Many real estate finance transaction opinion letter preparers and reviewers have been influenced and guided by Real Estate Opinion Letter Guidelines. At the time of publication, Real Estate Opinion Guidelines sought to reflect customary real estate finance opinion letter practice. In so doing, it adopted verbatim Legal Opinion Principles and Guidelines for Preparation of Closing Opinions previously published by the Opinions Committee of the ABA Section of Business Law; and added in bold print content specific to real estate secured finance opinions.
In the years since publication of Real Estate Opinion Guidelines, the opinions committees of the ABA Real Property, Trust and Estate Law Section and of ACREL, along with the American College of Mortgage Attorneys (ACMA), have published jointly extensive comment on opinion letter practice in Real Estate Finance Opinion Report of 2012, Local Counsel Opinion Letters in Real Estate Finance Transactions, and Uniform Commercial Code Opinions in Real Estate Finance Transactions (collectively, the Real Estate Opinion Reports). The Real Estate Opinion Reports in some respects interpreted or modified Real Estate Opinion Guidelines but did not purport to replace them.
More fundamentally, the Statement of Opinion Practices has updated in its entirety Legal Opinion Principles and selected provisions of Business Law Guidelines, the starting points of Real Estate Opinion Guidelines. Given the updating by the Statement and the more specific guidance for opinion practice provided in the Real Estate Opinion Reports as to real estate-centric subject matter, it is time to take an updated look at Real Estate Opinion Guidelines. In doing this, we need to recognize that purpose of guidelines should be to capture succinctly certain fundamental understandings of opinion practice, not to summarize more specific or expansive treatment of subject matter in the Real Estate Opinion Reports.
A basic question in this process is what course to follow: edit existing Real Estate Opinion Guidelines to express them to the extent modified by the Statement and Real Estate Opinion Reports (an editing project); let them exist while recognizing the existence of the newer content as having “updated” them (a non-project, but an approach that matches that of the Business Law Section); or modify the content to conform to Reports or other source evolved views of customary practice, including possibly entirely new content (a drafting project). The answer to the question is influenced by considering to what extent do Guidelines not expressly updated by the Statement or the Reports represent statements of acceptable customary practice.
In this article I present my attempt to pursue the first course – to edit existing Real Estate Opinion Guidelines to express them as modified by the Statement and Real Estate Opinion Reports, while attempting to do minimal damage to the existing Real Estate Opinion Guidelines content. This article provides a snapshot of Real Estate Opinion Guidelines as modified (updated) by the Statement – where are we now literally – and invites examination of the need for separate Real Estate Opinion Guidelines or modification of them, and incidentally further consideration of Business Law Guidelines not updated by the Statement.
The accompanying updated Real Estate Opinion Guidelines should not be considered as a final product but rather as a launching point. Questions and options remain, particularly with respect to the reliance by the Real Estate Opinion Reports on Real Estate Opinion Guidelines while in some respects updating and superseding them, and whether real estate guidelines, if any, should – as the Statement does – lessen the detail and substance in favor of shorter statements of principle.
A Guide to how the original Real Estate Guidelines and the Statement have been considered in Updating Real Estate Opinion Guidelines is also provided.
[Guideline {1.1.1} Purpose][Statement §1 Introduction and §4.1 Expression of Professional Judgment]
Third-party legal opinion letters (“closing opinions”) are delivered at the closing of a business transaction by counsel for one party (the “opinion giver”) to another party (the “opinion recipient”) to satisfy a condition to the opinion recipient’s obligation to close. A closing opinion includes opinions on specific legal matters (“opinions”) and, in so doing, serves as a part of the diligence of the opinion recipient.
An opinion expresses the professional judgment of the opinion giver regarding the legal issues the opinion addresses. It is not a guarantee that a court will reach any particular result.
[New Guideline {1.1.2} Customary Practice][Statement §2 Customary Practice; §8.1 Opinion Recipient and Customary Practice, and §10 Varying Customary Practice]
Closing opinions and the opinions included in them are prepared and understood in accordance with the customary practice of lawyers who regularly give those opinions and lawyers who regularly review them for opinion recipients. The phrase “customary practice” refers principally to the work lawyers are expected to perform to give opinions (“customary diligence”) and the way certain words and phrases commonly used in closing opinions are understood (“customary usage”). Customary practice applies to a closing opinion whether or not the closing opinion refers to it.
