• Rose & Rose

Independent Legal Advice

Updated: Jun 28

The most common situation where a party requires independent legal advice is when a financial institution lends money to a company and requires a personal guarantee to be given by the individuals/directors involved. If it becomes necessary to enforce payment from the third party the lender will want to be sure that the third party cannot claim they did not understand the documentation they have signed or that they did not know they would be personally responsible for repayment.

This is the reason that the lender requires the guarantor to receive independent legal advice. The guarantor may also be required to give a charge over their property as security for the money it is lending. The same situation will apply, and you will be required to take independent legal advice.

If a bank is lending to an individual and requires a charge over property, the joint owner will be required to receive independent legal advice.

There are specific requirement when providing independent legal advice to ensure that the advice meets the criteria provided by the House of Lords after the review of the appeals for a number of cases and in particular Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773.

The solicitor is required to:

  1. Explain the nature of the documents

  2. Provide the legal and practical implications of a party entering into the agreement

  3. Make the client aware of the risks involved i.e losing their home and/or bankruptcy

  4. Ensure that the client is aware of the reason for the new lending, the amount being borrowed and its principal terms

  5. Advise the client that the lender may increase/alter the terms of their lending without informing the client

  6. Inform the client of the extent of their liability

  7. Discuss the client’s personal financial circumstances and establish whether repayment of the sum being guaranteed can be paid from their personal assets in the event of the business failing and defaulting

  8. Explain to the client that it is their choice as to whether or not they wish to proceed upon a discussion of the current levels of indebtedness

  9. Seek the client’s permission to communicate their decision to the bank or whether he/she wishes the solicitor to negotiate the terms of the transaction

Another common situation when independent legal advice is required is when a client, who lives at a property but is not a party to a mortgage, is asked by the lender to provide their consent to the mortgage and by doing so, postpone their rights to making a claim against the property until the lender has been repaid, this is known as an occupier’s consent form. This also requires the client to confirm that they fully understand the transaction and the legal and practical implications of them giving consent to the mortgage.

The documents on which solicitors commonly advise are as follows:

Occupier’s consent

Occupier’s waiver

Deeds of postponement

Guarantor’s advice

Personal guarantees

Debentures and legal charges

Third party charges

To speak with one of our Independent Legal Advisors, Contact us for a consultation or phone us on 0208 974 7490