martin at 1800-420-6421 ext. 234. Conference calling? Yup, we’ve got that too, contact Susan Siubis at (973) 628-0752 or susan@teamcall.com. Do clients owe you money? Well, it is worth your time to talk to Cindy Siterlet from TekCollect to see how you can collect on those old invoices. I am sure that you will recognize members that are already using this service very successfully. Call Cindy at 1-866-652-6500 ext, 320. Need real or virtual office space in Mt. Clemens? Well, we’ve worked out a deal for you there too. Contact Dave Gagnon at the CEO Center at 586-783-7100. “A Nickel Ain’t Worth a Dime Anymore” – Yogi Berra
Who knew Yogi was a futurist? The MCBA recognizes that in this economy many of you are working twice as hard for half the money. The need for economic opportunity has never been greater. For those members who participate, the Bar Association is a proven economic generator.
The MCBA’s lawyer referral service refers out business worth more than $400,000 each year. That is the actual reported money going into the hands of MCBA members. Could it be more? You betcha’!
The story behind the headlines mirrors the lessons being trumpeted between the pages of legal journals across the nation. Successful lawyers are getting back to the fundamentals of the practice, and that includes the trusted referral. The referral matrix in any legal community is intertwined with the bar association for it is the local bar associations that coordinates the events where lawyers get acquainted and transfer knowledge. The MCBA continues to provide networking opportunities like the Young Lawyer’s Meet the New Judges event, bowling party, and dinner meetings.
“A Little Less Conversation, A Little More Action” - Elvis
Without exaggeration there have been hundreds of conversations over the past few months about the state of indigent representation. And that’s just in Macomb County! There are opinions and solutions being thrown that appear to cover every angle. Ideas are aplenty, words are many, but local action is little. The MCBA leadership has been monitoring and inputting on the statewide issue of indigent defense. There are currently two “actions” moving forward. The Campaign for Justice is “a broad-based group of organizations and individuals from across the political spectrum fighting for a fair and effective public defense system in Michigan”, (michigancampaignforjustice.com). The second action is the lawsuit,
Case No. 07-242-CZ, filed in the County of Ingham which names as defendants the State of Michigan and the Jennifer Granholm, Governor of the State of Michigan in her official capacity. The complaint seeks remedy to 1. The “continuing failure to ensure that “Plaintiffs” receive constitutionally adequate legal counsel, 2. brings to light the Sixth and Fourteenth Amendments requiring states to provide counsel for all those who have been charged with criminal wrongdoing by the state and are unable to afford private counsel and more. (email me at RTroy@macombbar.org for a full copy of the Complaint).
The MCBA’s advocacy for the profession is long and storied and not without its own controversy. The MCBA fought a tax on legal services, resolved to oppose the elimination of a defendant’s right to due process and more.
With all the successes of statewide advocacy we have not yet, as a local legal community, come to grips with the issue of indigent representation. Those of you who practice criminal defense have a diversity of opinions. Perhaps it is time to come together and debate this issue from a local perspective. Any takers? Or do you wish to continue to sit on the sidelines and yell at the officials calling the game?
