Virginia Report on Third-Party Legal Opinions in Business Transactions Legal Opinions Committee of the Business Law Section of The Virginia Bar Association JANUARY 2018 © Copyright 2018 by The Virginia Bar Association. Permission is hereby granted to members of The Virginia Bar Association Business Law and Real Estate Law Sections and purchasers of this Report to make copies or extracts of it in connection with their practice of law but not for any commercial purpose. REPORT ON THIRD PARTY LEGAL OPINIONS IN BUSINESS TRANSACTIONS BY THE OPINIONS COMMITTEE OF THE BUSINESS LAW SECTION OF THE VIRGINIA BAR ASSOCIATION TABLE OF CONTENTS I. INTRODUCTION .................................................................................................................. 1 A. Background ...................................................................................................................... 1 B. Purpose of Report ............................................................................................................ 1 C. Customary Practice .......................................................................................................... 2 II. STATEMENT OF POLICY ................................................................................................... 3 III. GENERAL CONSIDERATIONS ...................................................................................... 3 A. Use of Third-Party Opinion Letters ................................................................................. 3 B. Ethical Considerations ..................................................................................................... 4 C. Due Diligence .................................................................................................................. 6 D. Liability Issues ................................................................................................................. 7 IV. STRUCTURE OF THE THIRD-PARTY OPINION LETTER ......................................... 8 A. General Format ................................................................................................................ 8 B. Date .................................................................................................................................. 8 C. Addressee ......................................................................................................................... 9 D. Reference Line/Caption/Description of the Transaction ................................................. 9 E. Salutation ....................................................................................................................... 10 F. Role of the Opinion Giver.............................................................................................. 10 G. Subject Matter of, and Reason for, the Opinion ............................................................ 11 H. Conflicts of Interest........................................................................................................ 11 I. Definitions...................................................................................................................... 12 J. Scope of Inquiry ............................................................................................................. 12 K. Meaning of Knowledge.................................................................................................. 12 L. Underlying Assumptions ............................................................................................... 13 M. Introduction to Opinion Paragraphs; Opinion Paragraphs ............................................. 13 N. Covered Law .................................................................................................................. 13 O. Excluded Areas of Law .................................................................................................. 16 P. Limitations on Third-Party Reliance ............................................................................. 16 Q. Limitations on Duty to Update ...................................................................................... 17 i The Virginia Bar Association www.vba.org R. Closing and Signature .................................................................................................... 18 V. SCOPE OF INQUIRY .......................................................................................................... 19 A. Statement of Scope of Inquiry, Including Documents Reviewed .................................. 19 B. Reliance on Matters of Fact ........................................................................................... 20 C. Other Opinions of Counsel ............................................................................................ 21 D. Local Counsel ................................................................................................................ 22 VI. UNDERLYING ASSUMPTIONS; EXCLUDED AREAS OF LAW; EXCEPTIONS, QUALIFICATIONS AND LIMITATIONS ................................................................................. 22 A. Implicit Assumptions ..................................................................................................... 22 B. Express Assumptions ..................................................................................................... 24 C. Excluded Areas of Law .................................................................................................. 24 D. Knowledge ..................................................................................................................... 25 E. Exceptions, Qualifications and Limitations ................................................................... 26 VII. COMMON OPINIONS AND RELATED DUE DILIGENCE ........................................ 27 A. Status .............................................................................................................................. 27 B. Authority to Transact Business in Virginia ................................................................... 30 C. Power ............................................................................................................................. 31 D. Authorization, Execution and Delivery ......................................................................... 33 E. Equity Issuances............................................................................................................. 36 F. No Violation of Law ...................................................................................................... 44 G. No Violation of Organizational Documents .................................................................. 45 H. No Violation of Agreements and Court Orders ............................................................. 46 I. No Consents and Approvals........................................................................................... 48 J. Enforceability/Remedies ................................................................................................ 49 K. Statement of No Litigation............................................................................................. 54 L. Choice of Law ................................................................................................................ 56 M. Usury .............................................................................................................................. 57 VIII. REAL ESTATE FINANCE OPINION ISSUES .............................................................. 58 A. Recordability of Deed of Trust; Granting of Valid Lien; Perfection ............................. 59 B. Specific Assumptions and Qualifications ...................................................................... 61 C. Recordability of Assignment of Leases and Rents; Valid Lien; Perfection .................. 63 D. Validity and Enforceability of Deed of Trust ................................................................ 65 E. Deed of Trust as Security Agreement; Fixture Filings .................................................. 67 ii The Virginia Bar Association www.vba.org F. Recordation Taxes ......................................................................................................... 69 G. Priority of Future Advances ........................................................................................... 70 H. Loans as Transacting Business in Virginia .................................................................... 71 I. Adequacy of Documents Opinion .................................................................................. 71 J. Permits ........................................................................................................................... 72 K. Zoning, Subdivision and Land Use Opinions ................................................................ 72 L. Title Opinions ................................................................................................................ 72 M. Environmental Opinions ................................................................................................ 72 IX. SECURED TRANSACTIONS OPINIONS UNDER ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE................................................................................................................ 72 A. Introduction, Background and Scope of Opinions ......................................................... 72 B. Parties ............................................................................................................................