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1 Real EstateUpdate Berwyn Boston Detroit Harrisburg New York Orange County Philadelphia Pittsburgh Princeton Washington, D.C. Wilmington August 2010 Pepper Hamilton Attorneys New Blog Addresses Legal Issues in CleanTech, Climate Change and Green Building Green Building Codes: Will LEED Certification Requirements Be Replaced by Minimum Green Building Standards? Vicki R. Harding Pepper Hamilton LLP s Sustainability, CleanTech and Climate Change Team has launched a blog at for businesses, individuals and lawyers seeking information about renewable energy, green technology, green building, climate change, financial incentives and much more. With backgrounds in regulatory, commercial and litigation issues affecting various industries, the team members concentrate their practices in areas including real estate, environmental, construction, intellectual property, energy, renewable energy, international trade, government contracts, corporate and securities, tax, transportation, product liability and project finance matters. To stay informed about the latest developments in these and other areas, please visit and subscribe today. For more information on the blog, or to suggest a topic, please contact the editors, Hannah Dowd McPhelin (mcphelinh@pepperlaw.com) or Wendy Klein Keane (kleinkew@pepperlaw.com). The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship. Please send address corrections to phinfo@ pepperlaw.com Pepper Hamilton LLP. All Rights Reserved. LEED Certification as Building Code Requirement Development of a system to define and measure green buildings was an early priority for the U.S. Green Building Council (USGBC). Its LEED (Leadership In Energy and Environmental Design) Green Building Rating Systems began as a pilot project in 1998 and evolved into multiple rating systems that are now a dominant force in the commercial and institutional building market in the United States. In addition to the original system, which became LEED for New Construction, current rating systems include LEED for Core & Shell and LEED for Commercial Interiors (designed to recognize the division of control and responsibility between an owner and a tenant), LEED for Existing Buildings, which became Existing Buildings: Operations & Maintenance (to address ongoing operations of existing commercial or institutional buildings), and other LEED rating systems that are being developed for particular circumstances, such as LEED for Schools, LEED for Healthcare, LEED for Homes, LEED for Retail (both new construction and commercial interiors), and LEED for Neighborhood Development. By default, many municipalities have chosen to implement green building goals by requiring that designated types of buildings or scopes of work achieve a specified level of LEED certification. This publication may contain attorney advertising. in this issue... 1 Pepper Hamilton Attorneys New Blog Addresses Legal Issues in CleanTech, Climate Change and Green Building 1 Green Building Codes: Will LEED Certification Requirements Be Replaced by Minimum Green Building Standards? 2 News and Notes 4 New Jersey Enacts Important Time of Application Legislation 5 Webinar: Lease Considerations for Green Buildings 6 New Prevailing Wage Legislation in Pittsburgh and Allegheny County: Developers Should Think Twice About Seeking Government Assistance 8 Upcoming Events

2 However, LEED certification is not well suited for incorporation in ordinances that are intended to impose minimum standards. Each LEED system requires satisfaction of a few prerequisites in combination with earning optional credits designed to measure performance in areas of sustainable development, with the level of certification determined by the number of credits earned. As suggested by the name, a LEED rating system is designed to push the envelope in green building practices in order to transform the built environment, as opposed to defining minimum standards. ASHRAE St a n d a rd a n d ICC In t e r n a t i o n a l Gre e n Construction Code In recognition of the need for development of more appropriate standards for establishing a minimum threshold, the USGBC became involved in developing a non-leed standard. The result was Standard 189.1, Standard for the Design of High-Performance Green Buildings Except Low-Rise Residential Buildings, which was developed by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) in conjunction with the Illuminating Engineering Society of North America (IESNA) and USGBC to provide minimum criteria for green building practices in a form that can be incorporated into building codes. The project was initiated in early After several extensive public comment periods and reconstitution of the committee tasked with developing the standard to expand membership and broaden expertise, Standard was released as a final standard in February In the meantime, the International Code Council launched development of an International Green Construction Code (IGCC) in This is significant because historically local building regulations have been based on model building codes. Originally there were three regional groups that developed model codes. However, in the mid-1990s they decided to combine their efforts and formed the International Code Council (ICC), which published the first edition