GOING GREEN THE SMART WAY – AVOIDING LIABILITY IN GREEN-LABELLING
Greater demand from consumers and regulators in British Columbia for environmentally sustainable or “green” building practices suggests potential benefits for “green-contractors”. A common strategy is to adopt a labelling system that advertises compliance with defined environmental standards. Common examples of green-labels used in B.C.’s construction industry include the Energy Star label and the Built Green seals.
Green Labelling – How it works
Green-labels are frequently used to signify compliance with performance criteria established in various environmental rating systems. Rating systems use standardized measurements, checklists and criteria to evaluate a product’s performance with defined sustainability goals, such as energy efficiency or water conservation. If a product meets the criteria contained in the rating system, it can be marked with a corresponding label signifying this fact to potential consumers.
Exposure to Liability in Green-Labelling
There are a number of potential benefits for a business to adopt a green-labelling system. For instance, a label signifying that a home is energy efficient or environmentally sustainable may increase its marketability to a consumer base that is highly motivated by environmental issues. The fact that, in many cases, energy efficiency translates into lower utility costs may be an additional selling point.
These benefits notwithstanding, choosing to participate in a green-labelling system can also expose a business to increased liability. As such, it is a business decision that should be made with due consideration of the potential risks, and only after careful investigation as to the credibility of the particular label or rating program being considered.
A significant source of liability that arises in relation to green-labelling programs is that the potential benefits of a home associated with that label can be overstated. Think Volkswagen but for the construction industry. For instance, a contractor that overstates the potential cost-savings associated with purchasing a green-certified home could be sued for negligent misrepresentation. Similarly, a contractor who fails to build a home that fully performs with the sustainability requirements associated with a particular label could face a potential claim that the home purchased by the consumer is materially different from the product bargained for.
Tips for Minimizing Your Exposure:
The best way to minimize your liability when participating in a green-labelling program is to ensure that proper due diligence is undertaken before a label is chosen. When selecting amongst competing brands, look for labels that measure performance according to credible scientific methods. Also, consider whether the body administering the label employs independent evaluators, as this will help to minimize the potential for conflicts of interest.
An additional step that can be taken to minimize exposure after a label is selected is to make sure that risk is properly allocated in your building contracts. As a means to avoid lawsuits stemming from oral representations, it is prudent when contracting with a homeowner to include a clause stating that the only representations or warranties made in relation to the building are those explicitly contained in the written contract. You can also minimize your exposure to potential litigation costs by including a clause mandating that any claims stemming from the use of the label be resolved through mediation or binding arbitration, as opposed to using the more expensive court process.
This article was written by Ian Moes and Jay Spiro, lawyers who practice construction law with Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604-682-8868.
