Reliance letter
Reliance letter is an additional letter which can be attached to the reports, send from one party of the agreement to another. Author of the report under some circumstances can, but not always must, attach this letter to the report. This works as a confirmation that the other party can rely on the content of the full report, or rely on the specific part of that report[1].
Reliance letter is commonly used in construction work, design and engineering projects. That's because in those cases managers, designers and engineers usually create reports. Those reports are formal documents that provide pieces of important information about the processes, stages or more general information, even about entire industry. Creators of those reports wants to get a document from an geotechnical or environmental professional, which allows people or companies interested in a progress of work, to rely on the contents of the report. Reliance letter can also be a contract, but it depends on a few factors: offer, acceptance, remuneration for promises in the letter, intention of parties concerning legal effect of the letter. Most commonly used change this letter into a contract is consideration clause, which indicates both legal and contractual relationship of the parties[2].
For instance:
Company A is selling a construction sites to company B. In this case company A can order an estimation of environmental conditions, that company B will rely on later, during making decision about purchase and a price. In this case company A as a creator of that report can attach a reliance letter issued by environmental professional confirming that the purchaser can rely on the contents of the report.
Who is authorized to issue the reliance letter
Reliance letters can only be issued by environmental professionals. Specifications of this position are settled by 40 Code of Federal Regulations. According to which: Environmental Professional means: a person who possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases on, at, in, or to a property, sufficient to meet the objectives and performance factors[3]. Person who works as an environmental professional also should be current in the specified field of science or industry by continuing education. To become such a professional person needs to[4]:
- possess current registration or a license from a state, and have relevant working experience of three years or,
- be licensed or certified by the government, or state, for environmental inquiries and also have relevant working experience of three years or,
- possess a higher degree in a discipline of science or engineering and five years of relevant working experience or,
- have more than ten years of relevant working experience.
What should be in the reliance letter
This letter should include[5]:
- A list or description of the reports or report that letter concerns, which needs to be transparent, so that can be easy to verify to which exact report it was made for,
- The reason for the reliance, such as purchase or developing,
- Guaranty that the reasonable skills and care were used by the author during creating the report.
- Guaranty of the environmental investigation.
- Details of the agreement, limiting liability of partaking companies or people,
- Alternative restrictions of liability, such as time period,
- License for the usage,
- Confirmation of insurance coverage,
- Payment,
- Handwritten signature of the environmental professional,
- Handwritten signature of the representative of the company,
Examples of Reliance letter
- A Reliance letter can be attached to the report, which is sent by the auditor to the client. The letter confirms that the client can rely on the accuracy and completeness of the auditor’s report.
- A Reliance letter can also be sent from a lender to a borrower. This letter states that the lender acknowledges that the borrower has met all the conditions set forth in the loan agreement and that the lender will honor the agreement.
- A Reliance letter can also be sent from a company to an investor. This letter confirms that the company will abide by the terms of the investment agreement and that the investor can rely on the company's financial statements.
Advantages of Reliance letter
A reliance letter has a number of advantages, including:
- Increased clarity: A reliance letter can provide additional clarity to the information in the report, as well as the parties involved in the agreement. This can help to ensure that all parties understand the contents of the report and the implications of the agreement.
- Legal protection: Reliance letters can serve as legal protection for both the author of the report and the party relying on it. By having the author state that they are willing to stand by the accuracy of the report, it can protect both parties from legal action should the report be inaccurate or misleading.
- Improved trust: A reliance letter can help to build trust between the parties involved in the agreement, as it provides a written assurance that the report is accurate and reliable. This can be especially helpful if either party has any doubts about the accuracy of the report.
- Increased accountability: A reliance letter can also serve to increase accountability for the report, as it holds the author accountable for the accuracy of their work. This can help to ensure that the report is accurate and trustworthy.
Limitations of Reliance letter
A reliance letter is beneficial, yet it has its limitations. These include:
- It does not guarantee the accuracy of the report, as the author is still responsible for the accuracy of the information contained therein.
- It does not provide any assurance regarding the conclusions or opinions expressed in the report.
- It is not a substitute for detailed analysis nor does it replace the need for a party to conduct its own due diligence.
- It does not provide any warranties or guarantees, either express or implied.
- It does not remove or limit the liability or responsibility of the author for any errors or omissions contained in the report.
- It does not constitute any form of legal advice or opinion.
- It does not constitute any form of agreement or contract between the parties.
- It does not create any obligations or liabilities on the part of either party.
Reliance letter is an additional letter which can be attached to the reports, send from one party of the agreement to another. Author of the report under some circumstances can, but not always must, attach this letter to the report. This works as a confirmation that the other party can rely on the content of the full report, or rely on the specific part of that report.
Apart from Reliance letter, there exist some other approaches for providing assurance for the reports content:
- Auditors' reports - this is a formal opinion given by the auditor on the financial statement of the company, which is intended to give assurance that the financial statement is accurate and reliable.
- Review engagements - this is a process of obtaining limited assurance from the auditor that there are no material modifications that should be made to the financial statement in order for it to be in accordance with the applicable financial reporting framework.
- Compilation engagements - this is a process of obtaining assurance from the auditor that the financial statements are presented in accordance with the applicable financial reporting framework.
- Assurance engagements - this is a process of obtaining assurance from the auditor that the financial statements are free from material misstatements.
In summary, apart from Reliance letter, there exist various other approaches for providing assurance for the reports content, such as Auditors' reports, Review engagements, Compilation engagements, and Assurance engagements.
Footnotes
| Reliance letter — recommended articles |
| Certificate of acceptance — Letter of acknowledgement — Commissioner for oaths — Disclaimer of warranties — Inchoate instrument — Certificate of substantial completion — Interim certificate — Certificate for payment — Scope of activities |
References
- Feldstein S. G., Fabozz F. J., (2011), The Handbook of Municipal Bonds, J. Wiley & Sohns Inc., p: 79-89,
- GHD Limited, (2017), Reliance Letter., p:1-3,
- Legal Information Institute, (2019), Electronic Code of Federal Regulations., Cornel Law School,
- Telsey A. I., (2014), New Jersey Environmental Law Handbook., Bernan Press, p: 5-7,
- TERMS Environmental Services Inc., (2019), Reliance Letter., p: 1-2,.
Author: Artur Bućko