of the model International Building Code (IBC) in Although there have been a few efforts to develop competing codes, and the IBC itself references other codes, the ICC has become the dominant force in building regulation in the United States. Consequently, it is likely that the IGCC will have a major impact on local government efforts to encourage and/or mandate sustainable building practices. News and Notes Pe p p e r s Re a l Estate Pr a c t i c e Gr o u p An n o u n c e s New Leadership Pepper announced that Matthew J. Swett has been named co-chair of the firm s 30-lawyer Real Estate Practice Group. Mr. Swett joins Norman B. Berlin who has been co-chair of the group since Mr. Swett has been a member of the real estate group since Mr. Swett s practice covers all facets of real estate law. A partner in the Philadelphia office, he concentrates his practice in the acquisition, sale, development, leasing and financing of commercial real estate properties, representing real estate investment managers, entrepreneurial developers, national retailers, manufacturers and many companies in diverse industries. Mr. Swett is a graduate of Colgate University (B.A. 1990) and Villanova University School of Law ( J.D. 1993). He is a member of the Philadelphia, Pennsylvania and American Bar Associations. Pepper Welcomes Frank J. Cerza Frank J. Cerza joined the firm as a partner in the firm s Real Estate and International Practice Groups, resident in the New York office. Mr. Cerza represents retail and private companies in connection with general corporate, real estate and commercial matters. He serves as general corporate counsel and business advisor to a number of Italian and international companies doing business in the United States and assists American companies in their business endeavors in the United States, Italy and elsewhere in Europe. Mr. Cerza s experience includes business planning, strategy and joint ventures; formation of U.S. companies and partnerships; leasing and sales of retail stores, offices, showrooms and other commercial properties; acquisitions and sales of businesses and negotiation of contracts of employment, sales representation, distribution and licensing. 2

3 Real EstateUpdate Mr. Cerza is a graduate of Villanova University School of Law ( J.D. 1980) and the University of Pennsylvania (B.A., magna cum laude, 1977). Pe p p e r Re a l Estate Pa r t n e r Appointed to District Fe e Ar b i t r a t i o n Committee o f Ne w Jersey Su p r e m e Co u r t Thomas M. Letizia has been appointed to a four-year term on the Supreme Court of New Jersey s District VII Fee Arbitration Committee. He also serves as chairperson of one of the Committee s local hearing panels, which serves as a method for the resolution of fee disputes between attorneys and their clients. The District VII Committee handles disputes in Mercer County. Pe p p e r Re a l Estate Associate Ea r n s LEED Gre e n Associate Cre d e n t i a l Stefanie L. Brennan has been certified as a LEED Green Associate by the Green Building Certification Institute. A LEED (Leadership in Energy and Environmental Design) Green Associate credential denotes basic knowledge and skill in practicing green building design, operations, and construction. In becoming a LEED Green Associate, Ms. Brennan joins a small group of attorneys estimated to be fewer than 150 nationwide with this designation. Ms. Brennan is the seventh Pepper Hamilton lawyer to earn LEED professional credentials. Vicki R. Harding, a partner in the firm s Detroit office, was the first Michigan-based attorney to achieve the designation of LEED AP. In addition, the following pepper lawyers are LEED Accredited Professionals; Wendy Klein Keane, Hannah Dowd McPhelin, AnnMarie Sanford, Blair L. Schiff, and Jason C. Spang. Initial drafting of the IGCC was undertaken by the American Institute of Architects (AIA) and ASTM International. The objective of the IGCC is to establish minimum requirements, using prescriptive and performance related provisions, to promote sustainable construction. It is intended to work as an overlay in conjunction with other ICC building codes. The IGCC includes a set of core provisions that are intended to be mandatory in all jurisdictions. It also includes a set of enhanced mandatory provisions that a jurisdiction may opt to include by checking appropriate boxes in a table of Requirements Determined by the Jurisdiction (Table 302.1). Finally, the IGCC includes provisions that are characterized as project electives. In adopting the IGCC, a jurisdiction designates the number of electives that will be required for a project (from 0 to 14). Project electives are selected in connection with a particular project, and then become mandatory for that project. Ultimately the IGCC Public Version 1.0, which was published in March 2010, was expanded by including ASHRAE/IESNA/ USGBC Standard as an optional jurisdictional requirement. The IGCC can function as a fully developed code without Standard However, it provides a vehicle for jurisdictions that would like to adopt Standard One of the options in Table that a jurisdiction may select is Optional compliance path ASHRAE If this particular option is selected, the version of ASHRAE identified in IGCC Chapter 12 as the referenced standard is applicable for buildings within the scope of that