What is a Legal Opinion Letter?
A legal opinion letter is a concise document vetted by an attorney that provides an interpretation or analysis of legal rights, responsibilities, or documents. It is generally not used to provide advocacy for one side (although, given the right situation, it can be). Rather, it is meant to provide a neutral, relatively straightforward explanation of a legal right or duty. Legal opinion letters are often used in business contexts, where parties need to know whether something is legal before taking an action that will have legal ramifications . For example, a business may have to choose between two avenues; whichever it chooses, it needs to be able to show that there are no legal issues with its choice. Generally, if the business can get an opinion letter stating as much, that opinion letter will be sufficient to show this. Both clients and attorneys should value or be concerned with the clarity and certainty of a legal opinion letter. Obviously, the opinion needs to be understandable to non-legal professionals, but it also needs to be clear enough for a layperson to determine that the opinion is valid.
Key Elements of a Legal Opinion Letter
To be effective and persuasive, a legal opinion letter should contain the following components:
Introduction: The introduction of the legal opinion letter presents the opinion, identifies the documents on which the opinion is based, and states the law that will be relied upon in forming the opinion. It also should provide that there is no intention of rendering an opinion on any matters that would not normally be included in a legal opinion by those who are customarily asked to provide such opinions. It is important for the lender and its counsel to agree on the contents of the introduction, as it frames the document and sets the reader’s expectations for what will be included.
Factual Background: To provide context as to how the opinion was formed, the factual background should include basic facts such as the date of the transaction; the parties to the controversy; and the documents on which the opinion is based. It should relate the legal opinion to the transaction that is the subject of the lender’s request. This part of the legal opinion can be relatively short or long, depending on the complexity of the deal and the complexity of the opinion.
Assumptions: Assumptions set forth the legal basis for the conclusions of the legal opinion. They serve not just as a basis from which the conclusions flow, but also as an explanation as to why the letter is so short and concise – because not all of the conclusions are supported by analysis, and many rely on previously accepted assumptions.
Legal Analysis: Typically the meat of the legal opinion letter contains the legal analysis under each assumption. It encompasses a discussion of the authorities referenced in the assumptions, as well as any additional supporting authority for issues that were not included in the assumptions. It also articulates the reasons for those conclusions. It thus provides the lender with the analytical basis for the opinion; the borrower may believe that the legal analysis is too thin to rely upon, and, consequently, may not agree to deliver the legal opinion without an amendment that caps the opinion to only those issues which are sufficiently analyzed in the legal analysis section.
Conclusion: In this section, it is sometimes helpful to remind the reader of the fundamental legal principle that is the basis for the opinion, and to tie the legal analysis and the conclusion together. Below the conclusion, the opinion letters typically state that only those person who are experienced in the subject matter are qualified to opine on the subjects included in the opinion. In addition, in states that require the opinion to be effective counsel, the conclusion should note that the opinion is rendered solely between counsel and the recipient, that it may not be relied upon by any other party, and that the opinion may be referred to in the recordation.
Organization of a Legal Opinion Letter
Opinions on English law can get complicated as they are framed as a series of specific answers to questions. Starting with any assumptions that you are making should help the reader keep track of where you have got to. There is no need to repeat questions in your letter so if there are many specific questions I like to set out the questions at the start and then make it clear where the answer to each question is in the letter. You may however prefer to set out the questions as headings within the body of the letter.
In terms of substance you should make sure you start with the question and then provide a clear answer to it before setting out any explanation as to why you have given that answer and any other explanation that is needed. A lawyer ill-prepared for a due diligence meeting gave me an opinion that was a perfect piece of corporate comms for the company giving the representations in a contract but was next to useless to any third party who might not have had the benefit of the same background briefing that the lawyer had. I had to go through the letter and extract out the answers to the questions so that I could understand what it was saying. Opposing practitioners may prove equally frustrating.
As a result of the above you can find that the best way to structure an opinion letter is to start with a series of questions and progressively turn them into answers (alternating as necessary with additional explanatory commentary) until you reach your conclusions. It may not be possible to do so if you find you have not been provided with all the facts you need to be able to answer some questions or make the assumptions needed to prepare the opinion (in which case you give the answers by reference to your assumptions) but in most cases taking that approach should make life easier for the reader.
Tips for Drafting a Legal Opinion Letter
When dealing with a sophisticated client or recipient, it’s important that the opinion is drafted with language and style that demonstrates you speak their language. This is particularly critical when the recipient is a lender, equity investor, other lending institution, purchaser of a company or its assets or an institutional or other creditor. In other words, the sophisticated parties should be the target audience for your letter. It’s also important that the opinion is addressed to appropriate parties—not just a client and its senior executives, but also the recipient’s business team members such as potential lenders, equity investors, other lending institutions, purchasers of a company or its assets or other creditors who will be reading the opinion in order to do due diligence on the matters reviewed in the opinion or on the transaction to which the opinion relates.
You should draft the opinion so that it answers the basic questions that recipients are likely to have. For example, even if not required and even if they are not a specified addressee, opinion recipients who are lenders are likely to have questions such as the following . Does the opinion contain any so-called "caveats" that limit the scope of the opinion? If so, what are they? Are there any assumptions? If so, what are they? What are the material exceptions?
