Opinion letters in real estate transactions - what are they and when do you need one?

With increasing globalisation, it is becoming more likely that you will enter into a legal document with a foreign party (i.e. not incorporated in England). When doing so, you should consider whether an "opinion letter" is required. This is essentially a formal letter from a firm of lawyers qualified in the law in the same jurisdiction as the foreign party stating whether the obligations in the legal documentation will be enforceable against the foreign party.

When is an opinion letter required?

An opinion letter may be required where you enter into any legal documentation with a foreign party. There are certain instances where it will be essential e.g. granting a lease with a foreign tenant or surety, a sale to a foreign party with provisions for a delayed payment of the purchase price or an overage. In some circumstances where there are no or very limited obligations on the foreign party a commercial view may be taken that no opinion letter is required e.g. a simultaneous exchange and completion of a sale to a foreign party with no transfer covenants, or a lease granted by a foreign party.

What is an opinion letter?

The letter should confirm that the local lawyers are qualified to practice law in the relevant jurisdiction. The letter should address a number of legal (as apposed to factual) matters, typically including but not limited to the following:

• that the obligations in a legal document are legal, valid and binding on and enforceable against the foreign party;
• that the party has the power to and all necessary authorisations to enter into the relevant documents;
• that the documents are being signed by the foreign party in a way which will be binding;
• that an overseas court will enforce a judgment obtained in an English court without reconsidering the merits of the case;
• confirmation that no tax is payable in the foreign country in relation to the transaction.

The opinion letter not only gives the English party comfort as to legal issues that may arise in respect of enforcement and the validity of documents but also an additional person (i.e. the lawyer preparing it) can potentially be sued for negligence if the opinion letter is incorrect.

Common issues with opinion letters:

• The initial draft for an opinion letter is normally prepared by the solicitors for the English party requesting the opinion. The form received from the foreign lawyers will often vary from this draft (particularly where US lawyers are involved). The whole point of the opinion letter is that it is a statement as to the correct law in the relevant jurisdiction. If, for example, an overseas court will not enforce an English judgment without reconsidering the merits of the case then you need to be aware of this. Therefore amendments to the drafts need to be carefully considered to see if there are any issues which may be of concern in the foreign jurisdiction although it is normal practice to accept certain qualifications and reservations (for example, the lawyers may not be able to say that a particular remedy will be available even if the documentation is enforceable and will therefore wish that to be understood in relation to the statement as to enforceability).
• Not addressed to successors in title - it is important that letters expressly benefit successors in title, so if the benefit of the obligations passes to another party they can be sure they can rely on the letter e.g. if a landlord sells reversion of a lease with a US tenant. You may also wish to benefit mortgagees of the landlord's interest.
• Offered by an in-house lawyer - an opinion letter from a third party law firm gives additional protection as the law firm may be sued if it has been negligent in preparing the opinion. An opinion from an in-house lawyer does not give this additional layer of protection.
• Leaving obtaining an opinion letter too late - it can take a considerable amount of time to get an opinion letter issued and it must be obtained before exchange/ completion. Therefore it should be put in hand at the beginning of the deal so that exchange / completion is not delayed.