Circuit Court Corner By Keith R. Beasely, 16th Circuit Court Administrator
Budget Cuts
These are challenging times for all of us. I hope that you and your loved ones are weathering the economic storm. Macomb County is wrestling with budget deficits and a rapidly declining rainy day fund. As of this writing, Macomb County has cut $34 million from total expenditures since 2006. It has asked employees for $10 million in wage and benefit concessions. An $8 million budget gap remains for 2009. The Court does not exist in a vacuum. As a result, it has been facing the reality of declining funding from Macomb County for the last several years. It is true that the Court is a constitutionally separate and independent branch of Michigan government, but it has no ability to fund itself – it must look to Macomb County as its funding unit. This gives rise to a tension as to what level of funding the Court is entitled to when the funding unit is in crises mode. In case law, the Michigan Supreme Court has provided only general guidance on the constitutionally required level of funding. The Supreme Court has absorbed budget cuts itself. As Chief Judge, Judge Caretti is vested with the responsibility to work with Macomb County on budgetary issues and determine the Court’s response to calls for reductions. Macomb County has asked the Court to reduce its expenses several times over the last year as things have gotten worse. Judge Caretti has worked with management to meet this challenge. I commend him for doing so with the least disruption and pain possible. One step has been to reduce juror fees by not calling as many new jurors in each week. This also reduces the impact on citizens who have to take time from the jobs or lives to appear for jury service. By adjusting when juries are selected, it does not impair Court operations. We have cut other line item expenses that do not impair our mission. Thankfully, the Court has not had to lay-off any employees yet. Staff cost reductions have been accomplished by attrition following voluntary separation or retirement. However, this leaves the rest of the employees to ‘do more with less.’ We are doing our best not to reduce public service as a result, but that will become more and more difficult. Recently, Macomb County has asked all of its employees, as well as the employees of the County funded courts, to accept reductions in their benefits and take six days off without pay in 2009. While this is still being negotiated with some of the union units, it is being implemented for most of us.
Temporary Admission to the Bar
You should be aware that the rules for temporary admission to the State Bar or ‘pro haec vice’ changed as of September 1, 2008. See MCR 8.126. There is now a formal motion process for temporary admission. Recently, an interesting quirk in the need for out of state attorneys to do this came to my attention. It is not unusual for an attorney from another state to need to enforce discovery in Michigan, often to compel compliance with a subpoena arising in a case in another state. They do so by filing a petition under MCR 2.305(E). At first glance, I thought an out of state attorney would have to obtain temporary permission to file such a petition. However, in an unpublished opinion (Sieb v Volkswagenwerk Aktiengesellschaft, April 17, 2003), the Court of Appeals affirmed a sanction against a Michigan attorney who challenged a Florida attorney’s use the court rule on the ground the challenge was frivolous! The panel felt the court rule allowed the Florida attorney to petition the court for the subpoena regardless of whether he was licensed to practice law in Michigan. The panel did feel a $22,000 sanction was too much and remanded it for a new assessment. I highly doubt that the drafters of the rule court were thinking they were granting an exception to unauthorized practice of law when they wrote ‘…may petition a court of record…’ Surely the grant of permission to petition a court on another’s behalf in many other court rule or statutory contexts isn’t dispensing with the need to be licensed to practice law!
Temporary Relief from the Tax Consequences of Foreclosures, Shortsales & Home Loan Modifications By Joseph R. Owens, O'Reilly Rancilio PC
In January of 2009, the National Association of Realtors estimated that foreclosures and short sales accounted for approximately 45% of total existing home sales nationwide.i In southeast Michigan, most would agree that such transactions have accounted for a large portion, if not a majority, of existing home sales for quite some time. All indications are that this trend will likely continue into the foreseeable future.
As if the anxiety of losing one’s home is not enough, prior to 2007, many homeowners found themselves facing significant federal income tax liabilities as a result of the foreclosure or short sale of their home. As a general rule, whenever a lender cancels or forgives a person’s debt, the amount cancelled or forgiven is regarded as taxable income to that person under the Internal Revenue Code (the “Code”).ii As the following examples illustrate, such a forgiveness of indebtedness necessarily occurs within the context of short sale transactions, and frequently occurs within the context of foreclosure.
Suppose a homeowner owes $300,000 on his or her mortgage and that, at the time of foreclosure, the value of the property has fallen to $200,000. Consequently, the bank bids in only $200,000 at the foreclosure sale or, in the alternative, accepts a deed-in-lieu of foreclosure from the homeowner. If the bank forgives the $100,000 shortfall, then the homeowner, as the law existed in 2007, would be liable for income tax on the $100,000 debt forgiveness from the bank. Depending on the taxpayer, foreclosure in this instance could result in an income tax liability in the tens of thousands of dollars.