standard, along with the administrative provisions in IGCC Chapter 1, and the rest of the IGCC does not apply. Given this latest development there is some expectation that the IGCC and ASHRAE will naturally begin to converge. At a minimum, the ICC, which is a major player in the building code arena, and the USGBC, which is a major player in the green building arena (as well as ASHRAE and IESNA, which have developed other standards that have gained wide acceptance, including Standard 90.1), are no longer offering competing standards, and instead have a common interest in promoting the IGCC with the ASHRAE option. The IGCC, including the ASHRAE option, offers a model that is designed to establish minimum requirements for sustainable buildings. This is in contrast to the LEED rating systems, which are designed to measure and encourage green buildings and not to set minimum standards. Governmental 3

4 jurisdictions will likely find that the IGCC is better fit with their existing building ordinances than incorporation of LEED certification, and with the backing of both the ICC and USGBC, the IGCC may become the green building standard of choice for building ordinances. New Jersey Enacts Important Time of Application Legislation Thomas M. Letizia e p p e r l a w.com Gre g o r y S. Ri c c i a rd i ricciardig@p e p p e r l a w.com Cynthia De Lisi Smith On May 5, 2010, New Jersey Gov. Chris Christie signed legislation that is expected to significantly reform the local land use approval process in the state. With the enactment of bill S-82, New Jersey joins Pennsylvania and other states in adopting the time of application rule for determining when municipal regulations govern pending development applications. The short, one-paragraph law (codified at N.J.S.A. 40:55D-10.5), which becomes effective May 5, 2011, provides that applications for development will be reviewed and decided under those development regulations which are in effect on the date of submission. Municipalities will be barred from applying ordinance amendments to a proposed development project that are adopted after the submission of the application, except those relating to public health and safety. The significance of this new law to the New Jersey development community cannot be overstated. Historically, in the area of land use, New Jersey followed the time of decision rule, which held that the last municipal enactment controls the review of applications. The rule permitted a municipality to change its regulating ordinances after an application had been filed and even after a permit had been issued, so long as the applicant had not substantially relied upon the issuance of the permit. This was true even in cases in which the municipality s sole purpose for hastily amending its ordinance was to defeat an applicant s project. Under the time of decision rule, a municipality was free to continue modifying its regulations affecting a matter on appeal through the courts (even one that reached the New Jersey Supreme Court). 1 Consequently, a developer was left to the last-minute whims of a municipal governing body wishing to stop a particular project Municipalities will be barred from applying ordinance amendments to a proposed development project that are adopted after the submission of the application, except those relating to public health and safety. it disfavored, despite the fact that the application at the time of submission complied in all respects with the municipal ordinances. While over the years the New Jersey judiciary found some exceptions to the time of decision rule, these had limited applicability and offered little relief to the majority of situations. By freezing local ordinances as of the time of submission of the application, the new law now provides a higher level of fairness and predictability to the New Jersey land use approval process. 2 Unlike the Pennsylvania land use statute, the New Jersey law does leave municipalities some wiggle room by allowing them to apply new ordinances to submitted applications that involve health and public safety. In theory, municipalities may still attempt to thwart developments by passing ordinances under the guise of public health and safety requirements. However, the new law establishes a standard against which such last-minute ordinance amendments made after the filing of an application 4

5 Real EstateUpdate will be judged, and, as a result, any ordinance change that is enacted solely to prevent a particular project can now be successfully challenged on the grounds that it does not promote public health or safety. The new legislation could alter a developer s strategy in using the concept review process for garnering a municipal board s or the public s reactions to a proposed project. An application for development is defined in the Municipal Land Use Law as an application for approval of a subdivision plat, site plan, planned development, conditional use, zoning variance or direction of the issuance of a permit (N.J.S.A. 40:55D-3). The submission of an application for informal concept review will not protect a developer from subsequent ordinance changes made in response to a concept plan and before the formal application for development is submitted. However, New Jersey s law follows Pennsylvania s by requiring that such ordinances must not only be adopted, but