Revenue – ifrs 15 handbook

Use of legal opinion when assessing enforceability of right to 
payment
IFRS 15.B12
In some cases, an entity may have an apparent right to payment described in 
its contract with the customer, or under a relevant law or regulation, but there 
may be uncertainty over whether the right is enforceable. This may be the case 
when there is no legal precedent for the enforceability of the entity’s right. 
For example, in a rising property market an entity may choose not to enforce 
its right to payment in the event of customer default, because it prefers to 
recover the property and resell it at a higher price. A practice of not enforcing 
an apparent right to payment may result in uncertainty over whether the 
contractual right remains enforceable. 
In these cases, an entity may need a legal opinion to help it assess whether it 
has an enforceable right to payment. However, all facts and circumstances need 
to be considered in assessing how much weight (if any) to place on the legal 
opinion. This may include an assessment of:
– the quality of the opinion: i.e. how strong are the legal arguments that 
support it?;
– whether there are conflicting opinions provided by different legal experts; 
and
– whether there are conflicting legal precedents for similar cases.
Agreements for the construction of real estate may have different 
patterns of transfer of control
IFRS 15.BC150
Applying the criteria to real estate contracts may result in different conclusions 
on the pattern of transfer of control, depending on the relevant facts and 
circumstances of each contract. For example, the terms of some real estate 
contracts may prohibit an entity from transferring an asset to another customer 
and require the customer to pay for performance completed to date (therefore 
meeting Criterion 3). However, other real estate contracts that create an 
asset with no alternative use may only require a customer to make an up-front 
deposit, and therefore would not provide the entity with an enforceable right 
to payment for its performance completed to date (therefore failing to meet 
Criterion 3).

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126 | Revenue – IFRS 15 handbook
In practice, a detailed understanding of the terms of the contract and local 
laws may be required to assess whether an entity has a right to payment for 
performance to date. For example, in some jurisdictions customer default may 
be infrequent and contracts may not include extensive detail on the rights and 
obligations that arise in the event of termination. In these cases, expert opinion 
may be required to establish the legal position.
In other jurisdictions, real estate developers may have a practice of not 
enforcing their contractual rights if a customer defaults, preferring instead to 
take possession of the property so that they can sell it to a new customer. 
Again, evaluation of the specific facts and circumstances, including appropriate 
legal consultation, may be required to establish whether the contractual rights 
remain enforceable given an established pattern of non-enforcement.