Chapter 6 Closing Opinions

• Library: Practical Guide to Commercial Real Estate in South Carolina (SCBar) (2024 Ed.)

Chapter 6 Closing Opinions

Edward G. Menzie

A. Introduction

The goal of this chapter is to provide an overview of the process involved in rendering third-party closing opinions (for convenience, "closing opinions") in real estate financing transactions, and comment on various South Carolina issues that lawyers may be asked to address. A suggested starting point for any attorney that desires to become educated on closing opinions is to review the "Statement of Opinion Practices"¹ and related "Core Opinion Principles"² (collectively, the "Statement of Opinion Practice") prepared by the Legal Opinions Committee of the American Bar Association and the Working Group on Legal Opinions Foundation in 2019, which has received the approval from numerous major lawyer groups and bar association sections to evidence a national consensus on customary practice and other practices applicable to closing opinions. With that introduction, it is recommended that attention be directed to the following three reports: (i)"Real Estate Finance Opinion Report of 2012" adopted by the American Bar Association Section of Real Property, Trusts and Estate Law, Committee on Legal Opinions in Real Estate Transactions, the American College of Real Estate Lawyers, Attorneys' Opinions Committee, and the American College of Mortgage Attorneys, Opinions Committee (the "2012 ABA Report"),³ (ii) "Local Counsel Opinion Letters in Real Estate Finance Transactions, A Supplement to the Real Estate Finance Opinion Report of 2012" adopted by the same opinion committees in 2016 (the "Local Counsel Report"),⁴ and (iii) "The South Carolina Third Party Legal Opinion Report" issued by the Legal Opinion Ad Hoc Committee of the Corporate, Banking and Securities Law Section of the South Carolina Bar (the "South Carolina Report").⁵

The 2012 ABA Report, the Local Counsel Report and the South Carolina Report (collectively, the "Recommended Reports") are educational tools and provide a framework for the preparation of closing opinions. Each has an illustrative opinion with extensive comments. In addition, the Recommended Reports contain references to a host of reports issued by bar association sections and other lawyer groups, as well as citations to opinion treatises, which address additional issues that might be encountered related to a closing opinion.

Unfortunately, developments in opinion practice over the years have not generated the simplicity in closing opinions envisioned when the TriBar Opinion Committee issued its first report in 1979 entitled "Legal Opinions to Third Parties: An Easier Path,"⁶ and certainly not the simplified approach of incorporating interpretive principles by reference as proposed when the ABA Section of Business Law issued the "ABA Accord."⁷ Fortuitously, with the complexities of our modern legal system, the proliferation of multistate transactions, and expanding concepts of lawyer liability to non-clients, it is not advantageous for any lawyer to oversimplify opinion practice. The danger is not only that a streamlined form of closing opinion becomes a trap for the unwary novice, but that it is not continually appreciated for its complexities by more experienced practitioners. The intricacies of the illustrative forms of closing opinions that are contained in the Recommended Reports, as well as the detailed discussions contained therein, serve as reminders of the procedures that a lawyer must follow to properly discharge his or her professional responsibility and render accurate opinions on the various matters requested.

B. Current Resources

Fast-forward to 2023 and lawyers have at their fingertips, via the American Bar Association's "Legal Opinion Resource Center,"⁸ the Opinion Practice Statement,⁹ the Recommended Reports and a host of additional resources on closing opinions. This includes reports from various state bar association sections that contain detailed discussions of legal issues that a lawyer might encounter representing a lender or borrower in an applicable jurisdiction.

The Statement of Opinion Practice is a concise summary of the principles of customary practice and other practices that are applicable to closing opinions generally, even though not necessarily those that have real estate components. It updates an earlier statement of legal opinion principles and guidelines for closing opinions, and because of its direct language, can be easily reviewed and understood. The Statement of Opinion Practice provides an excellent introduction to the Recommended Reports.

