Do I need Independent Legal Advice For Personal Guarantees?

When undergoing a financial transaction, such as entering a mortgage or loan agreement or acting as a personal guarantor, you will likely be told you require Independent Legal Advice (ILA).

This article looks at some frequently asked questions surrounding the ILA process and why it is needed. 

Why is Independent Legal Advice needed?

Independent Legal Advice may be required in any circumstance where there is a risk that the party involved in a transaction could enter into a guarantee or loan agreement without fully understanding the agreement they are signing or may be subjected to pressure or undue influence, potentially causing them to enter into agreements against their will.

The requirement for Independent Legal Advice follows the House of Lords’ guidance in the 2001 case of Royal Bank of Scotland v. Etridge.

In his judgement, Lord Nicholls set out certain specific issues on which an individual must receive independent legal advice.

This was to ensure that such agreements are enforceable and to provide reassurance that the parties involved have not been unduly influenced and have understood the nature of the proposed transaction, mortgage arrangement or guarantee.

When a guarantor or person providing security for a mortgage obtains ILA, a lender receives confirmation that the guarantor has freely entered into the guarantee or loan agreement knowing full-well of the financial implications, consequences and risks associated with it.

The party involved in the transaction will not then be able to claim that they did not understand what they were signing if there is a dispute in future.

When do I need independent legal Advice?

Typically, banks and other financial institutions will require you to obtain specific Independent Legal Advice concerning their transaction documents, including but not limited to these situations:

• Entering a Loan Agreement
• Personal Guarantees
• Occupier’s Consent Forms
• Directors Guarantees
• Joint borrower – sole proprietor mortgages

Do I need a Solicitor?

To meet a lender’s requirements and allow a transaction to proceed, it is important to remember that obtaining ILA is not just a formality but a crucial legal requirement to ensure you are fully aware of your future risks and obligations.

Independent Legal Advice must be carried out by a solicitor or regulated practitioner independent of the transaction.

The legal advisor delivering independent legal advice must make it abundantly clear to the guarantor that it is their decision whether to give the personal guarantee or enter into the loan agreement and ensure that they are happy to proceed.

The solicitor will only then give a written confirmation or ILA certificate to the lender, as per the individual lender’s requirements.

Independent Legal Advice Solicitors

We at Eric Robinson understand the complexities that may arise in these matters and the risks to each party.

Our specialist Independent Legal Advice solicitors provide fast, efficient, and accurate ILA services.

To ensure that you fully understand the advice given, you will receive a complete and comprehensive report analysing all the risks to the parties involved, even those not explicitly mentioned in the loan documents.

This advice also encompasses the practical implications you need to be aware of. If you require assistance in respect of ILA matters, get in touch with some details of your enquiry and we will provide you with a quote for the service you need.