Not Every Lease Is a Green Lease!

This week’s Little Rock Downtown Partnership Weekly Update contained the following item:

“The K-Lofts at 315 Main are coming along and Scott Reed expects to turn the space downstairs over to Porter’s Jazz Café in March 2011. He has a waiting list of 24 for the apartments above!”

If all goes as planned, the building at 315 Main in downtown Little Rock will be a combination of historical preservation, LEED-certification, and commercial and residential use.

In addition to being a sustainable showcase, 315 Main showcases another problem unique to “green buildings”: the lease. A green building, by definition, is sustainably constructed and sustainably operated. Likewise, the lease for a green building needs to be careful written to preserve and advance the sustainable nature of the building.

In this sense, a traditional lease falls woefully short. Consider:

 

• The tenant who wishes to make “improvements” or “alterations” to a LEED-certified building;
• The landlord of a sustainable building who needs special access rights to leased units to be sure that tenants are observing sustainable building operations and waste management practices; 
• The need to allocate operating expenses and credits – such as additional insurance and taxes and the benefits of green tax credits – between landlord and tenant;
• The tenant who contracts to lease a unit in a LEED-certified building that is subsequently decertified; and,
• The landlord of a sustainable building who is confronted with a tenant whose business or use of the leased premises threatens the building’s green certification.

These are just a few of the areas where a traditional lease is going to fail a green building. I expect that as green and sustainable buildings become more common in Arkansas, these lease issues will become less novel. But make no mistake about it: right now they are novel, and they are important. Developers, financers, landlords, and tenants should all take notice.

 

(Department of Shameless Self-Promotion: So, am I suggesting that you need to hire a lawyer (like the author of this blawg) to draft that new and unique green lease? Absolutely.)

 

Will Arkansas Ban Plastic Shopping Bags?

Late last week a bill proposing a ban of “single-use carryout” plastic shopping bags hit the wire and lit up the Arkansas sustainablawgasphere. The proposed law, HB 1043, would make it illegal for “supermarkets,” convenience stores, and retailers having “over ten thousand square feet . . . of contiguous retail space that generates sales or use tax payable to the State of Arkansas and has a licensed pharmacy on site” to provide a “single-use carryout bag” to a customer. If passed, the ban would be effective January 1, 2012.

A “single-use carryout bag” is defined as a bag that is made of plastic, provided to the customer at the point of sale, and designed to be used between 1 and 100 times.

The proposed ban illustrates the conundrum faced by Arkansas’ green-minded citizenry, by sustainability proponents, and by lawmakers. On the one hand, if it passes, HB 1043 can be seen as an important recognition of sustainable values (a section of the bill entitled “findings and legislative intent” states that the bill is necessary “for the environmental, public health, and societal burdens created by single-use carryout bags”), and that some sustainable goals and benchmarks can be achieved through legislative action.

On the other hand, HB 1043 illustrates the difficulty in legislating sustainability. It is a proverbial paper tiger. There is no enforcement mechanism. No penalty provision. No incentive for compliance. What good is a ban if retailers have no incentive to comply and if violations carry no consequence? This type of approach requires both a carrot and a stick, and HB 1043 has neither.

And HB 1043 raises interesting issues of fairness. How is a covered retailer to know whether or not a plastic bag is “designed” for more or less than 100 uses? Will retailers who rely on the representations of a manufacturer find safe harbor from the ban? Is it really appropriate to group convenience stores and food marts – businesses that traditionally operating on thin margins – with businesses having gross annual sales in excess of $2,000,000? And why are large retailers with a licensed pharmacy on site, such as WalMart, distinguished from large retailers without a licensed pharmacy on site, such as Dillards? These sorts of ambiguities and apparently arbitrary distinctions are fodder for legislative challenges and litigation.

Of course, all of this may be for naught, since HB 1043 could easily die on the vine. I’ll be tracking the journey. Stay tuned.

(Department of Documents: HB 1043 can be found here: http://www.arkleg.state.ar.us/assembly/2011/2011R/Bills/HB1043.pdf)

Health Care Reform and the Small Sustainable Business

There has been much discussion this year about “pee-paca,” formally known as the Patient Protection and Affordable Care Act of 2010 (“PPACA”), and, perhaps depending on where which way you lean politically, informally known as “health care reform” and “Obamacare.”  Regardless of your political views, providing employees with health insurance squares nicely with the sustainable business values of promoting social welfare, equality, and opportunity.

The PPACA includes an important incentive in the form of a tax credit for small employers who provide health insurance for their employees.  This credit is important to the small green business.  The credit is claimed on the businesses federal tax return, and it reduces general tax due.  Employers with no more than the equivalent of 25 full-time employees earning average wages of no more than $50,000 per year are eligible.

Here is how the tax credit works.  For the years 2010 through 2013, the credit is up to 35% of the employer’s contribution to health insurance premiums.  For 2014 through 2016, the credit can be as high as 50% of the employer’s contribution to health insurance premiums.  Since the tax credit is designed to encourage small businesses to provide health insurance, the smaller your business, the bigger the credit.

