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Thelen Reid Brown Raysman & Steiner LLP
New York City Local Law 86, also known as the Green City Buildings Act, became effective on January 1, 2007. The act is significant to the construction industry because it will require many of New York City's new municipal buildings, as well as additions and renovations to existing municipal buildings, to achieve exacting standards of sustainability as "green buildings" - buildings that are designed, constructed and operated to improve environmental, economic, health and productivity performance over that of conventional buildings.
The act is applicable to capital projects for which the final design is approved after the law's effective date. The act has the potential to dramatically affect the New York construction industry because the building materials and architectural design required by the act often are substantially different than those used in traditional buildings. Because the New York City Council anticipates the act will have an effect on approximately $12 billion in construction during New York City's 10-year capital plan, the act's impact could be indeed significant. 1/
What are Green Buildings?
Green buildings are facilities designed, constructed, managed and disposed of using ecological principles to promote occupant health and resource efficiency, with particular attention given to three elements: a healthy indoor environment, maximum energy efficiency, and conservative, thoughtful use of natural resources.
Green buildings perhaps are best known for their resource efficiency, which equates to high levels of energy and water efficiency, appropriate use of land and landscaping, use of environmentally friendly materials, and minimized life cycle effects of the building's design and operation. Green buildings, if properly designed and constructed, also offer occupants better indoor air quality than traditional buildings by using building materials with low toxicity and improved ventilation systems. 2/
In the residential sector, green buildings accounted for 2 percent of new construction in 2005 and are expected to account for 5 to 10 percent by 2010. 3/ Green buildings now represent about 5 percent of commercial buildings in the marketplace or more than $3.3 billion in U.S. real estate. There were 435 million square feet of LEED projects built in 2005, twice that of 2004. 4/ Although growth in both residential and commercial sectors is likely to be hindered by the perception that there is substantial additional cost associated with green construction, significant energy cost savings are likely to make these energy efficient buildings appealing on a life cycle rather than on a first cost basis. 5/
LEED Ratings
In 1998, the U.S. Green Building Council established the Leadership in Energy and Environmental Design or LEED Green Building Rating System. The LEED rating system evaluates the location, design, construction and operational aspects of newly constructed and renovated buildings, serving as a "voluntary national standard in which construction and renovation projects earn credits toward certification as sustainable buildings." 6/ According to the Green Building Council, the LEED Rating System was created to define "green building" by establishing a common standard of measurement; to promote integrated, whole-building design practices; to recognize environmental leadership in the building industry; to stimulate green competition; to raise consumer awareness of green building benefits; and to transform the building market. 7/
The LEED rating system includes seven prerequisites and 69 elective points. There are four potential categories of certification:
|  | LEED Certified: 26 to 32 elective points.
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| | LEED Silver: 33 to 38 elective points.
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| | LEED Gold: 39 to 51 elective points.
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| | LEED Platinum: 52 or more elective points.
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Adoption of the Act
The New York City Council expects the act will reduce New York City's electricity consumption, air pollution and water use. The Council's financial analysis indicates that the savings associated with reduced energy and water costs alone will offset debt service payments on any increase in capital expenditures resulting from the ordinance. Second, the council anticipates the act will improve occupant health and worker productivity. Third, it believes the act will encourage market transformation. Finally, the council expects the act will reduce the city's dependence on foreign oil because it will reduce energy use by the city.
The Act has two general classes of requirements. The first set pertains to the minimum LEED Rating System classification certain buildings must achieve. The second set pertains to energy cost savings.
The act provides that non-residential capital projects with estimated construction costs of $2 million or more must be designed and constructed to achieve an LEED Silver or higher rating. School (Occupancy Group G) and hospital (Occupancy Group H-2) projects, however, need only achieve an LEED Certified rating.
The act also requires energy cost reductions for certain projects. Capital projects, other than schools, with an estimated construction cost of more than $12 million but less than $30 million must be designed and constructed so as to reduce energy costs by a minimum of 20 percent. In addition, a design agency must make investments in energy efficiency that reduce energy costs by an additional 5 percent if it determines the payback period on this investment through savings in energy costs would not exceed seven years.
Capital projects, other than schools, with an estimated construction cost of more than $30 million must be designed and constructed to reduce energy costs by a minimum of 25 percent. Again, a design agency must make investments in energy efficiency that reduce energy costs by an additional 5 percent if it determines the payback period on this investment through savings in energy costs would not exceed seven years.