The same rationale applies within the context of short sales (and even loan modifications) in which a forgiveness of indebtedness by the lender is a necessity. In the case of short sales, take the same homeowner who owed $300,000 on his or her mortgage at the time of a lender-approved short sale in the amount of $200,000. In this instance, the taxpayer, again as the law existed in 2007, would be liable for income tax on the $100,000 debt forgiveness from the bank.
Prior to 2007, a taxpayer could avoid this potential liability in one of two fairly common ways: by filing for bankruptcy or by claiming insolvency. As it relates to bankruptcy, the Code allows taxpayers to exclude from income, any debts cancelled within the context of bankruptcy.iii In the case of insolvency, the Code similarly allows taxpayers to exclude from income, any debts forgiven if, immediately before the forgiveness, the taxpayer was insolvent (that is – the total of the taxpayer’s liabilities exceeded the fair market value of his or her assets).iv
Faced with the growing wave of foreclosures, the United States Congress added an important, albeit temporary, exclusion in 2007 in the form of The Mortgage Forgiveness Debt Relief Act (the “Act”).v Originally set to expire in December 2009, the Act generally allows taxpayers to exclude the forgiveness of “qualified principal residence indebtedness” from their income. The Act essentially allows taxpayers, similar to those discussed in the examples above, to face foreclosure, short sales, deed-in-lieu transactions, and loan modifications without the additional concern of negative tax consequences.
In order to qualify for this exclusion, the indebtedness forgiven must be so-called “qualified principal residence indebtedness.” In practical terms, this means indebtedness incurred in the acquisition, construction, or substantial improvement of the taxpayer’s principal residence (or debts acquired to refinance such qualified indebtedness).vi For its part, a taxpayer’s principal residence is generally the home where the taxpayer ordinarily lives most of the time.vii To the extent that the forgiven indebtedness qualifies, a taxpayer may exclude up to $2,000,000 of that amount from his or her income.
In its current form, there are a number of home loans which do not qualify for exclusion under the Act. Most notably are Home Equity Lines often taken out by taxpayers for purposes other than the substantial improvement of their principal residences. Whether obtained for the purposes of education, recreation, or to cover the start-up costs of a new business, such indebtedness, if forgiven, must be included within the individuals taxpayer’s income (unless, of course, the taxpayer is bankrupt or insolvent as noted above). Accordingly, as with many statutes, one must be mindful of the various nuances imbedded within the Act when considering the tax consequences of a given transaction.
Of additional and particular importance is the fact that the Act is little more than a temporary amendment to the Code. As originally enacted, the exclusion was due to expire in December of 2009. However, pursuant to the Emergency Economic Stabilization Act of 2008, the availability of the exclusion has been extended through December of 2012.viii By that time, most of us hope that this particular exclusion has long outlasted its welcome (and necessity) –reverting us back to pre-2007 tax planning strategies as it relates to these particular transactions.
Joseph R. Owens is an Associate with O’Reilly Rancilio P.C. As a member of the firm’s transactional and litigation practice groups, he concentrates his practice in the areas of real estate finance, commercial transactions and related litigation.
i Jeff Bater, Existing-Home Sales Rebound, but Prices Plunge, Wall Street Journal (March 23, 2009).
ii 26 USCA § 61(a)(12).
iii 26 USCA § 108(a)(1)(A).
iv 26 USCA § 108(a)(1)(B).
v Pub. L. No. 110-142, 121 Stat. 1803 (2007)
vi 26 USCA § 163(h)(3)(B).
vii 26 USCA § 121; 26 CFR § 1.121-1(b).
viii Pub. L. No. 110-343, 122 Stat. 3675 (2008).
Green Building for Attorneys
By Clark Andrews, O'Reilly Rancilio PC
"Green Building." You may have heard, seen or read soemthing about it in a radio interview, Tv news clip or magazine article. “Green” is “in” these days, especially in the building industry due to governmental requirements and incentives. This article will explore what “green building” means, what benefits are derived from it, why attorneys should care about it, and what attorneys need to know about it in order to properly advise their clients.
