Legal Opinion Letters: An Overview
At its most basic level, an opinion letter is where one attorney expresses an opinion and another attorney relies on that opinion in a business context. In a legal opinion letter, counsel for the client-typically the client’s corporate or real estate attorney-will issue a written opinion to either the client directly, or to third parties involved in a transaction. While there are many different types of opinion letters that an attorney may issue, the most common are corporate opinion letters (for example, in a securities offering) and real estate (property) opinion letters.
In addition to basic identification information-the names and addresses of the parties involved-the legal opinion letter will typically include: In most situations, the recipient of the opinion letter will be relying on it to enter into some sort of transaction . This means that the letter must be clear and unambiguous, or the recipient may not be able to act on it in a legally binding manner. Further, should the text of the letter turn out to be interpreted incorrectly, the party or parties intending to rely on that text then have a claim against the attorney who drafted it for any damages or losses incurred.
In other words, the legal opinion letter is considered a critical document in any legal or business transaction, and is one of the key ways that attorneys will often confer a "clean" bill of law and equity analysis on behalf of those whom they represent.
Key Elements of a Legal Opinion Letter
There are five basic components to any legal opinion letter: (1) an introduction, (2) an assumptions section, (3) a legal analysis section, (4) conclusions and (5) a disclaimer.
The introduction should briefly describe the opinion giver, the opinion recipient, states that the opinion is issued with respect to the transaction or agreement described in the letter, and describes how the opinion is being delivered (for example, by post or by email).
Immediately following the introduction should be a section entitled "Assumptions." The Assumptions section should adequately define the opinions being requested and then express what assumptions the opinion giver is making in issuing the opinion. The assumptions themselves are not legal opinions; rather, they are criteria that must be met before the opinion can be given. The most common assumptions relate to the authenticity and accuracy of documents (for example, that the documents to which the opinion giver is providing an opinion are authentic and are correct copies of the originals), that there have not been any amendments to documents that would be contrary to the opinion issued, that when a party gives an opinion it means that the opinion giver has performed a due diligence level of review and background check on that party to ensure that the party can give the opinion proposed to be provided.
The next section is usually broken down into several sub-sections to cover the discretely different part of the legal opinion. The first level sub-section is almost always going to be the opinion regarding the corporate existence of the opinion giver for the purpose of the transaction. This includes a representation that the opinion giver is properly formed under the laws of its jurisdiction or jurisdictions of formation and remains in good standing in those jurisdictions. Following the initial corporate existence opinion, the next sub-section is usually regarding the authority of the personnel that will be executing the necessary transaction documents for the opinion giver. This includes a representation by the opinion giver that due action has been taken by its governing body (i.e., board of directors or similar group) authorizing the issuance of the legal opinion. Following the corporate matters opinion, the next sub-section is usually an opinion regarding the enforceability of the transaction documents. The scope of this opinion can vary from a simple statement that the transaction documents are enforceable to an opinion that the documents are binding on and will be enforceable against the particular opinion giver. Following this is the main opinion section, which lists the substantive law opinions. These will depend on the type of transaction documents, but in general the substantive law opinions will usually relate to the opinions relating to the enforceability of the security interests and the effectiveness of the filings.
Following the legal analysis section are a series of conclusions that are explicitly stated, usually as follows: "In light of the foregoing, and based on our review, it is our opinion that [insert substantive law opinions]."
Following the conclusions, and sometimes directly preceding the conclusions with no section header, is a disclaimer. The disclaimer notes that the conclusions are being issued as opinions and not as guarantees and that an opinion is inherently subjective and may differ from an opinion issued by another opinion giver.
Format Requirements for Legal Opinion Letters
Though every transaction is different, several formatting guidelines are fairly universally applicable to legal opinion letter.
Paper and Envelope. The letter should be printed on the law firm’s letterhead if possible, or at a minimum, on good quality paper. The envelope should be addressed to the client but not the recipient and should include the recipient’s address, which should be placed in the bottom left corner of the envelope.
Length: Brief is Best. Legal opinion letters should be as concise as possible. Courts like them short; clients love them when they’re short. While there’s no hard and fast rule concerning the optimal length for an opinion letter set forth above, somewhere between 1-4 pages is probably the sweet spot. But if a respect data room or other due diligence reveals that the prospect of reaching consummation of the transaction is more ephemeral than real, then may be one page is all the letter needs to be to get the message across. On the other hand, for a critical transaction involving large sums of money, such as the acquisition of a business unit, more pages will be required.
Language. Avoid jargon, and use the usual language of business transactions whenever possible. Use "market" and well-known terms rather than precise legal terminology, such as "perfected" and "encumbered," as well as the document types and standard legal forms that investors are used to, e.g., ABC Form 13C-2, rather than verbatim citations to statutes, regulations and court cases. The opinion should always be written in the context of the relevant transaction. This will help provide the necessary accrual that will help minimize the risk of claims by third parties.
The Importance of Clarity and Accuracy
When it comes to the written word, the concepts of clarity and precision are deceptively simple. In fact, both are essential qualities for any communication intended to bridge the great distances between writer and audience. Legal opinion letters are no different in that respect. For opinion letters in particular, which are designed to communicate risk and which carry high stakes for the client in terms of damages, that clarity must also be precise, allowing for no ambiguity or misinterpretation. Even a minor spectral shift in that spectrum of meaning can lead to vast discrepancies in what your reader takes from your opinion letter, especially when it involves counsel relying upon that sentence or two for an understanding of the limitations of a client’s liability.