It is important to use a language that is readily understandable and to use conventional terminology. Opinion recipients may view use of unconventional terminology as an indication of the opinion giver’s unfamiliarity with the applicable law. As an example, we recommend using the word "shall" only to refer to whatever the opinion giver is of the opinion is required under the law or by the contract or document opinion giver is opining on to avoid giving the impression that the opinion giver is advocating a change in the law or suggesting a different view on the law from what is stated in the opinion. Articulation of conclusions as "as of , to the best knowledge and belief of the opinion giver" or "to the best knowledge and belief of the opinion giver after due inquiry" may be helpful in conveying the subjective nature of the knowledge qualifications. In addition, if you’re uncomfortable using the term "opinion" or "opinion letter," you can use terms such as "letter" or "summary letter." Finally, use the expression "opinion of [name of opinion giver]" instead of "opinion of [law firm]."
Common Mistakes to Avoid
As is the case with drafting any document, whether a pleading or a contract, mistakes can be made in an opinion letter that, in the end, have potentially far-reaching ramifications. The three most notable areas where issues can arise are discussed below:
Legal Analysis and Advice: The overall goal of an opinion letter is for the lawyer to provide reasoned advice to the client and other recipients, regarding the items being opined upon. In order to do that accurately, the lawyer must address all applicable law in a comprehensive way. Opining on five of seven legal issues at the same time is a common mistake in opinion letters and oftentimes causes issues on the back-end with litigation, should the litigation result from the business deal that required the opinion letter. Avoid cutting corners in order to save time, as you will likely end up costing yourself time, and money, later down the road.
In addition to opining on too few legal issues, some uncommon issues, as mentioned above, may simply not be addressed because it has become "customary" to not opine on them. For example, an opinion letter in a commercial mortgage context rarely addresses usury laws. Usury is the practice of charging interest at a rate higher than the lender may recover under state law. However, while this issue is not universally addressed in opinion letters, those lawyers who practice in states where usury laws are widely publicized, such as New York, may choose to include an opinion on the issue, which would require diligence and research on the issue before doing so.
Practitioners should be cognizant of what common issues they are not addressing in their opinion letters, and be prepared to address those issues should they arise.
Incomplete Information: While it is important to ask for all information necessary to draft an opinion letter, it is equally important to be cognizant of the fact that an opinion letter, no matter how well-written, cannot be used as a tool to make a determination as to "know-your-client," or KYC, requirements. It is improper, for example, to ask for an opinion letter in order to confirm that the shareholders or management of a company have been thoroughly vetted by the requesting party, and to utilize the letter to satisfy that requirement.
Similarly, if you do not have all of the information necessary to form the appropriate opinion requested, do not be afraid to indicate that you are unable to provide the full requested opinion letter, unless the client works with you to provide the additional information you need.
Omitting Deal-Specific Issues: If a company is engaged in a unique line of business or transaction, and the deal may impact that line, it is important to reflect that issue in your opinion letter. For example, if the company is a hedge fund with a borrowing base that could be impacted by an economic downturn, this issue should be reflected in the opinion letter, noting this potential risk while maintaining that it is not current with respect to current market conditions.
Legal Opinion Letter Sample
In this section, we provide a sample template of a legal opinion letter. The example gives placeholder text and annotations for the purpose of each section, the relevant context, and the recommended content for the section.
AGREEMENT
This Legal Opinion Letter (the "Legal Opinion") is issued to you in connection with the [describe instrument, agreement, etc. to which this Legal Opinion applies] (the "Agreement"), to which the undersigned is a party, and which is dated as of [insert date]. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Agreement.
FOR CONSIDERATION
The undersigned has prepared this Legal Opinion to be considered by you in connection with the Agreement. A copy of this Legal Opinion has been included in this transcript.
RECIPIENT
The Legal Opinion is addressed and issued to [insert name of opinee]. The undersigned has consulted with the following other counsels from [insert name of issuing attorney’s law firm], referred to herein as our "Firm", in connection with the preparation of this Legal Opinion: [insert names of other lawyer-contacts].
LIMITATIONS
The issuance of this Legal Opinion is subject to the following limitations:
(a) The undersigned is a member of the Bar of the State of New York and is not admitted to the Bar in the State of [insert state other than New York]. The undersigned does not purport to be an expert on the law of [insert state other than New York] .
(b) This Legal Opinion only addresses the current laws of the State of New York, the United States of America, and the applicable rules of the courts of the State of New York and the courts of the United States of America, as well as the laws and rules of jurisprudence of [insert state other than New York].
(c) The undersigned has not reviewed and does not purport to address, advise, or express any opinion regarding the laws of any state or territory or foreign country.
SOURCES
The undersigned has based this Legal Opinion on the following sources:
(a) The legal requirements established by common law, statutes, rules, and regulations of the State of New York, the State of [insert state other than New York], and the United States of America (the "Applicable Laws") that governs. The undersigned does not purport to address issues arising under, or advise with respect to issues governed by, the laws or jurisprudence of any jurisdiction other than those listed above.
(b) The undersigned’s knowledge and experience with the Applicable Laws, as well as prior opinions of the undersigned or other attorneys of our Firm addressing similar legal issues presented in the Agreement.
(c) The respective representations, warranties, covenants, and agreements, as well as acknowledgments and consents, made by the undersigned and other parties to the Agreement.
OPINION
The undersigned is of the opinion that, for the reasons set forth herein, each of the parties’ representations and covenants that appears in Article [insert article number on which opinion is being rendered] of the Agreement are true and correct as of the date hereof.