Independent Legal Advice

Why does a lender require Independent Legal Advice to be obtained?

Following the House of Lords’ guidance in the case of Royal Bank of Scotland v Etridge (No 2) and other cases in which a number of borrowers argued successfully that they should not be bound by a loan, guarantee agreement or mortgage because they were not aware of what they were signing up to, it was established that in some circumstances there is a need for a borrower to be advised separately by an independent, qualified legal professional before signing the mortgage or guarantee document.

Ultimately, it’s a question of consent. According to one of the guiding principles set out in Royal Bank of Scotland plc v Etridge (No 2), a lender is put on notice of undue influence if there is a ‘non-commercial’ relationship between the parties borrowing a loan. A presumption of undue influence may arise in the context of a close relationship: a parent and child, or husband and wife, for example. Where one person uses this close relationship with the other to persuade them to do something that will be to the benefit of the first party but potentially harming to the second, this can be classed as a presumption of undue influence.

Simply put, the lender may require a party involved in a transaction to seek independent Legal Advice to provide reassurance that they have not been unduly influenced and understand the nature of the proposed mortgage arrangement or guarantee. In doing so, the people signing up to loans, guarantees and other such documents will be less likely to be able to avoid liability by claiming they were not aware of the consequences as their independent legal advisor would have ensured they were fully informed before signing anything.

That’s why, when a lender asks for someone to give it a ‘personal guarantee’, it can often come with the requirement that the proposed guarantor seeks independent legal advice, to ensure that they are aware of the transaction in question and the full extent of their financial liability. When a guarantor or person providing security for a mortgage obtains ILA, a lender receives confirmation that the guarantor freely entered into the guarantee knowing full-well the financial implications, consequences and risks associated with giving the lender a personal guarantee.

What’s the issue for the lender?

From the bank or building society’s perspective, the need to protect its interests in the face of potential legal challenges is critical. Written confirmation from a solicitor acting for the borrower, guarantor or mortgagor can act as irrefutable evidence that the solicitor has fully explained their role in the transaction to him/her and the practical implications that come with signing the document. The purpose of the solicitor’s written confirmation/certificate of independent legal advice is to satisfy the lender that it has discharged its duty of care to the individual and to prevent the borrower, guarantor or mortgagor from disputing their liability to the loan: without this confirmation, the lender could lose the ability to enforce its security if it was successfully challenged.

Having already put in the hard work to get a mortgage or loan arranged for a client, the need for independent legal advice can, in effect, prevent a borrower from proceeding with the transaction. As such, it’s within the lender’s best interest to assist their client in obtaining independent legal advice: the problem is, it’s not always easy to find a solicitor who will offer this service.

What is the House of Lords guidance?

Following the Etridge case, the House of Lords outlined the ‘core minimum’ requirements for a solicitor when giving independent legal advice. For one, the meeting between the borrower/guarantor/mortgagor and the solicitor must be face to face with no other party present to the meeting. The solicitor must ensure that the language they use can be understood by the individual; it cannot be technical in nature and should not bombard the individual with incomprehensible legal jargon. Further, the solicitor must explain their role in the transaction and make it clear that the lender will rely on the solicitor’s involvement to counter any claims in the future of there being undue influence involved or having not fully understood the transaction.

During the meeting, the solicitor must explain the nature of the guarantee, or mortgage/transaction, clarify the meaning of any accompanying documents and explain the practical consequences of signing the guarantee or mortgage and the risks associated. Finally, the solicitor delivering independent legal advice must make it abundantly clear to the guarantor that it is their decision whether to give the guarantee or enter into the mortgage and ensure that he or she is happy to proceed. The solicitor will then give a written confirmation or certificate to the lender, as per the individual lender’s requirements.

What can I do to obtain independent legal advice?

​Getting Independent Legal Advice doesn’t need to be complicated or time-consuming. With ILA-Connect, you can arrange everything online, without having to contact multiple solicitors or wait for someone to get back to you.

Simply select the type of Independent Legal Advice you need, choose your preferred solicitor and view their available appointment times on our live booking calendar.

Once you’ve booked, you’ll receive an immediate confirmation email containing your Zoom meeting link (or links, if booking for more than one person). You’ll also be given access to your secure client portal, where you can upload the relevant documents ahead of your appointment.

Your appointment takes place by video call with an SRA-regulated solicitor, who will explain the documents and guide you through any signing requirements.

There’s no payment required when booking, and you can choose an appointment time that suits you.

Book Now to view available appointments and get started.