Reliance Letters for Property Condition Reports: What They Say and Who Gets One

A property condition report is prepared for one party, the user, and its limiting conditions say only that party may rely on it. A reliance letter is how the consultant extends that reliance to someone else, usually the lender, without rewriting the report.

What it does

The letter states that a named party may rely on the identified report as if it had been prepared for them, subject to the same scope, limitations and conditions. It does not change the findings, extend the site-visit date, or add warranties. Its legal effect is to bring the relying party inside the duty of care the consultant owes the user, which is why consultants keep it narrow.

Who asks for one

• The lender, almost always, because it is underwriting a loan on a report the buyer commissioned.
• Loan participants, a servicer and a trustee, on securitised loans; rating-agency criteria expect the originator, depositor and trustee to be named.
• A buyer, when the seller or a prior lender commissioned the report and the buyer wants to use it rather than order a new one.
• An insurer or a public agency involved in the financing, occasionally.

What it must reference

• The report by title, property, date and project number.
• The user for whom it was prepared.
• The relying party by full legal name, and any related parties (participants, successors and assigns, if agreed).
• The scope of the assessment as stated in the report, and the limiting conditions, incorporated by reference.
• Any conditions: that the relying party has read the report in full; that reliance is limited to the transaction described; that the letter adds no new opinions.
• Professional liability insurance, if the lender requires it stated.
• Signature by the firm, typically the reviewer or a principal.

What it should not do

Extend the report's shelf life (lenders usually want a report within a set number of months of closing; an old report plus a new letter does not reset the clock), add a warranty of condition, or extend reliance to unnamed future parties. Consultants who are asked for open-ended "successors and assigns" language should decide what they are willing to accept and price it.

Timing and fee

Lenders request the letter between commitment and closing. Firms either include one letter in the report fee or charge a modest fee per additional relying party, and a per-letter fee is common on securitised deals with several named parties.

Drafting it from the report

Everything the letter needs is in the report's cover, purpose section and limiting conditions. Baseline PCR's delivery panel drafts the letter from those fields on the firm's letterhead when you enter the relying party; the reviewer edits and sends it as they would any other letter. The letter is the firm's; the software fills in the facts. See approving and delivering and the sample report.