“Green building” is described by the U.S. Environmental Protection Agency as “the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle, from siting to design, construction, operation, maintenance, renovation and deconstruction.” It is sometimes referred to as “sustainable” or “high-performance” building. Green building is designed to reduce the impact of construction upon people and the natural environment by encouraging the efficient use of energy, water, and other resources; protecting the health of building occupants; increasing employee productivity; and reducing waste, pollution, and environmental degradation. This type of building can result in substantial economic and social benefits, as well as the more obvious environmental ones. Green buildings significantly reduce building operating costs, improve occupant productivity, and provide better occupant comfort and health, resulting in enhancement of overall quality of life.
So what determines whether a building is green? Several organizations have developed detailed criteria and rating systems to objectively assess whether a building should be considered a “green building.” The most widely accepted standard in the United States today is the “LEED Green Building Rating System,”™ which was introduced in 1995 by the U.S. Green Building Council (USGBC) with support and funding from the U.S. Department of Energy. LEED stands for Leadership in Energy and Environmental Design and will be subsequently referred to in this article as the “LEED System.” The LEED System is a third-party certification program developed by the USGBC that establishes benchmarks for the design, construction and operation of high-performance green buildings. USGBC has four certification levels for each rating system. From the lowest to highest rating, they are Certified, Silver, Gold, and Platinum. In order to attain a LEED certification at a particular level, the USGBC must verify that a project has been designed to obtain the minimum number of points necessary to reach the desired certification level. The LEED rating system and verification process are described in greater detail later in this article. Because the LEED System is the most widely accepted system in use in the United States, it will be used to explain green building and its benefits, and the role attorneys play in the green building process.
The benefits of green building are numerous. Operational savings are typically significant. What building owner would not be interested in reducing monthly energy bills by an average of 30% or water usage by an average of 30-50%? There are also substantial environmental benefits. Greenhouse emissions (“carbon savings”) are lowered by an average of 35%. And waste costs are reduced by 50-97% as a result of recycling construction materials and using recycled products.
Green building also yields indirect financial and other benefits because it creates an improved indoor work environment. Better indoor air quality leads to documented reductions in absenteeism and health care expenses. Green building also enhances recruitment and improves employee morale, all of which contribute to improved productivity and a better bottom line. If a green building is to be leased, it typically commands a higher per-square-foot leasing rate because of lower operational costs and improved work environment. For the same reasons, when the owner of a green building decides to sell it, the building is more marketable and commands a higher sales price.
Green schools have improved test performance, hospitals benefit from earlier discharges, retail stores record higher sales per square foot, factories boost production, and offices increase productivity. So why would an owner or developer not choose to build a green building? Most often, the owner or developer fears higher construction costs. A recent study, however, found that the increased costs are relatively modest. It costs only 0.66% more to construct a LEED “Certified” building, 1.9% more for a “Silver” building, 2.2% more for a “Gold” building, and only 6.8% more for a “Platinum” building. Furthermore, a California study showed that green improvements pay for themselves within three years.
There are other reasons that building green makes sense. In this current economic environment, green building projects can help jump-start the economy. The recently passed American Recovery and Reinvestment Act of 2009 includes $9 billion for school modernization, renovation, and repair consistent with a recognized green building rating system like LEED. Another $5.55 billion is allocated for federal buildings, of which $4.5 billion is to be used to make government buildings “high-performance green buildings.” An additional $3.2 billion is to be used by states and local governments for energy efficiency and conservation programs and projects. The Act also provides a tax credit to homeowners equal to 10% of the cost of certain energy-efficient improvements to existing homes. And finally, the Act provides that $500 million of the funds allocated for training and employment services must be used for research, labor exchange, and job training projects that prepare workers for careers in energy-efficiency and renewable-energy industries.
