Green home building is a fast-developing segment of the industry, and has garnered enthusiastic support among consumers in the past few years. Unfortunately, the consumer perception of what “green” means frequently differs from what builders think it means. Also unfortunately, builders can be careless in marketing their green-built homes, using vague, undefined terms and phrases.
In the seminar “Green Building Legal and Liability Issues” at the International Builders Show Feb. 13, Jeffrey Masters, litigation partner with Cox, Castle & Nicholson, and David Crump, Jr., director of legal research for the National Association of Home Builders, discussed the potential legal issues and pitfalls of the emerging field of green home building. Don’t dampen your or your clients’ enthusiasm for green building, but don’t let it carry you away and lead you to make costly mistakes, they advised.
The market for green homes is still young, and mistakes will be made as it continues to mature and grow, Masters and Crump pointed out. Unexpected problems will arise, and some of them will be the direct result of vague marketing and unmet expectations. Builders getting involved in green building must plan ahead to minimize risk and protect your business.
One of the major issues in the green building industry is the fact that commonly-used terms and catch-phrases are largely undefined, vague, and are sometimes used interchangeably. This generates confusion for everyone involved (customer and builder), and as a result, your customers’ expectations of the green homes you build could be wildly different from reality. And you could be held liable.
The most important tip Masters and Crump handed out at the seminar was: don’t throw around words like “green” or “sustainable” without knowing what they mean and defining them for your customers. Hire an attorney familiar with the building industry to review all marketing materials to ensure you’re not making vague claims that could get you in trouble later on. The more subjective and undefined your marketing materials, the greater your potential for liability. Only make claims of home performance that are measurable and that you can back up with third-party testing or verification.
You must manage your customers’ expectations by clearly stating your definintion of a green home and what they can expect from the green homes you build; by providing third-party-verified performance data; and by eschewing any claims of health benefits, which are subjective and not measureable.
Masters and Crump identified breach of contract as the most probable concern of green builders in the future. Contracts can be broken in many ways, but for green homes failure to achieve certification, cost overruns, change orders, and delays are most likely to be the cause. Builders must plan for these possibilities and ensure contracts outline their liability.
Green home building tends to attract a self-selecting demographic, according to the presenters. These people tend to either be very concerned about their personal environmental impact or to be those with health issues who believe that a green home will help alleviate or mitigate the effects of their health conditions. These customers will be more concerned about the actual performance of your green homes than regular buyers for whom “green” is just an added feature. And if their home does not perform to their expectations, they are likely to take legal action.
Some mistakes to beware of committing in your marketing of green homes include overstatement of benefits or performance; misrepresentation, non-disclosure, or outright fraud (intentional or unintentional); and making vague, misleading claims or subjective, unverified statements.
The presenters noted that the Federal Trade Commission, which regulates marketing claims in all industries, will be revisiting and updating its “Guides for the Use of Environmental Marketing Claims” (or green guides) in Fall 2008, and will be expanding them to include guidelines for green building marketing, sustainability claims, and carbon offset claims.
Warranties are another area of concern for green builders, as performance is a major aspect of a green home. Masters and Crump strongly advise against attempting to warrant functionality or performance; only warrant workmanship, materials, and compliance with building codes. Remember that any performance claims in marketing material could be construed as part of the warranty by courts.
Builders can take several proactive measures to ensure you are protected when things go wrong, starting with a well-drafted contract that includes costs, considers change orders and delays, and includes an escalation clause. Next, builders must specify which green building program or standard the home will be built to meet, define terms, and identify allowable materials substitutes. The contract also should include escape provisions for failure to obtain certification, which can include suspension of work and termination of contract.