An opinion giver is entitled to presume that the opinion recipient is familiar with, or has obtained advice about, customary practice as it applies to the opinions it is receiving from the opinion giver.
The application of customary practice to a closing opinion or any particular opinion may be varied by a statement in the closing opinion or by an understanding with the opinion recipient or its counsel.
[RE Guideline 1.1.a Role of Opinion Giver] Replace with New Guideline {1.1.3}[Statement 3 Legal Obligations and Rules of Professional Conduct]
When giving closing opinions, lawyers are subject to generally applicable legal obligations and to the rules governing the professional conduct of lawyers.
[RE Guideline 1.1.b Adequacy of document opinions] Subject matter MOVED to Guideline 4.0 x
[Guideline {1.2.1} Coverage][Statement §7.1 Matters Addressed; §4.3 Cost and Benefit]
The opinions included in a closing opinion should be limited to reasonably specific and determinable matters of law that involve the exercise of professional judgment. A closing opinion covers only those matters it specifically addresses.
The benefit to the recipient of a closing opinion and of any particular opinion should warrant the time and expense required to give them.
[RE Guideline 1.2.a Applicable Law][New Guideline {1.2.2} [Statement §6.1 Covered Jurisdiction, §6.2 Applicable Law]
When a closing opinion states that an opinion covers the law of a specific jurisdiction or particular laws, the opinion covers no other law or laws.
An opinion on the law of a jurisdiction covers only the law of that jurisdiction that lawyers practicing in the jurisdiction, exercising customary diligence, would reasonably recognize as being applicable to the client or the transaction that is the subject of the opinion. Even when recognized as being applicable, some laws (for example, securities, tax and insolvency laws) are not covered by a closing opinion. A closing opinion also does not cover municipal and other local law. An opinion may, however, cover law that would not otherwise be covered if the closing opinion does so expressly.
Local counsel in interstate loan transactions who serve for the limited purpose of passing on the legality, validity and enforceability of specific security documents and transaction obligations normally are expected to address matters of applicable state law only, and should not be expected or requested to evaluate or address matters of Federal law.
[Guideline 1.3 Relevance][Statement §7.3 Relevance]
Opinion requests should be limited to matters that are reasonably related to the opinion giver’s client or the transaction that is the subject of the closing opinion. Depending on the circumstances, limiting assumptions, exceptions and qualifications to those reasonably related to the client, the transaction and the opinions given can facilitate the opinion process
[Guideline 1.4 Professional competence][Statement §7.2 Matters Beyond Expertise]
Opinion givers should not be expected to give opinions on matters that are not within the expertise of lawyers (for example, financial statement analysis, economic forecasting and valuation). When an opinion depends on a matter not within the expertise of lawyers, an opinion giver may rely on information from an appropriate source or an express assumption with regard to the matter.
[Guideline 1.5 Misleading opinions][Statement §12 No Opinions That Will Mislead Recipient]
An opinion giver should not give an opinion that the opinion preparers recognize will mislead the opinion recipient with regard to a matter the opinion addresses.
[RE Guideline 1.5.a Implied opinions] Moved to 4. Specific Opinions
[RE Guideline 1.5.b “Conduit” opinions] Omitted An editorial change of content.
[Guideline 1.6 “Market” opinions] [No comparable Statement §]
An assertion that a specific opinion is “market” – i.e., that lawyers are rendering it in other transactions – does not make it appropriate to request or render such an opinion if it is inconsistent with customary practice.
[Guideline 1.7 Reliance [by Recipient]][Statement §4.5 Reliance by Recipients and §11 Reliance]
An opinion recipient is entitled to rely on an opinion, without taking any action to verify the opinion, unless it knows that the opinion is incorrect or unless its reliance on the opinion is otherwise unreasonable under the circumstances. An opinion recipient is entitled to expect an opinion giver, in giving an opinion, to exercise the diligence customarily exercised by lawyers who regularly give that opinion.
A closing opinion may be relied on only by its addressee and any other person the opinion giver expressly authorizes to rely.
[New Guideline {1.8} Date][Statement § 9 Date]
A closing opinion speaks as of its date. An opinion giver has no obligation to update a closing opinion for events or legal developments occurring after its date.
[Guideline 2.1 Opinion request and response][No comparable Statement §] incorporates Statement §4.6 Good Faith, RE Guideline 3.3a first two sentences.
