This trend is hopefully coming to an end with the recent enactment of a new law with compulsory requirements on energy saving and efficiency. This marks a clear ambition by Russian policymakers and will probably enhance the nascent interest in green buildings of the main players in the real estate industry, who were severely hit by the current crisis and seek new growth opportunities.

A modest yet growing interest of the Russian real estate industry in green buildings…

Russia has experienced a tremendous construction boom in the last decade, with a clear premium on fast investment returns and the quantity of buildings rather than their quality. Western voluntary green building certification schemes – giving a rating to a specific building on the basis of ecological, social and economic criteria – were then clearly seen as luxury imports and during a long period set aside.

An interesting move towards international standards in general has nevertheless taken place in the last few years, initiated by the growing importance of international financing of Russian real estate projects (this has triggered inter alia the necessity of clean titles for mortgages, offshore contractual schemes, as well as the necessary “bankability” of international models of contracts such as FIDIC for construction, almost nonexistent in Russia ten years ago).

Progressively, this “international” evolution has naturally concerned green building certification, as a clear competitive advantage in a saturated real estate market (decreasing operation costs, insurance rates and legal liabilities, while increasing market differentiation and value). Such international events as the MIPIM have also been instrumental in convincing Russian real estate players of the potential added value of environmental certification.

Part of a global network, the Russian Green building council (RuGBC) http://www.rugbc.org/ created in 2009 is one of the most active advocates of green building certification in Russia, promoting mainly BREEAM schemes (originating from the UK in 1990) and to a lesser extent LEED (US rating scheme introduced in 1998) http://kluwerconstructionblog.com/2010/01/20/going-green-gets-greatly-muddled/. RuGBC is working to adapt these voluntary norms to the Russian context, which is very specific not least climate wise. The creation of a national Russian certification scheme is in this regard envisaged.

Due to the relatively recent Russian interest in green buildings, there are currently less than ten buildings in Russia which have been certified under BREEAM or LEED schemes (one having been developed by a Russian developer, Clearlink). This situation is particularly striking when compared with other emerging markets like China where green building certification schemes are widespread. It appears that this is essentially the result of national priorities, and Russia has recently demonstrated a shift towards such climate-friendly policies.

… Recently stimulated by a bold legislative reform on energy saving and efficiency

Publicly deploring Russia’s inefficient use of energy and its disastrous economic and ecological consequences, President Medvedev has called for an action plan to halve Russia’s energy intensity by 2020. According to the World Bank and IFC, such plan would cost a total of USD 320 billion, but would be paid back in just four years thanks to annual savings of USD 80 billion http://www.ifc.org/ifcext/rsefp.nsf/AttachmentsByTitle/FINAL_EE_report_Engl.pdf/$FILE/Final_EE_report_engl.pdf.

Following these declarations – anticipating somehow the possible alignment of Russian energy prices on the internal market to global market prices and the end of low cost energy – fundamental legislation was passed in 2009. First to implement parts of the Kyoto protocol (ratified by Russia in 2004) and, most importantly here, on energy saving and efficiency with the Federal Law No. 261-FZ dated November 23, 2009 (the “Law”). Certain provisions of the Law directly address energy saving and efficiency measures in the field of construction, these include:

- All new buildings (with few exceptions) will be submitted to Energy efficiency requirements (to be revised every 5 years) and will have to integrate compulsory energy meters to allow energy audits;

- Residential buildings will be rated according to their energy efficiency and such ratings will have to be indicated on the buildings’ facade;

- Public Procurement: energy efficiency of a tender has to be taken into account (considering the lowest lifetime cost of the building, not the lowest cost only);

- Tax incentives and administrative sanctions: while incentives are kept to a minimum, the Law provides for comprehensive administrative sanctions, the most efficient being that a building ignoring the Law requirements cannot be commissioned by the authorities (if the project (design) documentation / construction permit has been submitted to the authorities after November 27, 2009) and as a consequence under Russian law cannot be legally owned by anyone.

It is worth noting that the Law encompasses both construction and operation phases of a building project, and involves most of its actors, from developers and investors to operators and end users, together with designers and contractors. On a practical standpoint, this should permit an efficient implementation of the Law.

