Legal opinion letters (“Opinion Letter”) have become a very valuable piece of a loan transaction for all parties involved.  More often, Lenders are now requiring that a Borrower’s counsel provide an Opinion Letter at the closing of a transaction.  An Opinion Letter addresses legal conclusions and opines as to the legal effect and legitimacy of the transaction and can be relied on by the Lender in a transaction.

While the Opinion Letter is a valued commodity for the Lender to receive, it’s also highly regarded by Borrower’s counsel and could potentially become a costly liability down the road if the loan defaults and the Lender relied on a representation in the Opinion Letter that proves to be false.  Therefore, an Opinion Letter is not something either party should treat lightly and many law firms do not willingly provide one without a commensurate cost attached.  This cost is typically passed on to the Borrower in the transaction, and the costs can be potentially significant.  Therefore, the Borrower also needs to consider the prospective costs associated with the Lender requiring an Opinion Letter.

At the beginning of any loan transaction, all parties should address whether an Opinion Letter will be required, the costs that are associated with drafting/receiving one, and who is responsible for those costs and fees.  The scope, costs, and timing of the Opinion Letter can be negotiated from the outset, and all parties can properly prepare and protect themselves from any surprises as the transaction progresses.

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