What is "LEEDigation"? According to Chris Cheatham, who coined the term, LEEDigation refers to legal disputes arising from green-building certification.
Leadership in Energy and Environmental Design (LEED) is a certification system developed by the U.S. Green Building Council in 2000 for constructing buildings with a smaller environmental footprint.
What green-building trends mean for you, as a real estate professional: another level of disclosure requirements that can expose you to increased risk and litigation.
The real estate industry is "greening" rapidly, and there are even energy-efficient mortgage programs to aid buyers in financing the purchase of an energy-efficient home. There are
There are also tax credits available for energy-efficient upgrades to homes, and many owners are electing to conduct home energy audits to determine which upgrades can produce the best results.
Some upgrades can be costly — a geothermal heating and cooling system can cost about $25,000, for example, though that cost can be offset with rebates and tax credits. A top-of-the line traditional heating and air conditioning system with two or more zones, meanwhile, can cost more than $10,000. With the rebates and the cost advantages over time, the green system may prove to be the lower-cost option.
Furthermore, some multiple listing services allow members to specify whether homes have green features. The Santa Barbara Multiple Listing Service, as an example, allows agents to note whether listings are equipped with any of the following: "Greywater system, permeable driveway, drought-tolerant landscaping, energy-efficient appliances, low-flow fixtures, tankless hot water heater, natural fiber carpet, solar panels, upgraded insulation," and whether the property was "built green certified."
When the agent has to make these types of disclosures as part of the listing process, any inaccurate disclosures could result in "LEEDigation."
Of even greater concern: some people are engaging in what is known as "green washing" where they falsely claim a property has LEED certification or other green features.
Many buyers today are willing to pay a premium price for properties or communities that are LEED-certified. The challenge is whether the property was legitimately certified and whether the features that resulted in that certification are still functional.
I recently spoke with Michele Skupic of Fidelity National Financial (FNF) Sustainable Strategies about what is happening in the area of LEED certification as well as the ramifications for the real estate industry. According to Skupic, there is a big gap in LEED diligence. In other words, buyers and sellers may believe that they have a LEED-certified property, but no one is really "minding the gap."
FNF has developed a product for "LEED certification due diligence." The product is currently available for commercial properties. The price is $1,500 and the report is backed by an errors and omissions insurance policy.
While the number of LEED-certified properties is still relatively small (about 10,000, according to Skupic), the ramifications of having this type of report available and ultimately being integrated into state or even federal disclosure requirements can have far-reaching implications for agents.
For example, a buyer may purchase a property with a tankless water heater and after closing decides that the hot water isn’t hot enough. The buyer replaces the tankless system with a standard natural gas hot water heater.
Is this change sufficient to cause the loss of a certification? In fact, how would the agent even know if the seller fails to disclose this issue? The seller tells the agent the property is LEED-certified and the records confirm the fact.
The seriousness of this issue comes into play when you consider the rebates and the tax credits. Improper documentation at the time of sale (i.e., stating the property meets certain energy-related requirements making it eligible for LEED certification or other green rebates) can leave everyone involved at risk for LEEDigation. As Skupic puts it, the lenders and the Internal Revenue Service are watching.
As a result, Skupic believes that having an energy audit at the time someone sells their home will become commonplace. She also believes that lenders making loans tied to green improvements will require an additional endorsement for the title policy.
To protect yourself from LEEDigation, always thoroughly investigate the properties you list. If the sellers claim that the property has green features, ask for documentation.
When you sell a property with green features, have your buyers’ inspections include an assessment of the green features and perhaps even an energy audit. That’s the best way to avoid being caught in LEEDigation.