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Before proceeding with some types of legal transactions, you may need to obtain independent legal advice. As the phrase suggests, independent legal advice (ILA) means impartial advice from an independent solicitor, i.e. one not connected with the transaction.
ILA ensures you are fully aware of your personal risk before committing yourself to proceed.
When is independent legal advice required?
ILA is most commonly required if you are offering:
- A personal guarantee for somebody else’s borrowing, including a mortgage.
- A director’s personal guarantee for corporate borrowing.
- Occupier’s consent to a transfer of equity.
Typically, ILA is a lender’s requirement. Indeed, the leading case of RBS v Etridge (2001) makes clear that unless a guarantor has received ILA, they may be able to sue the lender should the borrower default.
What happens when obtaining ILA?
ILA aims to ensure clarity and avoid undue influence and misrepresentation. So, the independent solicitor meets with you without others involved in the transaction. After verifying your identity, they discuss:
- The nature of the documents involved.
- Your financial risk should the other person default, including your personal risk of bankruptcy.
- The fact that the lender may alter the loan terms, including increasing the loan amount, without reference to you.
- Whether you should consider negotiating with the lender on the terms of the transaction.
- The fact that you have a choice on whether to sign the documents.
The solicitor should provide the advice in simple, non-technical language, and you should have ample opportunity to ask questions.
Independent legal advice certificate
Assuming you are still happy to proceed after receiving the ILA, the independent solicitor signs an independent legal advice certificate. The certificate confirms you have been made aware of the risks and are nevertheless content to proceed.