Bankruptcy and forclosures pose a few unique risks for green building.
One complication is the significant tax credits and other public financing involved in green construction. This week, Shaw Development LLC, the developer of Captain's Galley development in Maryland and the plaintiff in what has been termed the first green construction litigation, declared Chapter 11 bankruptcy. Stephen DelPercio at Green Real Estate Law Journal argues that the contractor responsible for lost tax credits (if they could be shown to have led to the bankruptcy) could be responsible for significant consequential damages including
decrease in sales prices during the course of the automatic stay that is imposed over the property, any other sales that were lost due to the bankruptcy reorganization, and associated professional fees and other carrying costs that the owner/trustee incurred during the course of the stay.
In addition to this risk, bankruptcy of green projects may be complicated by their connection to the renewable energy markets. For example, a development installs a solar array and arranges to sell its renewable energy credits (RECs) to a utility. The utility uses the REC purchase to fulfill its mandatory obligation to purchase alternative power. If the development goes bust and no power is produced, the utility and/or state/local government may come calling.
Finally, green projects often involve the utilization of high maintenance components, like vegetated roofs. If these facilities are not properly maintained due to bankruptcy or foreclosure, third parties harmed by poor maintenance (collapsing roofs, for example) may have nothing but an insolvent party for recourse.