The federal, state, and local governments are promoting green development in a variety of other ways. The federal government has mandated green building in some federal construction projects and encouraged it in school construction and renovation. Congress has authorized tax deductions for owners who install energy-efficient lighting, heating and ventilation systems in energy-efficient buildings and created tax credits for builders who construct energy-efficient homes meeting specified criteria. The Michigan Legislature has under consideration HB 4575, which allows local municipalities to adopt green building ordinances. (At present, all Michigan municipalities are governed by the uniform Michigan Building Code, which does not meet green standards.) The City of Ann Arbor is considering amending its zoning ordinance to give density bonuses to LEED-certified buildings. The City of Sterling Heights recently amended its Industrial Facilities Exemption Certificate Guidelines (tax abatement guidelines) to award up to three additional years of tax abatement for LEED-certified buildings, depending on the level of certification. Some communities waive or reduce permit fees for green building projects, or offer expedited review or inspection procedures for them. These are all good reasons for green building.
So how does the LEED System work to assess projects? The USGBC currently uses the following six rating systems to assess the different types of projects:
New Construction. New construction and major renovation of office buildings and institutional buildings
Existing Buildings: Operations & Maintenance. Whole-building cleaning and maintenance issues, (including chemical use), recycling programs, exterior maintenance programs, and systems upgrades
Commercial Interiors. Tenant improvements in governmental, office, retail, restaurant, health care, hotel/resort, and education tenant spaces
Core & Shell. Base building elements (structure, envelope, and building-level systems, such as central HVAC)
Schools. New construction and major renovation of K-12 facilities
Homes. Single-family and low-rise multi-family residential dwellings.
Four additional rating systems are under development by the USGBC for evaluating other types of projects:
Health care. Inpatient care facilities, licensed outpatient care facilities, licensed long-term care facilities, medical offices, assisted-living facilities and medical education & research centers)
Retail. Both new construction and existing
Residential High Rise. Four- to six-story high-rise residential buildings
Neighborhood Development. Neighborhood design and development.
Most of the ratings systems apply only to a particular type of construction project, but in some instances, a building may receive certification under more than one LEED rating system.
Each LEED rating system contains specific criteria to evaluate the design and construction for that particular type of building or project. Points are awarded for satisfying each applicable LEED requirement, with a predetermined maximum number of points available for each requirement. In order to achieve LEED certification, a building must be designed and constructed (and in some instances maintained) so that it receives a sufficient number of points in the desired LEED category.
For example, under the “New Construction” rating category, there are six aspects of efficiency and design that are evaluated: (1) sustainable sites, (2) water efficiency, (3) energy & atmosphere, (4) material & resources, (5) indoor environmental quality, and (6) innovation & design process. The maximum number of attainable points in all of these categories is 69. A project evaluated under the New Construction rating system must attain 26-32 points to achieve the “Certification” level certification, 33-38 points for the “Silver” level certification, 39-51 points for the “Gold” level certification, and 52-69 points for the “Platinum” level certification.
Each of these six areas focuses on a different aspect of the construction project. The sustainable sites component deals primarily with the effects that the construction process and the completed building have on the environment. In this part of the rating, additional points are awarded for redeveloping Brownfield sites and sites in economically disadvantages areas, and for reducing adverse environmental effects such as parking lot heat accumulation, storm runoff, light pollution, etc. The water efficiency component encourages innovative use and conservation of water resources through the effective use of water technology and by minimizing outdoor water usage. The energy and atmosphere component is concerned primarily with energy conservation aspects of the design and construction process. The goal is to use efficient mechanical and electrical systems to conserve energy without sacrificing the comfort of the building occupants. The materials and resources component considers the extent to which reused, recycled and/or local materials are incorporated. It also considers measures taken to reduce the harmful effects of the materials used in the construction process (such as minimizing waste). The indoor environmental quality component concentrates on the comfort and health of workers, visitors, and ultimate occupants by ensuring sufficient light, a comfortable temperature working environment, and a high level of indoor air quality. Finally, the innovation and design process component of the rating system awards additional points for innovative design and outstanding performance. A maximum number of points can be earned in any individual category: 14 for sustainable sites, 5 for water efficiency, 17 for energy atmosphere, 13 for materials & resources, 15 for indoor environmental quality, and 5 for innovation and design.