In this regard, the Law still lacks certain necessary application decrees and therefore many sensitive issues remain unanswered (e.g. under which SROs http://kluwerconstructionblog.com/2009/11/08/the-end-of-licensing-of-construction-related-activities-in-russia/ should an entity completing energy audits register). Many of these decrees have nevertheless been issued since November 2009 and Russian commentators agree that due to the clear political support of the reform, all of them should be issued within the next two years.

The implementation of this 2009 Law will therefore be an interesting test of Russian policymakers’ new commitment to environmental matters in general and to green buildings in particular.

Xavier Poulet-Mathis
The author thanks Irina Zimina-Lecornu (Attorney at Law, Moscow) for her collaboration.

In connection with the constantly increasing volume of construction in Russia, one of the main issues that developers and construction companies encounter is the problem of managing the waste that results from wrecking or construction works, as well as “abandoned” waste located at the land plot under development.

“Ownership of and responsibility for waste” provisions of Russian law and construction work contracts or waste removal and disposal contracts in Russia are very important and should not be ignored by the parties.

The key legal issue that arises in connection with construction waste with regard to the general contractor, subcontractors, and the customer is: to whom does the waste belong and who will be responsible for it? The answer to that question is particularly important, since it is the owner’s responsibility to make the payments for disposal of industrial and consumer waste, which is considered a negative impact on the surrounding environment. Along with the ecological payments, the owner’s responsibility for waste includes the obligation to clear the land plot of waste, to remove and site (store and bury) the waste, and the obligation to perform actions towards the recultivation and renewal of the land, which differs depending on the hazard class of the waste. All of these incurs additional and in some cases very significant expenses for the waste’s owner.

The main regulatory act in the sphere of waste management in Russia is the Federal Law “On industrial and consumer waste” dated 24 June 1998, No. 89 FZ (“Law on Waste”). The Law on Waste establishes two basic situations in which ownership rights to waste arise:

(i) Construction waste. Generally, waste is the property of the entity that owns the raw materials, materials, semi-processed items, and other articles or products, as well as the goods (products) whose use resulted in the creation of such waste. Usually, disposal of waste produced during demolition work will therefore rest with the owner of the building. And the contractor will bear responsibility for the waste created in its activities as a result of using its materials.

Thus, unless the contractor’s agreement or an agreement on waste removal expressly stipulates transfer of the rights to the waste to the contractor, or to the party performing the removal of waste, the customer that ordered the work makes ecological payments and is responsible for waste disposal, waste removal, and clearing the land. However, the transfer of responsibility for waste to contractors is common in Russian practice. Thus it is very important for contractor to have all agreements reviewed by legal and ecological experts to avoid subsequent confusion as to responsibility for waste and properly manage the contractor’s risks and expenses arose from such ownership to waste.

(ii) “Abandoned” waste. The lack of specially-equipped facilities for disposal of the waste (landfills, slurry pits, etc.) has led to the creation of a number of unsanctioned landfills in most regions in Russia. As a result, large areas have been polluted. Historically, all land in Russia was owned by the state, and the state still remains a major land owner and actively grants the state land for development purposes. It is not uncommon for plots of land granted by the state for construction to turn out to be a former landfill site, perhaps containing industrial waste, resulting in significant soil contamination. It also worth mentioning that ecological regulations on maximum permitted emissions (MPE) and maximum permitted concentrations (MPC) in Russia are often stricter than in other parts of Europe, which can lead a foreign investor inadvertently to expose itself to administrative or even criminal liability.

In practice, determining the original owner of the waste – the person who illegally dumped the waste on the empty land plot – is often impossible. Under the Law on Waste such waste is called “abandoned” waste. The state has released itself from liability for abandoned waste by setting forth in the Law that the entity in possession (whether in ownership or lease) of the plot on which the abandoned waste is found may acquire it through the use of such waste or by performing some other action that bears witness to its having been taken into possession in accordance with then Russian сivil law. Thus the owner of abandoned waste becomes the person or entity that has begun to use it. It means in practice that a contractor that begins preparatory work usually bears responsibility for abandoned waste and payment of the ecological fees.

Frequently, in order to speed up the development project, clients will push contractors to start the work before the ecological investigation of the plot has been completed. The contractor, not having full information on the extent of the plot’s contamination when beginning work, takes on all risks connected with hidden waste “buried” on the plot.