The 2012 ABA Report is important for many reasons. First, it comments on professional responsibility, discusses "customary practice," and encourages a cost benefit analysis as to requiring a closing opinion.¹⁰ Secondly, it incorporates updated thinking on customary practice in real estate financing transactions into a new illustrative closing opinion ("Inclusive Opinion II") that even the most experienced opinion providers and recipients are likely to find helpful.¹¹

The Local Counsel Report is an excellent resource for lawyers who are called upon to provide closing opinions in multistate transactions and supplements the 2012 ABA Report with commentary on the role of local counsel, who is only involved in discrete portions of the transaction. This includes language of opinions that local counsel may utilize, including illustrative assumptions opinion statements and limitations that might be tailored to the specific jurisdiction. Lawyers with familiarity with Inclusive Opinion II will find the illustrative opinion contained in the Local Counsel Report to be similar in many respects but with additional assumptions and limitations that dovetail with the more limited opinions of local counsel.

The best resource is saved for last. The South Carolina Report is an outstanding effort by the Corporate, Banking and Securities Laws Section of the South Carolina Bar through its Legal Opinion Ad Hoc Committee to provide guidance to South Carolina lawyers on the preparation of closing opinions, including establishing and defining acceptable opinion practices, identifying opinion issues specific to this state, confirming customary opinion practices, and reviewing national guidelines governing opinion practices.¹² This is accomplished by providing an illustrative form of closing opinion that addressed South Carolina legal issues in detail and then a comprehensive discussion of various legal issues and opinion practices pertaining to rendering closing opinions in South Carolina. If there is one report that should be reviewed on a regular basis in connection with closing opinions, it is the South Carolina Report.

In addition to all the reports and materials contained in the Legal Opinion Resource Center, there are many excellent treatises on legal opinions that should be considered an integral part of an opinion practice library. One of the most comprehensive is Glazer and FitzGibbon on Legal Opinions: Drafting, Interpreting and Supporting Closing Opinions in Business Transactions ("GLAZER").¹³ This treatise is cited throughout many opinion reports and reference to GLAZER in negotiating opinions may be one of the quickest ways to end debate on a contentious issue.

The Recommended Reports and the additional references identified in these materials, as well as GLAZER, represent the resources needed for South Carolina lawyers to address most closing opinion issues. In addition, detailed discussions of opinion considerations related to non-corporate entities can be found in the materials located in the Legal Opinion Resource Center.¹⁴ As a possible additional resource, based on the time and study given to closing opinions in South Carolina by the members of the Ad Hoc Committee that produced the South Carolina Report, less experienced South Carolina practitioners might also consider consulting with a committee member if any doubt exists regarding a closing opinion issue. In this era of e-mails, a request for assistance can be made very unobtrusively, particularly if the issue has first been researched utilizing the resources discussed in this chapter and brought into focus through the composition of a well thought out description of the issues, accompanied by any proposed language that has been drafted or requested.

C. Closing Opinion Basics

Before launching into a discussion of the specific language of a closing opinion, several preliminary comments on opinion practice appear in order, particularly for those lawyers not engaged in providing closing opinions on a regular basis.

1. Cost Benefit Analysis

The first order of business for any lawyer considering a closing opinion is to determine if a closing opinion is actually needed for the transaction. The opinion requirement is normally spelled out in the commitment letter or purchase and sale agreement. If such a requirement exists and the transaction is significant, there will probably be very little room to negotiate removing the requirement. However, if the transaction is not overly complicated or the recipient of the closing opinion is a sophisticated party, a cost benefit analysis might be suggested to remove or at least limit the closing opinion requirements. In any event, because of the complexities of opinion practice in modern business transactions, the closing opinion cannot be looked upon as just another form that needs to be filled out and delivered at the closing. Considerable time and effort are required to properly deliver even the most basic opinion and since at least two law firms will be working on the same document, there will not be insignificant additional cost involved.¹⁵

When a closing opinion is requested, the client should be made aware of the requirements that are placed on the opinion given from a professional responsibility standpoint. There may also be a need for informed consent from the client so that the lawyer can provide the opinion if the client's interests might be adversely affected. Closing...