An owner or developer must plan to seek LEED certification from the inception of the project. First, the project must be registered with the USGBC and project registration fees paid. The initial registration fee is $450 for USGBC members and $600 for non-members. A separate registration fee must be paid for each rating system under which a project will be assessed. In addition, there are certification fees for both design review and construction review. These must be paid to the USGBC as the project progresses to document and monitor compliance with the LEED requirements. These fees vary depending on the size of the project and whether the applicant is a USGBC member, but the combined design review and construction review fee for a member applicant requesting certification for a project under 50,000 square feet is only $1,750.
Once the design has been completed and the project has been determined to be LEED eligible, it is equally important that the construction process be supervised and managed to ensure that the LEED processes are followed. Successful LEED projects require not only “sustainable” and “high-performance” building designs but also environmentally friendly construction work performed by knowledgeable contractors. Documentation must be submitted throughout the construction process to verify that the project was actually constructed in conformance with the LEED-approved design.
The likelihood that the owner or developer will be awarded sufficient points to earn LEED certification is substantially improved if the owner or LEED applicant assembles and utilizes an integrated team of professionals and contractors, all of which are well versed in green building design and construction. Depending on the scope of the project, this team may include architects, engineers, construction managers, consultants, contractors, attorneys, lenders, insurance agents, risk managers, and maintenance and operation personnel. It is advantageous to develop this team at the earliest possible stage in the process. In fact, preferably, this should be done even before the site is selected, since numerous points are awardable based upon that choice alone. Furthermore, many points are more easily achieved if issues are identified early, avoiding costly mistakes and change orders.
The importance of utilizing professionals, consultants, contractors and companies that are familiar with the requirements of the LEED System cannot be overstated. Having a LEED-accredited consultant or construction manager serving as the point person for construction not only saves a lot of time; it can help avoid costly construction errors. A crucial mistake by an unsuspectingparticipant can have drastic consequences. Commitments for construction financing or governmental incentives can be withheld or revoked, a critical anchor governmental tenant lost, or devastating default penalties imposed — all because of something as innocuous as an uninformed laborer inadvertently discarding construction waste rather than recycling it, or a roofer hammering nails into roofing materials instead of following the manufacturer’s installation specifications.
The attorney’s role in a LEED project is very important because of the need to (i) develop integrated contract documentation for green building projects that effectively deal with the unique risks associated with such projects, (ii) understand the different requirements associated with green building projects (including the tax and other governmental incentives and regulatory requirements), (iii) understand the financing, insurance, and risk allocation aspects of a green building project in order to help protect the client against the unique risks associated with such a project, including insurance, performance guarantees, warranties, and indemnification, and (iv) assist the client in dispute resolution if the need arises during the course of a green building project.
Generally, there are higher expectations of the parties in a green building project. The owner has expectations that a green building project will be certified, thereby qualifying for governmental incentives; that a leased building will be easier to lease because of its LEED certification; or that the building operational costs will be reduced. These expectations may be shattered if the standard construction documents are not adapted to fit the green building project, the contractor does not comprehend the importance of documenting compliance with the LEED requirements or of completing the project within the time constraints of the governmental tenant requiring a LEED certified building, or the tenants do not understand and implement maintenance and operational standards that will allow the building to retain its LEED certification.
It is absolutely imperative that the contract documents take into account the additional requirements of a green building project. There must be a clear allocation of the additional responsibilities of a green project among those involved in the construction process in order to avoid misunderstandings. Appropriate insurance, performance guarantees, security and warranties and retainage must be required to ensure that post-certificate of occupancy obligations are completed.