Early in the negotiation of the transaction documents, counsel for the opinion recipient should specify the opinions the opinion recipient wishes to receive. The opinion giver should respond promptly with any concerns or proposed exceptions, providing, to the extent practicable, the form of its proposed opinions. Both sides should work in good faith to agree on a final form of opinion letter. Discussion of opinion issues while the transaction documents are being prepared can produce constructive adjustments in the documents and the transaction structure and help to avoid delays in closing the transaction. Should a problem be identified that might prevent delivery of an opinion in the form discussed, the opinion giver should promptly alert counsel for the opinion recipient.
An opinion giver and an opinion recipient and its counsel are each entitled to presume that the other is acting in good faith with respect to a closing opinion.
Absent qualification, the opinion giver may be presumed to have undertaken such legal research, reviewed such documentation, and investigated such matters as is professionally appropriate to render the opinions given. However, any expressly stated limitations as to documents reviewed or the scope of legal and factual inquiry will be given effect.
[Guideline 2.2 Other counsel’s opinion][Statement §8.2 Other Counsel’s Opinion]
Stating in a closing opinion reliance on an opinion of other counsel does not imply concurrence in the substance of that opinion. An opinion giver should not be expected to express concurrence in the substance of an opinion of other counsel.
[Guideline 2.3 Financial interest in or other relationship with client][Statement §8.3 Financial interest in or other relationship with client]
Opinion preparers ordinarily do not attempt to determine whether others in their law firm have a financial interest in, or other relationship with, the client. Nor do they ordinarily disclose any such financial interest or other relationship that they or others in their firm have. If the opinion preparers recognize that such a financial interest or relationship exists, they should consider whether, even if disclosed, it will compromise their professional judgment with respect to the opinions being given.
[Guideline 2.4 Client consent and confidential information][Statement §8.4 Client consent and confidential information]
If applicable rules of professional conduct require a client’s consent to the delivery of a closing opinion, an opinion giver may infer that consent from a provision in the agreement making delivery a condition to closing or from other circumstances of the transaction. Unless a client gives its informed consent, an opinion giver should not give an opinion that discloses information the opinion preparers know the client would not want to be disclosed or as to which the opinion giver is otherwise subject to a duty of non-disclosure under applicable rules of professional conduct.
[Guideline 3.1 Golden Rule][Statement §4.4 Golden Rule]
Opinion givers and counsel for opinion recipients should be guided by a sense of professionalism and not treat closing opinions as if they were part of a business negotiation. An opinion giver should not be expected to give an opinion that counsel for the opinion recipient would not give in similar circumstances if that counsel were the opinion giver and had the requisite competence to give the opinion. Correspondingly, before declining to give an opinion it is competent to give, an opinion giver should consider whether a lawyer in similar circumstances would ordinarily give the opinion.
[Guideline 3.2 Materiality][No comparable Statement §]
When possible, an opinion giver should avoid use of a materiality standard by using objective criteria (for example, a particular dollar amount, a specific category, or inclusion on a specified list) when limiting the matters addressed by an opinion.
[Guideline 3.3 Presumption of regularity][No comparable Statement §]
An opinion giver may rely upon the presumption of regularity for matters relating to its client, such as actions taken at meetings during the period covered by a missing minute book, that are not verifiable from the client’s records (assuming the matters are not inconsistent with those records). Opinion givers ordinarily need not disclose their reliance on the presumption.
[RE Guideline 3.3.a Limitations on document review and due diligence][No comparable Statement §] First two sentences moved to ITEM 2.1. Last sentence deleted. An editorial change of content.
[Guideline 3.4 Use of the phrase “to our knowledge”][No comparable Statement §]
Certain factually oriented opinions, such as the opinions on the existence of legal proceedings, ordinarily are expressed as being to the opinion giver’s knowledge. To avoid a possible misunderstanding over the meaning of “knowledge,” the opinion preparers should consider describing in the opinion letter the factual inquiry they have conducted (for example, by stating what they intend “to our knowledge” to mean or by indicating a limitation on diligence, such as by stating that they are rendering the opinion based solely on their personal knowledge without making any inquiry).
[RE Guideline 3.4.a Definition of knowledge.][No comparable Statement §] Omitted here. Content, except reference to BLS Accord and last 7 words, moved to footnote to ITEM 3.4.