In speaking about clarity, the key point to keep in mind is simply this: as a lawyer writing for a lay audience, you are functioning as a translator. Clients will not know what "judicial estoppel" means (at least, not off the top of their heads), so it falls to you to explain it. Begin with the presumption that a lay audience knows little more than the basic terms of your agreement, and build from that foundation of knowledge. Abandon the lawyer client lingo – it exists for a purpose, but that purpose is rarely to communicate clearly and effectively.
Of course, we also use legalese when the facts of the case demand it. Sometimes the precision of certain legal and procedural words and phrases offer us unparalleled utility. While it is good advice to use them judiciously, as with any tool, knowing when and how to apply them in the right place can make a huge difference in your document.
Clarity also matters at a structural level. When writing a legal opinion letter, the reader should seemly be able to identify and follow the basic structural components of the document at a glance. Similarly to the untrained eye, one opinion letter can look essentially identical to the next, even if the documents may vary considerably in their contents. Readability and brevity in this regard are an attorney’s best friends. Plain fonts will do, and maintaining consistency and integrity across all aspects of the document can go a long way in easing the reader’s journey.
Common Pitfalls and Ways to Avoid Them
One of the first mistakes that can be made is using an opinion letter template from one of the earlier years, thinking it’s a template approved by the local bar association. The template for opinion letters referenced in the ABA Model Rules has been a work in progress. While now an "official" template, it was in constant flux for many years due to the various organizations involvement in developing the content, timelines for state bar approvals, etc. To ensure you have the latest, updated opinion letter template for your local jurisdiction, you need to go to your secretary of state website to find the most recent opinion letters. Those are what you should use in your opinion letters, not something that you’ve already got on file, thinking you’re all set.
Another major pitfall is to assume terms have the same meaning as they do in a standard legal brief or other legal documents you may submit to your county court. Be careful of terms like: reasonable, substantial, net amount, good standing, qualified and/or other adjectives like that which give a common understanding in business, but has a specific meaning for your court and may change the meaning of what you’re trying to convey in your opinion letter . Make sure you’re looking up the words to ensure they mean what you think they mean.
Another thing to look out for is whether you’re using legal terminology that is relevant to the specific case you’re working on. Don’t think that because you use the terms regularly that it is going to apply to every case. Every new piece of business is going to need a customized legal opinion letter that may differ slightly from other cases you worked on, even if it’s the same court.
Finally, don’t let a couple of missing words from your template throw your whole year off track. There can be times when you’ve got everything in place, everything ready to be filed and you’re missing just a few words from your template to make it perfect for that year. Don’t let a couple of words throw off your whole letter and send you reeling back to worry about how you’re going to get caught up on the paperwork. Just simply refer to that year’s guide in the state bar’s opinion letter preparation manual instead and state it plainly in your opinion letter. You’ll likely find there’s more in that year’s guide that will help you with other issues you may be facing.
Example of a Legal Opinion Letter: Template
When composing an opinion letter, you should strictly adhere to the format requirements of the opinions you are rendering and not to the format you may be used to. Accordingly, it’s good idea to have a standard "template" upon which each opinion letter is based and from which each opinion letter is derived. Following is a sample template letter, which contains all of the required components of a legal opinion letter:
DATE
TO:
FROM:
RE:
OPINION:
We have acted as counsel for [Names] (the "Company") in connection with the transactions contemplated by a [Name of Instrument] dated as of [insert date] (the "Transaction") entered into between the Company and [Names] (the "Other Parties") and described in the Opinion Letter Request and the general applicability of such opinion to certain legal matters arising under the laws of the State of [name state] and the General Corporation Law of the State of [name state] (as in effect on the date hereof), in each case as they relate to the Company solely in the case of the legal sufficiency or enforceability of the Transaction. This opinion is being delivered to the Company in connection with the rendering of the opinion of [Name] of even date herewith.
Accordingly, in connection with the rendering of the foregoing opinions and based upon such counsel’s review of such documents and its examination of such questions of law and its investigation of such facts, it is such counsel’s opinion that the statements of law contained in the Opinion Letter Request under the caption "General Legal Matters" numbered 1-6 (the "Opinion Paragraphs") are true and correct in all material respects, and that the Transaction will be legally sufficient and enforceable against the Company.
COMPANY NAME
By: [Your Name]
[Title]
Enclosure: [Opinion Letter Request]
Legal Opinion Letter in Various Jurisdictions
The essence of the legal opinion letter remains universal. However, the nuances of such a letter may differ from one jurisdiction to another. Here are some of the considerations: Most legal opinion letters are governed by U.S. law, but foreign entities often rely upon foreign counsel to opine on matters peculiar to their home countries. They may also choose to have U.S. counsel opine on their activities. If the foreign entity does not have a U.S. presence , a local firm should be retained to assist. Foreign lawyers and those of us in the U.S. have different styles and approaches. Foreign lawyers may have to rely upon their understanding of U.S. law when dealing with U.S. lawyers and judges. That is why the legal opinion letter is a good vehicle for allowing foreign lawyers to guide U.S. lawyers as they proceed with transactions involving foreign subs. The legal opinion letter may also cover corporate governance issues. Every country is different and the corporate laws of different jurisdictions may be inconsistent. The legal opinion may reflect these inconsistencies and give a resolution to any conflicts.