This will in many instances require a line-by-line review and modification of the construction documentation. Many standard clauses may need modification, including change order, substitution, retainage, representation and warranty, bonding, insurance, damage, and force majeure provisions. Others involving costs, timing, coordination, performance and duties, defaults, holdbacks, and liquidated damage clauses will definitely have to be modified for a green building project. Additional clauses will have to be added in a LEED project where the building tenant is a governmental tenant that by law is permitted to take occupancy of a new building only if it meets green building requirements with occupancy by a particular date. These different expectations and risks must be taken into account and dealt with in the contract documentation. Standard construction contracts do not effectively accomplish this.
Others besides the owner should have an attorney involved to protect their interests in a green building project. Many standard architect contracts allocate risk in a manner consistent with well-established interpretations and case law that do not fit the green building construction model. Therefore, an attorney representing an architect should similarly scrutinize contract documents and make appropriate modifications. It is critical to understand the unique responsibilities associated with a green project and to clearly and properly allocate responsibility among the project participants. Architects and their attorneys must realize that there are different risks for an architect in a green building project, and most of those can be dealt with through the use of good contract documents. It is also important that insurance cover as many risks as possible. Unfortunately, many policies are not written with the green project in mind.
An attorney representing a contractor must also be mindful of the different contractual issues that come up in the context of a green building project. Responsibilities among the different construction process participants must be clearly identified and allocated. Contractors should be wary of overstating their qualifications or ability to perform. The consequences of failing to properly account for the differences associated with green projects, including the learning curve associated with new products and processes, the likely delays, and the inability to make quick substitutions can be potentially financially devastating. However, in many instances, such consequences are preventable if proper contract documentation is used.
Legal counsel for landlords and tenants involved in LEED buildings must also take into account the nuances of the green building in their leases. Boilerplate lease clauses often have many unintended consequences when applied to green buildings. Tenants must understand that once the building is completed and occupied, they must perform their maintenance obligations and use the building so that the building can maintain its LEED certification.
The green building movement is here to stay, and attorneys who acquire the skills necessary to properly represent their clients in this growth area will have new economic opportunities while providing valuable service to their clients.
1. CJI2d 1.1.
2. Certain of the historical references in this article were drawn from Randall T. Shepard, State Court Reform of the American Jury, 117 YALE L.J. POCKET PART 166 (2008), http://thepocketpart.org/2008/03/18/shepard.html
3. See US Const. Art. III,Sec 2; Am VI & VII: Mich Const 1963, Art I, Sec. 14.
4. Shepard, 117 Yale L.J. POCKET PART at 167 (citations omitted).
5. A comprehensive guide to jury trial reforms that have been proposed and implemented by other state and federal courts is published by the National Center for State Courts. See Munsterman, Hannaford-Agor & Whitehead, Jury Trial Innovations (2nd Ed. 2006). This publication discusses the purpose, applicability, advantages and disadvantages of an entire laundry list of jury reforms, including those proposed in Michigan
6. See Michigan Supreme Court Administrative Order No. 2008-2 (August 5, 2008).
7. A/O 2008-2 at 1.
8. Justice Kelly opposed the implementation of the pilot project and expressed particular concern with MCR 2.513(G), 2.513(K) and 2.513(M). See A/0 2008-2 at 16.
9. The proposed amendments may be viewed in their entirety at http://courts.michigan.gov/supremecourt/Resources/Administrative/2005-19-08-05-08.pdf.
10. Proposed Rule 2.513(D).
11. Proposed Rule 2.513(E).
12. Proposed Rule 2.513(F).
13. Proposed Rule 2.513(G).
14. Proposed Rule 2.513(H).
15. See CJI2d 2.17.
16. Proposed Rule 2.513(I).
17. See CJI2d 2.9.
18. Proposed Rule 2.513(K).
19. Proposed Rule 2.513(M).
20. Proposed Rule 2.513(N)(2).