[Guideline 3.5 Explained opinions; “would/should”][No comparable Statement §]
Although closing opinions ordinarily do not set forth any legal analysis, opinion givers may include their legal analysis in an opinion when they believe it involves a difficult or uncertain question of professional judgment and have decided that the conclusions expressed should not be stated without setting forth the underlying reasoning. Such an opinion, which is commonly referred to as an “explained” or “reasoned” opinion, may be unqualified or qualified (i.e., subject to exceptions that are not customary for opinions of the type involved).
Opinions have the same meaning whether stated as “would” or “should.” Either way they express the opinion giver’s professional judgment in the circumstances.
[RE Guideline 4.0 Enforceability opinions][No comparable Guideline § to RE Guideline 4.0 and subsections]
[RE Guideline {4.0.1} (NEW) Implied Opinions] former RE Guideline 1.5a Implied Opinions with editorial change of content.
An enforceability opinion would implicitly include within it consideration of matters essential to its legal conclusion unless there is either (i) some well and carefully established principle that would make such inclusion unnecessary, unreasonable, or recognized as excluded implicitly or (ii) express qualification, limitation, or exclusion of such matters. Under customary practice, an issue is deemed to be covered by the enforceability opinion only when it is both (i) essential to the particular conclusion expressed and (ii) reasonable under the circumstances for the opinion recipient to conclude it was intended to be covered. Examples of opinions that in the real estate secured loan context should not be implied by a general enforceability opinion and are not to be deemed to have been given unless expressly stated include opinions regarding land use laws, environmental laws, and other similar matters.
[RE Guideline {4.02} Exceptions and Assurances] former RE Guideline 4.0.
The inclusion of some form of generic exception to an enforceability opinion, with a corollary assurance from the opinion giver, is nearly universal in real estate secured loan transaction opinions. Assurance that such exception will not impair the “practical realization of the principal benefits included in loan documents” (or words to that effect) is disfavored, inasmuch as the parties may have significantly different understandings of the meaning of “practical realization” or “principal benefits.” Instead, in real estate financing transactions an exception that certain provisions of the loan documents may be unenforceable, coupled with assurance that such unenforceability will not render the transaction documents “invalid as a whole” or preclude judicial enforcement of repayment of the note or payment under a guaranty or acceleration of the note or foreclosure of collateral in the event of a material breach of a payment obligation is widely accepted.
Given the breadth of most formulations of generic exception and assurance and the scope of the generally accepted equitable principles exception, the typical “laundry list” of additional specific exceptions to enforceability in most cases can be considerably shortened or eliminated altogether. Many exceptions are implicit as a matter of customary practice. Such specific exceptions, when taken, should be unnecessary except with respect to (i) matters that may not be clearly encompassed by the bankruptcy, equitable principles or generic exceptions, and (ii) matters that may cause an opinion to be misleading. Once identified by the opinion giver, the importance of specific exceptions to enforceability should be evaluated by the opinion recipient.
[RE Guideline 4.0.a General assurances] Omitted. First sentence moved to footnote to new RE Guideline 4.02 (former RE Guideline 4.0). Second sentence added to new RE Guideline 4.02.
[RE Guideline 4.0.b Usury opinions]
An enforceability opinion includes by implication an opinion that the loan evidenced by transaction documents is not usurious because the remedies opinion addresses the enforceability of the borrower’s agreement to pay interest at the rate stated in the loan documents. It is common practice that such opinions are expressly stated, usually accompanied by express qualifications. If a usury opinion is not intended to be given, it should be expressly excluded.
When a usury opinion is given or implied, the opinion giver may assume without so stating that the lender will not receive, directly or indirectly, any fees, charges, benefits or other compensation except as set forth in the transaction documents. When a usury opinion is based upon an exemption related to the identity or status of the lender, the involvement of a real estate broker or other special circumstances, such facts need not be stated; however, the better and customary practice is to expressly state such factual understandings as opinion assumptions or qualifications.
[RE Guideline 4.0.c Real property title opinions] with editorial change of content.
Requests for opinions as to the ownership of property, the effectiveness of the lien created by security instruments, or exceptions to or encumbrances on title to real property are inappropriate. Opinions as to a mortgage or deed of trust being in form sufficient to create a lien against real property collateral and a recitation of the procedures necessary to provide record notice of such lien are, on the other hand, frequently given. Neither such a “form of documents” opinion nor a general enforceability opinion implies a substantive title, creation, perfection, or priority of lien opinion, and no express disclaimer of such opinions is necessary.