also must be effective as of the date of submission of the application for development in order to be applicable. New Jersey s new time of application law puts it in line with Pennsylvania by giving developers assurances that the rules of the game will not be changed midway through the land use process, after the investment of considerable time and money. Municipal attempts to stop a project by last-minute legislative enactments are now greatly curtailed. The law does not take effect until May 5, 2011, which gives municipalities approximately one year to perform any land use planning and related ordinance updates they see fit. Any applications filed with municipalities before the effective date of the law will remain subject to such ordinance changes under the time of decision rule. En d n o t e s 1 See, San-Lan Builders, Inc. v. Baxendale, 28 N.J. 230 (1972) (holding as controlling a zoning ordinance amendment made between certification for appeal and oral argument). 2 Before the new law, the only statutory guarantee against ordinance changes afforded an applicant was at the grant of preliminary approval of a site plan or subdivision (three-year protection) and at final approval (two-year protection). See N.J.S.A. 40:55D-49 and 40:55D-52. Webinar: Lease Considerations for Green Buildings Recently, Pepper real estate attorneys Vicki Harding and Hannah Down McPhelin, along with Nancy S. Cleveland, Founder and President, Rubicon Crossings, presented a webinar on lease considerations for green buildings. Participants learned how tenants and landlords can implement sustainability measures and green building practices in leased buildings. It is important that leases identify appropriate standards and address both landlord and tenant responsibilities with respect to these standards. Panelists focused on these efforts and obligations, and discuss best practices for all parties involved in a green lease. The PowerPoint slides and webinar recording are available on Pepper s Web site at 5

6 New Prevailing Wage Legislation in Pittsburgh and Allegheny County: Developers Should Think Twice About Seeking Government Assistance Ra y m o n d N. Ba u m b a u m r@p e p p e r l a w.c o m David M. Aldous aldousd@pepperlaw.com Recently, Allegheny County and its largest city, Pittsburgh, approved practically identical prevailing wage legislation. The intent is to ensure that designated building service, food service, hotel, and grocery service workers at future city or county-subsidized developments, earn the equivalent of their peers throughout the city and county. The city s prevailing wage ordinance became effective April 13, 2010, and the county s ordinance will become effective July 26, Developers should be aware that these ordinances do not apply to employers in all new developments in the county and city. They only apply to employers located in qualifying developments. These are developments that will receive a city or county subsidy approved after the effective date of the respective ordinance of at least $100, In addition, the subsidized development must fall within one of the following categories: a commercial office building/complex of at least 100,000 square feet a residential building of at least 50 units or 100,000 square feet a hotel/motel of at least 100,000 square feet a building containing hotel/motel units and residential units that is at least 100,000 square feet a grocery store having retail space of at least 25,000 square feet a shopping mall of at least 100,000 square feet a sports stadium, performance hall or amphitheatre of at least 100,000 square feet. 2 Employers affected by these ordinances will be required to pay a prevailing wage to all building service, food service, hotel and grocery employees who work at least 50 hours at any of these qualifying developments. 3 The prevailing wage that these employees are to receive is the wage paid, additional benefits and paid leave given to the median number of employees in the same job classification in the city or county. These wages and benefits will be determined by the city and county controller, respectively. Not only will employers be required to pay a prevailing wage at these qualifying developments, but they will also be subject to strict record keeping and reporting requirements. If, however, the prevailing wage for food service and building service employees is higher at the national level, as determined by the secretary of labor under the Service Contract Act, 41 U.S.C. 351 et seq, the employees must be paid the higher amount. 4 The employer also must post the applicable prevailing wages and phone numbers of the city and/or county controller at the store, with a statement advising the workers that if they have been paid less than the prevailing wage, they should contact the controller(s). Not only will employers be required to pay a prevailing wage at these qualifying developments, but they will also be subject to strict record keeping and reporting requirements. Under the ordinances, employers will be expected to determine which employees are covered under the ordinances and how much these employees should be paid. For each employee, employers should keep an accurate record of the name, address, job classification, wages and benefits paid or provided, and the number of hours the employee worked. Employers will also be required to file annual Federal Form WH-347 or its equivalent, and a statement that certifies the business s compliance with the ordinances. In addition, a covered employer will need to make its records of payment to each employee available for inspection by authorized agents of the controller(s) and permit them to interview its employees at work. 6

