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Independent Legal Advice: When Do You Need It and Why Does It Matter?

Legal documents can sometimes look deceptively straightforward. You may understand what you are being asked to sign, trust the other people involved and be keen to get the transaction completed.

But in certain situations, you may be asked to obtain Independent Legal Advice (ILA) before you sign.

So, what exactly does that mean, and why is it necessary?

What is Independent Legal Advice?

Independent Legal Advice is advice given to you by a solicitor who is acting solely in your interests in relation to the document or transaction concerned.

The purpose is to make sure you understand what you are agreeing to, the legal and financial consequences of doing so, and the potential risks involved.

Crucially, your solicitor must be independent. Where another solicitor is acting for the lender, company, borrower or another party whose interests could differ from yours, you may need your own solicitor to advise you separately.

When might Independent Legal Advice be required?

There are many situations where ILA may be requested or advisable. In property and finance transactions, some common examples include:

• Personal guarantees – where you are personally guaranteeing the debts or obligations of a company or another individual.

• Director or shareholder guarantees – where a lender requires an individual to provide additional security for company borrowing.

• Third-party security – where your property or another asset is being used as security for somebody else’s borrowing.

• Joint borrowing – particularly where one person may receive substantially less benefit from the loan than the other.

• Occupier consent forms – where an adult living at a mortgaged property is asked to acknowledge the lender’s rights over the property.

• Transfers of equity – particularly where ownership of a property is changing and the parties’ interests may differ.

• Bridging and secured finance – where guarantees, charges or other security documents form part of the transaction.

ILA can also arise in other commercial and personal arrangements where there is a potential conflict of interest or one party is taking on a significant legal obligation.

Why can’t we simply sign the document?

A signature can have serious consequences.

For example, signing a personal guarantee could potentially make you personally responsible for another party’s debt if they fail to meet their obligations. Giving security over your property could, depending on the terms and circumstances, put that property at risk if the borrowing is not repaid.

An independent solicitor’s role is not simply to witness your signature.

We need to ensure that you understand the nature and effect of the document, the obligations you are accepting and the potential consequences if things do not go according to plan.

We will also want to be satisfied that you are entering into the arrangement freely and are not being placed under improper pressure.

What happens during an Independent Legal Advice appointment?

The precise process will depend on the transaction and the lender’s requirements.

Typically, your solicitor will review the relevant documentation with you, explain your obligations and the potential risks, and give you the opportunity to ask questions.

You may also be asked about the circumstances surrounding the transaction so that the solicitor can be satisfied that you understand what you are signing and are making your own decision.

Once the advice has been provided, the solicitor may be required to witness your signature and provide a certificate or confirmation to the lender or other solicitor that independent advice has been given.

Why independence matters

It can be tempting to view an ILA appointment as another formality standing between you and completion.

It isn’t.

Independent advice exists to protect the integrity of the transaction and, most importantly, to ensure that you understand the legal commitment you are making before you make it.

Taking a little time to understand a document today can prevent a much more difficult situation tomorrow.

Clear advice for important decisions

At Trueman Bailey Law, we believe legal advice should give you clarity rather than simply more paperwork.

If you have been told that you require Independent Legal Advice in connection with a personal guarantee, mortgage, bridging loan, third-party charge or other legal document, we can guide you through what the document means and the obligations you are being asked to accept.

Because sometimes the most important part of signing a document is understanding exactly what your signature means.

Trueman Bailey Law — A Fulfilling Life.

This article provides general information only and is not legal advice. Whether Independent Legal Advice is required, and the nature of the advice required, will depend on the circumstances of the particular transaction.