[RE Guideline 4.0.d Personal property security interest opinions] with editorial change of content.
Requests for personal property security interest opinions are appropriate when the transaction involves personal property constituting a significant part of the loan collateral. Opinions describing the form of documents and procedures necessary to create, perfect, and maintain a security interest in real property are frequently requested and given. A substantive opinion, if any, as to the status of the security interest in personal property collateral should be given separately from the general enforceability opinion and is not implied by an enforceability opinion. Such opinions are commonly limited to property covered by Article 9 (and Article 8 as it relates to Article 9) of the Uniform Commercial Code in effect in the jurisdiction covered by the opinion.
[RE Guideline {4.0.e} (NEW) Available Remedies] Text is relocated from RE Guideline 1.1.b with editorial change of content.
Third party opinion recipients sometimes seek assurance that loan documents are legally adequate for the lender’s intended purposes or contain “all customary provisions and remedies.” Such opinions should not be requested or given. In rendering a third party legal opinion to a lender, the opinion giver does not give legal advice to a client, but rather provides an “evaluation” of discrete legal issues specifically included in the opinion request. An opinion request addressing matters that are beyond specific legal issues and that are of the nature of the “broader guidance and counsel” that a lawyer provides to one’s own client is inappropriate in scope. Accordingly, a request for an assurance that the loan documents are legally adequate for the lender’s intended purposes is inappropriate.
Where a lender is not represented by, or has not had its loan documents reviewed by, its own local counsel, and the chosen in-state lawyer is unable to represent the lender directly, in order to save the cost of additional local counsel, borrower’s counsel may be asked to give a more limited assurance to the effect that the loan documents do not omit essential remedies that in the opinion giver’s experience are generally found in similar documents for comparable mortgage loan transactions in the opinion giver’s jurisdiction. In itself, the giving of such a limited assurance does not raise ethical issues and, in fact, constitutes a report of information based upon the experience of the opinion giver, as opposed to a legal opinion; however, in the event such an assurance cannot be given, the opinion giver may not provide further response without obtaining the client’s informed consent (see, supra RE Guideline 1.1a, and also Model Rule of Professional Conduct 2.3(b)(2018)). In addition, the inference created by refusal to provide such an assurance when it cannot be given places the opinion giver in an ethical dilemma in the same manner as in the case of dual representation (see supra, RE Guideline 1.1a). It is for this reason that this opinion request itself is regarded as inappropriate by many experienced opinion givers.
[Guideline 4.1 Foreign qualification and good standing [of Borrower]][No comparable Statement §]
An opinion giver should not be asked for an opinion that the opinion giver’s client is qualified to do business as a foreign corporation in all jurisdictions in which its property or activities require qualification or in which the failure to qualify would have a material adverse effect on the client. Analysis of the “doing business” requirements of each jurisdiction in which the client has property or conducts activities would require an extensive factual inquiry and a review of the law of jurisdictions as to which the opinion giver cannot reasonably be expected to have expertise. This analysis rarely would be cost-justified. Because an opinion on qualification to do business or good standing in foreign jurisdictions is based solely on certificates of public officials, delivery of those certificates without an opinion ordinarily should be sufficient to satisfy the needs of the opinion recipient.
[RE Guideline 4.1.a Jurisdictional requirements [for Lender]]
Opinion requests in multistate secured loan transactions sometimes address (a) the necessity, by virtue of the transaction in question, for the lender to qualify to do business in a given jurisdiction, (b) the consequences of failure to qualify, (c) the ability to rectify any failure to qualify, and (d) whether making the loan, in and of itself, will subject the lender to taxation imposed by the relevant jurisdiction. Such opinion requests are generally not cost justified in view of the extensive and time consuming legal and factual inquiry required and the often limited value of the resulting opinion.
Opinions with respect to the need to qualify to do business with respect to an individual loan transaction are often difficult to give because of the inability to isolate relevant issues through factual assumptions, which themselves may be vitiated by facts or subsequent business activities of the lender, both of which are more readily known by the lender and its counsel. Similar challenges exist for opinions that a single loan transaction will not subject the lender to local taxation. An opinion based on assumptions which may be rendered false by previous unknown activities of the lender or probable additional transactions in the future rarely justifies the cost and effort. Indeed, the decision to qualify to do business in a given jurisdiction and to structure operations in a manner to avoid jurisdictional taxes is a decision that may have little to do with a given transaction. Such issues may often be best addressed by lender’s own counsel, who has greater familiarity with the lender’s overall operations and is in a position to provide advice to its client on these matters, as well as the state-by-state consequences of various business operations and strategies regarding taxation of the lender, rather than by counsel for the borrower in a single loan transaction. On the other hand, where the law is sufficiently clear, an advisory opinion as to the consequences of, and the ability to cure, improper failure to qualify to do business locally may be more feasible for the opinion giver and valuable to the recipient.