7 Real EstateUpdate If employers at qualifying developments fail to meet these requirements, they could face substantial liability. Any individual or organization is permitted to file a complaint with the controller(s) for any violation of the prevailing wage ordinances, and the controller(s) will investigate and make a finding of compliance or noncompliance within 60 days. Upon any finding of noncompliance, the controller(s) must send a notice of noncompliance and corrective action to the employer, which should specify the areas of noncompliance, indicate such corrective action as may be necessary to achieve compliance (possibly including wage restitution), and impose deadlines for achieving compliance. The employer may dispute a finding of noncompliance by requesting a hearing within 30 days of the date of the finding with a hearing officer appointed by the controller(s). If, however, the controller(s) or hearing officer determines that the employer has failed to comply for more than 60 days after a notice of corrective action has become final, the controller(s) or hearing officer is required to order the following relief: wage restitution for the affected employee(s) liquidated damages in the amount of three times the wages owed a directive to the applicable department to withhold any payments due the covered employer, and to apply such payments to the payment of fines or the restitution of wages hundred thousand dollars ($100,000), but shall not include an educational or training grant. 2 The ordinances do not state how long the prevailing wage requirements apply to the qualifying development. Without further guidance, this issue will likely be raised in the future. Some questions that are likely to be asked include: What happens if a subsidized loan is fully paid? Do these requirements apply to a development until it is demolished or substantially remodeled? And what happens if the development is sold or otherwise transferred? 3 Building service employees are people performing work in connection with the care and maintenance of property. Food service employees are those who perform work in connection with the preparation and service of food and beverages. The ordinances specifically exclude from the definition of food service employees individuals who are employees of independently-owned restaurants other than cafeterias. Those who perform work in connection with the care and maintenance of hotels and servicing of hotel guests are considered hotel employees. Grocery employees are those who work in connection with the preparation and selling of merchandise in grocery stores. 4 Hotel and grocery employees are only paid the prevailing wage as determined by the city or county controller. attorneys fees rescission of any city or county service contract. These requirements and penalties should be carefully considered by developers before accepting subsidies from the city of Pittsburgh or Allegheny County. Developers may find it difficult to attract tenants willing to comply with the wage and reporting requirements of the legislation. As a result, developers should carefully consider whether the benefits of accepting city or county subsidies outweigh the effect this legislation may have on attracting tenants. En d n o t e s 1 City and county subsidies are defined in the ordinances as any grant, loan that is forgiven or discounted below the market rate over the life of the loan, bond financing, infrastructure improvements related to a project, below-market sale or lease of property, or other form of financial assistance related to a project with an aggregate value of at least one RSS on Subscribe to the latest Pepper articles via RSS feeds. Visit today and click on the RSS button on the publications page to subscribe to our latest articles in your news reader. 7

8 Upcoming Events Af f o r d a b l e Ho u s i n g Se m i n a r Understanding Incentives and Deal Structures to Get Your Project Moving Tuesday, September 14, :45 a.m. - 1:00 p.m. Pepper Hamilton Office 500 Grant Street Pittsburgh, Pennsylvania The federal and state government have mobilized a number of incentives to promote greater deployment of renewable energy. Join Pepper Hamilton and the Pennsylvania Housing Finance Agency (PHFA) for this interactive discussion. Pepper partners, Jane C. Luxton and Todd B. Reinstein, will present information for affordable housing builders and funders on financial incentives available in connection with renewable energy and ways to structure deals to maximize these opportunities. The types of opportunities include situating renewables on brownfields/previously contaminated property, retrofitting for energy efficiency, and other initiatives. Holly Glauser, Director of Development for PHFA, and David Evans, Assistant Executive Director, will discuss PHFA s support and incentives for energy efficiency in new and existing affordable housing. For more information please contact Kristen Clark at clarkk@pepperlaw.com. 8