Legal Definitions - letter of comment

A letter of comment is a formal communication, typically from a regulatory authority or an opposing party in a transaction, that identifies deficiencies, raises questions, or requests additional information or revisions regarding a submitted document. It serves as a preliminary response, indicating that the submitted material is not yet satisfactory for approval or finalization and requires further action or clarification from the submitting party.

Here are some examples illustrating the application of a letter of comment:

• Example 1: Environmental Permit Application

  A manufacturing company submits an application to the state environmental protection agency for a new wastewater discharge permit. After reviewing the application, the agency sends the company a letter of comment. This letter specifies that the application lacks detailed engineering schematics for the proposed treatment facility and requests additional data on the chemical composition of the discharge, which are necessary to ensure compliance with environmental regulations.

  This illustrates a letter of comment because the environmental agency, as a regulatory body, is formally identifying specific omissions (missing schematics, insufficient data) in the submitted permit application and requesting further information before it can approve the permit.

• Example 2: Public Company Financial Filings

  A publicly traded corporation files its annual report (Form 10-K) with the Securities and Exchange Commission (SEC). Following its review, the SEC issues a letter of comment to the company's legal counsel. The letter points out that the company's disclosure regarding its cybersecurity risks is too general and requests more specific details about the measures taken to mitigate these risks, as well as a clearer explanation of certain revenue recognition policies.

  Here, the SEC, a key regulatory authority, uses a letter of comment to formally communicate areas in the company's financial filing that require clarification or revision (vague risk disclosure, unclear accounting policies) to meet regulatory standards.

• Example 3: Real Estate Purchase Agreement

  During negotiations for the purchase of a commercial property, the buyer's attorney sends a draft purchase agreement to the seller's attorney. The seller's attorney reviews the draft and responds with a letter of comment. This letter highlights several clauses that are unacceptable, requests changes to the closing date and earnest money deposit terms, and asks for clarification on the seller's representations regarding the property's environmental condition.

  This scenario demonstrates a letter of comment because the seller's attorney is formally communicating specific issues, requested modifications, and points needing clarification within the draft legal document (the purchase agreement) before the parties can agree to its terms.