The foregoing may be distinguished from situations, which exist in some states, with respect to taxation of mortgages, notes, and other transactional documents and various tax minimization strategies lawfully utilized in such jurisdictions. As these situations are often specific to a given transaction and not necessarily related to the overall operations of the lender or borrower, opinions with respect to such forms of taxation may be appropriate if the factual circumstances and legal analysis support the conclusions to be provided in the requested opinion. In such cases, in light of the relative costs and benefits of the opinion, the parties may determine, in those jurisdictions where such coverages are available, that an appropriate mortgage tax endorsement to a title insurance policy provides the requisite assurances to the lender.
[Guideline 4.2 Outstanding equity securities][No comparable Statement §]
An opinion that all outstanding equity securities of the client are duly authorized, validly issued, fully-paid, and non-assessable can require an extensive legal and factual inquiry (for example, when the client has been in existence for a long time and has had many stock issuances). Consideration should be given to whether the benefit of the opinion to the opinion recipient justifies the cost and time required to support it.
[Guideline 4.3 Comprehensive legal or contractual compliance w/ RE Guideline addition][No comparable Statement §]
An opinion giver should not be asked for an opinion that its client possesses all necessary licenses and permits or has obtained all approvals and made all filings required for the conduct of the client’s business. Similarly, an opinion giver should not be asked for an opinion that its client is not in violation of any applicable laws or regulations or that its client is not in default under any of the client’s contractual obligations. Neither a materiality exception nor a knowledge limitation makes these opinions appropriate. Any legal compliance opinion should be expressly and specifically requested and limited to specific laws. In some cases (e.g., with respect to land use and environmental matters), such opinions may not be appropriate (see infra RE Guideline 4.3.a).
[RE Guideline 4.3.a Land use and environmental opinions] with editorial change of content.
Opinions on zoning, land use and environmental matters are fundamentally different from the evaluations of other issues typically addressed in opinion letters in that they involve complex, technical matters that are not easily, or sometimes at all, susceptible to separation into factual and legal components. Opinions on such matters are not customary in closing opinion letters, and if given, would be presented in a separate opinion letter or confirmation. Land use and environmental matters are normally considered to be the subject of the lender’s due diligence, which frequently includes certificates from architects, engineers and other professionals and communications from relevant public agencies.
[Guideline 4.4 Lack of knowledge of particular factual matters][Statement §5.6 Limited Factual Confirmations and Negative Assurance]
An opinion giver ordinarily should not be asked to confirm factual matters, even if the confirmation is limited to the knowledge of the opinion preparers. A confirmation of factual matters, for example, the accuracy of the representations and warranties in an agreement, does not involve the exercise of professional judgment by lawyers and therefore is not a proper subject for an opinion even when limited by a broadly-worded disclaimer. This limitation does not apply to negative assurance regarding disclosures in a prospectus or other disclosure document given to assist a recipient in establishing a due diligence defense or similar defense in connection with a securities offering.
[Guideline 4.5 Negative assurances] Omitted. Replaced in Guideline 4.4 per Statement §5.6
[Guideline 4.6 Fraudulent transfer][Statement §4.2 Exceptions and Limitations: Equitable Principles and Bankruptcy]
The equitable principles limitation and the bankruptcy exception, which includes related creditors’ rights and fraudulent transfer laws, apply to opinions even when not expressed.
[RE Guideline 4.6.a Substantive non-consolidation]
“Substantive nonconsolidation” opinions address whether the borrowing entity and its assets will be substantively consolidated with an affiliated entity if the affiliated entity becomes subject to a bankruptcy proceeding. In view of the considerable legal research and expense required for such opinions, they should not be requested unless justified by the size of the transaction or the needs of a regulatory agency or underwriter (as in the case of “conduit” or securitized loan transactions). Opinions on this subject, when given, generally rely upon a thoughtful structuring, and require careful analysis, of a special purpose “bankruptcy remote” borrowing entity. Because of the fact-intensive nature of the evaluation, such opinions are usually given in the form of heavily qualified or “reasoned” or “explained” opinions. Such opinions require specialized competency regarding the relevant substantive issues.