We recommend that contractors, when entering into an agreement on performing land works or works for the preparation/clearing of the territory for construction, including removal of the soil, request detailed information from the customer with regard to the condition of the plot’s soil, thoroughly assess the risks connected with this and set out in works contracts legal mechanisms to protect their interests. In this context, it is very important that works contracts contain a provision delimiting responsibility of the parties for waste, both visible and hidden.

* * *

These problems are of course not the only issues. In Russia, one often encounters plots that contain abandoned military dumping (graves, articles, ammunition), or archeologically valuable items. This of course also creates a number of problems for the owners and possessors of land plots, as well as for their contractors. However, this will be the topic of a separate post.

Most of these standards are privately owned and promoted, but on December 11, 2009 at the Climate Change Summit in Copenhagen, the United Nations Environmental Programme (UNEP) unveiled the “Common Carbon Metric” for measuring energy use and reporting greenhouse gas emissions from building operations. UNEP proposes establishment of the Common Carbon Metric to measure the weight of carbon dioxide equivalent (kgCO2e) emitted per square meter per year by different building types and climate regions. While the Common Carbon Metric has yet to be adopted by any governing body, entities such as BRE and the USGBC may well incorporate the metric in their rating systems.

The diversity in rating systems means that parties wishing to build green projects in diverse locations need to be familiar with different standards for use in different countries, or even regions within a country. The different rating system requirements also need to be compared to local building codes and regulations, to ensure that there are no conflicts between them.

This diversity also undermines one of the principal business reasons for green building. A recent study sponsored by the World Green Building Council determined that the top business reason for green building is because it is the “right thing to do.” Positive publicity is the most obvious commercial benefit from “doing the right thing,” and a common standard for assessing a project’s “greenness” makes garnering that positive publicity much easier. The Sustainable Building Alliance (SBA) is working to solve this problem by developing common minimum standards for adoption by the different rating systems. SBA’s goal is to ensure consistency among the systems and to promote “dual certification.” But because each rating organizations has its own commercial interest in promoting its system, SBA has a difficult task ahead of it. Uniformity is certainly in the interest of engineers, architects, builders, and owner/developers, and there are early signs of progress, as SBA has reportedly fostered an agreement between BRE and HQE to create together a common standard for the European Union.

William Devan
Andrew Ness

The leading set of green building standards and certification process used in the U.S. to date is the LEED certification process, developed by the U.S. Green Building Council. Achieving a given LEED rating (Silver, Gold or Platinum) depends not only on the structure’s design but on its construction process and how it actually performs once in operation. Many commentators have noted that this creates the potential for significant disputes as to whom, if anyone, may be found liable if the project fails to achieve the targeted LEED rating. There is a consequent perceived need to control contractually the associated liability risks of project participants on green projects.

The new “ConsensusDOCS 310 Green Building Addendum,” released November 11, 2009, is intended to address this concern via a single Addendum for incorporation into each of the major contracts for the project. The basic scheme of the Addendum calls for the Owner to designate a Green Building Facilitator (GBF) to take the lead in identifying the measures needed to achieve a particular green status (such as a particular LEED certification level targeted by the Owner), coordinate their implementation by the project participants, and gather and submit the documentation needed to actually achieve the desired certification. The GBF can be the existing Architect/Engineer, the prime Contractor, or an entirely separate consultant. The project Architect remains responsible for incorporating the chosen “green measures” into the project design, with assistance from the GBF.

Most interesting are the provisions assigning potential liability. First, all project participants other than the GBF are expressly relieved of liability for failure of the selected green measures to achieve the targeted green status. The GBF’s own potential liability is left for determination under the GBF’s separate contract with the Owner. Second, damages from failure to achieve the targeted green status such as expected operating cost savings, tax benefits, and enhanced marketing opportunities, are all deemed “consequential damages,” and made subject to any waiver of consequential damages in the underlying contracts. Third, all project participants (including the GBF) preserve any specific limitations or assumptions of liability in their respective underlying contracts with the Owner.

Doubtless other forms will be unveiled in the coming months and years to deal with the growing popularity of green building, and their provisions will likely evolve over time to account for changes in green building methodologies and certification processes. The ConsensusDocs Green Building Addendum merely starts the conversation, offering one considered approach to dealing with the new legal issues associated with sustainable building projects.

Eric Casher
Andrew Ness