A Lesson on Good Faith and Fair Dealing in Solar Construction
By Amandeep S. Kahlon, Bradley
Late last year, a federal trial court in New York awarded a solar development company $11.6 million in damages against Suffolk County arising out of a dispute on a multi-site carport solar construction project. The basis for this substantial award? The County failed to satisfy its obligation to cooperate with the developer on permitting issues under the parties’ lease agreement. After an extensive dive into the facts of the dispute, the court concluded that the County’s deliberate efforts to stall and frustrate the permitting process violated the lease agreement’s requirement that the County “fully cooperate with the developer in the conduct of its operations and the exercise of its rights.”
In 2010, the developer, EDF Renewable Development, contracted with Suffolk County under a series of lease agreements to supply 20 MW of solar power on seven different carport solar installations throughout the county. As part of the permitting process under certain of the lease agreements, the County required the developer to supply a parking replacement or parking mitigation plan. The court found that the parties’ course of dealing on the permitting process on each of the first six carport sites involved a collaborative approach and the use of conditional permitting to expedite construction.
Because of global supply shortages, the developer elected to procure all solar panels for the seven carport sites along with frame steel in advance of construction. Based on the evidence presented, the court noted that had the developer awaited permit approval prior to ordering panels and frames for each site, the developer would not have been able to complete construction of each site on time. With the exception of the final site, the parties’ collaborative conduct allowed construction of each of the other six solar installations to proceed smoothly and without issue.
In January 2012, the County experienced turnover in its leadership, and the new leadership was approached by a retail developer who opposed the remaining carport solar installation. The new County administration agreed that it would not support completion of the remaining solar installation. The County did not inform the solar developer of this agreement and, instead, for the next three months, the County intentionally stalled and delayed all activity relating to the remaining carport site.
Unaware of the County’s intent, the solar developer continued to finalize conditional permitting and started construction as it had done with each of the six previous carport sites. As time progressed, the County representatives became more and more uncooperative and unwilling to communicate with the developer in any meaningful way in regards to permitting the project, including developing a plan for replacement parking. Finally, in March 2012, the County, for the first time, communicated to the developer that it “preferred” not to proceed with the remaining carport installation and requested that the parties look for an alternative site for the installation. The developer participated in such discussions, but no mutually agreeable alternative site was located.
During these discussions, the County never complained about the lack of a parking replacement plan as being the basis for not proceeding with the carport installation. The trial court concluded that the County’s sole motivation in rejecting and halting the final carport installation was to accommodate the retail developer’s request that the carport installation at the final site not go forward. The court further determined that the County failed to comply with its good faith contractual duty to cooperate with the solar developer in securing permitting and a replacement parking plan for the final carport site, which constituted a material breach of the parties’ lease agreement.
With respect to damages, the court found that the developer’s decision to purchase the solar panels in advance of construction of each site was supportable given the evidence of a global shortage at the time of contracting in 2010 and that the developer properly mitigated its damages by re-selling the panels and steel material at reasonable rates. Thus, the court awarded the developer its remaining out-of-pocket costs incurred for procurement and project preparation costs, as well as prejudgment interest, for a total award of $11.6 million.
As the court noted, although the County was not required to issue a building permit or to relax the permitting requirements under the lease agreement, those facts did not allow the County to actively and deliberately frustrate the permitting process. By ignoring its good faith obligations under the lease agreement, the County’s efforts to sabotage the final carport solar installation backfired tremendously. The principle of good faith and fair dealing is well-recognized and, often, an express duty in many commercial contracts such as the one in this case. Here, the court demonstrated that a party’s intentional efforts to abuse certain contract provisions to avoid performance is a breach of that duty of good faith and can result in substantial financial award against the non-performing party.
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