[Guideline 4.7 Litigation evaluation][No comparable Statement §]
The opinion giver ordinarily should not be asked to express an opinion on the expected outcome of pending or threatened litigation.
[Guideline 4.8 Matters of public policy][No comparable Statement §]
Because public policy is a principal basis for invalidating contractual provisions, opinion givers should not qualify their opinions as a whole with a general exception for “matters of public policy.” When appropriate, however, an opinion giver may include an exception for matters of public policy with respect to a particular provision (such as a provision releasing the other party from liability without excluding liability for willful misconduct or fraud).
[Guideline 4.9 When law covered by opinion and law selected to govern agreement are different [with RE Guideline additions]][No comparable Statement §]
When a closing opinion does not cover the law of a jurisdiction whose law is selected as the governing law in an agreement, the opinion giver should explore with counsel for the opinion recipient how best to respond to a request for an opinion on the agreement’s enforceability. When an opinion of local counsel is not cost justified, an acceptable alternative may be an opinion of the opinion giver that is limited to the enforceability of the governing law clause under the law covered by the opinion. Another acceptable alternative (which might be combined with the first) may be an opinion that the entire agreement would be enforceable if the law covered by the opinion were to apply (notwithstanding the governing law clause).
When loan documents chose application of the substantive law covered by the opinion, a general enforceability opinion would include the enforceability of such a choice of law provision. It is common for opinion givers to expressly exclude choice of law opinions; conversely, the better and customary practice where such opinions are sought is for such opinions to be expressly requested and separately stated. Choice of law opinions are often given as “reasoned” or “explained” opinions based upon factual assumptions bearing on the opinion conclusion and most often can be only a description of the approach likely to be taken by a court applying existing law in the covered law jurisdiction.
[NEW Guideline 5.1 Reliance on Factual Information and Use of Assumptions][Statement §5.1]
Because the lawyers preparing a closing opinion (the “opinion preparers”) typically will not have personal knowledge of all the facts they need to support the opinions being given, an opinion giver ordinarily is entitled to base those opinions on factual information provided by others, including its client, and on factual assumptions.
[NEW Guideline 5.2 Reliance on Facts Provided by Others][ Statement §5.2]
An opinion giver is entitled to rely on factual information from an appropriate source unless the opinion preparers know that the information being relied on is incorrect or know of facts that they recognize make reliance under the circumstances otherwise unwarranted.
[NEW Guideline 5.3 Scope of Inquiry Regarding Factual Matters][ Statement §5.3]
Opinion preparers are not expected to conduct an inquiry of other lawyers in their law firm or a review of the firm’s records to ascertain factual matters, except to the extent they recognize that a particular lawyer is reasonably likely to have or a particular record is reasonably likely to contain information not otherwise known to them that they need to give an opinion.
[NEW Guideline 5.4 Reliance on Representations That Are Legal Conclusions][ Statement §5.4]
An opinion giver should not base an opinion on a representation that is tantamount to the legal conclusion the opinion expresses. An opinion giver may, however, rely on a legal conclusion in a certificate of an appropriate government official.
[NEW Guideline 5.5 Factual Assumptions][ Statement §5.5]
Some factual assumptions on which opinions are based need to be stated expressly; others do not. Factual assumptions that ordinarily do not need to be stated expressly include assumptions of general application that apply regardless of the type of transaction or the nature of the parties. Examples are assumptions that (i) the documents reviewed are accurate, complete and authentic, (ii) copies are identical to the originals, (iii) signatures are genuine, (iv) the parties to the transaction other than the opinion giver’s client (or a non-client whose obligations are covered by the opinion) have the power and have taken the necessary action to enter into the transaction, and (v) the agreements those parties have entered into with the opinion giver’s client (or the non-client) are enforceable against them. An opinion should not be based on an unstated assumption if the opinion preparers know that the assumption is incorrect or know of facts that they recognize make their reliance under the circumstances otherwise unwarranted. A stated assumption is not subject to this limitation because stating the assumption puts the opinion recipient on notice of the particular matters being assumed. Stating expressly a particular assumption that could have been unstated does not imply the absence of other unstated assumptions.