Capital projects that involve schools with an estimated construction cost of $12 million or more must be designed and constructed to reduce energy costs by a minimum of 20 percent. Similarly, a design agency must make investments in energy efficiency that reduce energy costs by an additional 5 percent if it determines the payback period on this investment through savings in energy costs would not exceed seven years. Alternatively, a design agency must make investments in energy efficiency that reduce energy costs by an additional 10 percent if it determines the payback period on this investment through savings in energy cost would not exceed seven years.
Capital projects that include the installation or replacement of a boiler at an estimated cost of $2 million or more must be designed to reduce energy costs by a minimum of 10 percent. Similarly, capital projects that include the installation or replacement of lighting systems with an estimated cost of $1 million or more also must be designed to reduce energy costs by a minimum of 10 percent.
Projects involving the installation or replacement of a heating, ventilation and air conditioning system with an estimated cost of $2 million or more must be designed to reduce energy costs by a minimum of 5 percent. Finally, capital projects involving the installation or replacement of plumbing systems with an estimated cost of $500,000 or more must be designed to reduce energy costs by a minimum of 30 percent.
The act does not apply to the following occupancies: high hazard (A); industrial (D-1, D-2); stadiums (F-2); prisons (H-1); residential (J-1, J-2, J-3); and sheds (K). The mayor may exempt from the act projects accounting for up to 20 percent of capital expenditures in each fiscal year provided the mayor determines such exemption is necessary in the public interest.
The act is not applicable to capital projects of entities that are not New York City agencies unless 50 percent or more of the estimated cost of the project is paid from city funds. This exemption is inapplicable to capital projects that receive $10 million or more from the city.
Other Jurisdictions
As the preamble to the act notes, other jurisdictions have enacted similar green building guidelines for municipal construction projects. Atlanta, for instance, enacted an ordinance requiring design and project management teams for projects involving city facilities and buildings comprising more than 5,000 gross square feet of occupied space or having a total project cost of more than $2 million to achieve a LEED Silver rating. 8/ Similarly, Seattle enacted a sustainable building policy calling for all new construction and major remodels of facilities and buildings with more than 5,000 gross square feet of occupied space to achieve an LEED Silver rating. Design and project management teams able to achieve a higher rating are honored with a Mayor's Award.
Conclusion
As the guidelines from New York and other jurisdictions demonstrate, cities are becoming increasingly concerned with the efficiency and environmental performance of their buildings. Given the energy woes experienced by New York City and other major metropolitan areas, these ordinances may be a harbinger of legislation affecting privately-held and funded commercial buildings.
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For more information about the issues covered in this report, please contact Richard P. Dyer in our New York office at 212-895-2117 or at rpdyer@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
ENDNOTES
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| 1/ | New York City Local Law 86 of 2005, preamble, www.nyc.gov/html/dob/downloads/pdf
/ll_86of2005.pdf.
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| 2/ | For a study of indoor air quality in green buildings, see W. Stuart Dols, Indoor Air Quality in Green Buildings: A Review and a Case Study in Paths to Better Building Environments, www.fire.nist.gov/bfrlpubs/build96/PDF/b96017.pdf.
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| 3/ | Green Goes Mainstream,
money.cnn.com/2006/04/14/real_estate/
green_in_mainstream/index.htm.
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| 4/ | University of Wisconsin Cooperative Extension, Solid and Hazardous Waste Education Center, May 2006, www3.uwm.edu/Dept/shwec/publications/newsletters
/May2006.cfm.
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| 5/ | Some estimates of the additional cost of constructing a green house run as high as 10 percent. See, Green Building Goes Big, money.cnn.com/2006/05/31/real_estate/
green_goes_large_scale/index.htm.
The New York act, however, cites a California study that found a cost premium of less than 2 percent on green buildings. On average, green buildings are 28 percent more energy efficient than conventional buildings. Gregory H. Kats, Green Building Costs and Financial Benefits at 4, www.cap-e.com/ewebeditpro/items/O59F3481.pdf. The total financial benefits of a green building are more than 10 times the average initial investment necessary to design and construct it. Id. at 8.
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| 6/ | What Is LEED?
www.greenerbuildings.com/leed_definition.cfm.
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| 7/ | LEED: Leadership in Energy and Environmental Design, www.usgbc.org/DisplayPage.aspx?CategoryID=19.
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| 8/ |
See, Atlanta's sustainable development ordinance, www.atlantaga.gov/client_resources/forms/energy%20conservation/adopted%20ordinance.pdf.
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©2007 Thelen Reid Brown Raysman & Steiner LLP
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