The last year has seen a proliferation of green businesses in Arkansas.  Many of these businesses are operating with a “seize the day” mentality and without much strategic or long-term planning – which means they are missing significant opportunities presented by tax incentives and credits. 

The PPACA small business tax credit is one of those opportunities.  The credit can impact the way a business grows, the size and compensation of a workforce, and the overall profitability of the business.  As the year comes to an end, green businesses need to be looking ahead not only to 2011, but strategically planning for the next five and ten years.  The PPACA small business tax credit can – and probably should – be an important consideration in these plans.  Take note!

(Department of Disclaimers: This sustainablawg posting is neither tax nor legal advice and is no substitute for the counsel of a qualified CPA or an experienced tax lawyer.)

(Department of Now-That-You-Mention-It:  I am privileged to practice law with several experienced tax lawyers.  I encourage anyone interested in discussing the PPACA small business tax credit, sustainable business planning, or the sustainasphere in general to give me a call at (501) 372-0800.)

(Department of Shameless Self-Promotion: See above!)

Five “Green Law” Issues to Look for in 2011

Green Leasing. Arkansas is a landlord-friendly state. Evictions are expensive due to the filing fees and because a lawyer is required, but they are also straight-forward proceedings, and the end result is generally clear: material lease violations mean eviction. Leases in green buildings, however, present new and unique issues. Consider the tenant who leases space in a LEED-certified building that is subsequently decertified, or the landlord of a LEED-certified building faced with a tenant who engages in conduct that threatens certification. In these situations, the tradition remedies of possession or money damages may not be appropriate. This means the parties, and their lawyers, will need to do some new thinking, and they will need to do it on the front end when they are drafting the lease.

LEED as the New Building Code. The City of Little Rock’s resolution that all new city buildings be LEED-certified raises interesting issues because it treats the LEED requirements as though they were building codes. But they are not. LEED standards are aspirational and were designed to codify best practices. Treating them as building codes means using them for an unanticipated purpose, likely with unanticipated consequences. What happens if a new building fails the standard? What is the mechanism of enforcement? Do we really mean to give the U.S. Green Building Council power over our local municipal buildings? Is LEED even the right standard? Why not Energy Star? What happens when the city refuses to pay a contractor who, despite best efforts, has failed to deliver a certified building? The LEED standard was not made for this type of duty. Send in the lawyers.

Green Washing and False Green Claims. Green Washing involves misrepresentations (or outright lies) regarding the “green” or “sustainable” characteristics of place, product, process, or service. Envision a granite countertop advertised as “recyclable.” All things being equal, green-conscious consumers will prefer this product over the granite countertop that is not advertised as “recyclable.” And yet, if there are no places where granite countertops can actually be recycled, then the “recyclable” claim is meaningless. Likewise, even if there are recycling opportunities for granite, if the countertop is made from virgin granite, the “recyclable” claim is misleading. These are examples of green washing, and they related directly to claims that I have seen made in 2010 in the Arkansas sustainasphere. In eight days, on December 9, 2010, the comment period for the FTC’s proposed green guidelines related to green claims will end, and the new guidelines will be final and go into effect sometime in 2011. All making green claims should take notice, and be prepared. And consider this: are those who make false green claims violating the Arkansas Deceptive Trade Practices Act?

Will LEED survive? The answer is yes, but it’s going to be an interesting journey because of a class-action lawsuit filed in federal court in New York in October, Gifford v. USGBC. The Gifford suit challenges the very essence of the LEED certification regime, contending that LEED lacks an empherical, scientific basis, does not result in buildings that are more energy efficient, and steers consumers away from energy efficiency certification programs that do achieve greater efficiency. This lawsuit has it all – allegations of fraud and wrongdoing, misrepresentations, anti-competitive and monopolistic behavior, deceptive trade practices, even criminal racketeering. It is sensational, and I predict that as the case progresses at least three things will happen. First, there will be copycat lawsuits. Second, the USGBC will make some interesting changes to the way in which is promotes and manages the LEED brand. And third, the alleged class will not be certified and the case will be dismissed before trial.

LEEDigation and the Arkansas Deceptive Trade Practices Act. To me, the allegations in the Gifford case with the greatest staying power are those that LEED constitutes a deceptive trade practice. Most states, including Arkansas, have a statute that prohibits businesses from engaging in deceptive, unlawful, and unconscionable practices in business, trade, and commerce. (For a classic example, think rolling back an odometer.) To date, there has not been much LEEDigation in Arkansas. But it is coming, and I predict it will come in 2011. Consider the energy efficiency guru who “guarantees” a certain level of LEED certification and then fails to deliver. The injured party will likely be able to swear out a complaint that the guru violated the Arkansas Deceptive Trade Practices Act. Likewise, many in the sustainable blogosphere are predicting that either (a) there is a wave of LEED-decertification coming or (b) that there are numerous buildings that should be decertified but, for a myriad of reasons, will not be. Either way, the end result is LEEDigation, and if there is actual injury a cause of action for violating the Arkansas Deceptive Trade Practices Act is a natural fit.