What is independent legal advice (ILA)?

ILA is commonly sought when an individual acts as a guarantor on a loan made by a third party, for a mortgage or in the case of a Director’s Personal Guarantee. ILA is very commonly required when taking out corporate loans and mortgages. It requires the use of a solicitor who is otherwise uninvolved in the transaction in question, so it cannot be the same solicitor or licensed conveyancer involved in a property sale or purchase, for example.

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The solicitor provides the guarantor with information and advice. This covers the nature of the documents that they are being asked to sign, the personal financial risk that they are agreeing to and the seriousness of that risk.

ILA is always provided in layperson’s language to ensure that no misunderstanding exists. Following the delivery of the advice, which can either be in person or by video call, the solicitor will sign to confirm that they have provided the relevant advice and their client will sign to confirm that they understand and are comfortable with the advice that they have been given.

Why is Independent Legal Advice Important?

Whilst the vast majority of arrangements are above board, it is essential to confirm that the party with the greatest risk exposure in a financial transaction is not under undue influence or being deceived about the level of risk they are being asked to take on. The law states that the only way for a lender to avoid being sued by a guarantor is for them to have signed an ILA. This ensures that the lender can be satisfied that the guarantor understands what they are guaranteeing before any money changes hands. This protects both the lender and the guarantor in the event that the recipient of the loan defaults on their payments.

ILA may also be required where occupancy waiver forms are to be signed by an adult non-participant in a mortgage. Once again, the objective is to ensure that the signatory understands their risk, in that they may become homeless if mortgage payments on the property fall into arrears.

Risks to the parties

In a loan situation where ILA is required, all parties bear some level of risk, in particular, the guarantor who may be at risk of bankruptcy and homelessness should the recipient default on their loan repayments. However, the lender will incur significant costs in enacting the legal process to claim against the guarantor. The solicitor providing the independent advice is also at risk of being sued by the guarantor, should it transpire that their advice was unsound or unclear, as was the case in landmark case Padden v Bevan Ashford Solicitors

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Timing matters

ILA is often requested fairly late in the process and there is thus a level of urgency to ensure that it is carried out in a timely fashion so as not to delay the issue of the funds. For expediency, it is often quickest to engage with an online solicitor such as Sam Conveyancing who can allocate the case to an appropriately qualified solicitor, rather than relying on a local high street solicitor who may find it difficult to accommodate it at short notice.

ILA is a vital and valuable element in a number of scenarios in protecting the rights of all parties.