What is Independent legal advice (ILA)?
Independent legal advice or ILA is impartial advice designed to protect you when entering into a legal agreement such as a mortgage. It protects parties who are assuming liability or risk by making sure they are fully informed. Independent legal advice protects the other party by preventing the liable party from claiming they were not fully informed of the risks or costs.
Independent legal advice is commonly required for matters such as a company director’s personal guarantee on a corporate loan or mortgage, a personal guarantee of repayment of a 3rd party loan, a 3rd party mortgage (where the loaned money goes to someone other than the person putting up the collateral property), or an occupier consenting to the transfer of equity in a mortgage.
In essence, getting independent legal advice is not just ticking off another expensive legal requirement. Instead, it makes sure you know exactly what you are getting into before you sign an agreement.
What counts as Independent legal advice (ILA)
There are 4 key requirements for independent legal advice. If these are met, the advice qualifies as independent legal advice. The requirements are:
- The advice must be impartial – The information and advice provided cannot be biased towards either party or any particular point of view. Either side cannot influence it.
- The advice must be provided by an independent solicitor – the solicitor cannot be employed by either party or have any significant ties to either party or their organisations. Again, this is to prevent bias or the appearance of bias.
- The advice must be provided without any conflict of duty or interest – the solicitor must be able to serve their duty to offer impartial advice freely. If they owed a duty to look after the interests of either party in particular, or if they stood to profit in some way by the transaction (beyond their fees for offering independent legal advice), then they are said to have a ‘conflict of interest’ or a ‘conflict of duty’ and cannot offer independent legal advice.
- The advice must be provided in the best interest of the person seeking it – this requirement is very closely linked to those above. It forms a duty to provide good, helpful and accurate advice, a duty which cannot be compromised by the kind of conflict we addressed earlier.
Why do I need Independent legal advice?
Simply put, because the ‘other side’ of a contract or legal agreement probably does not have your best interests at heart, and so neither does their solicitor. You may both want the transaction to complete, but you are both motivated to ensure that it completes with the best results for you and not necessarily the best results for the other side.
Independent legal advice is required to make sure that you really do understand all aspects of what you’re signing and appreciate the risks fully before you commit. It makes ‘sharp dealings’ less likely and catches many mistakes which could cost people like you millions every year.
In short, the independent legal advice requirement is part of the contract to protect you and to ensure that no party is taking advantage of the other blindly.
Types of Independent legal advice
Each of the most common legal agreements that require independent legal advice asks something different of the solicitor, but the essential elements are the same.
- In a Director’s Guarantee, a company director agrees to personally pay back a loan or mortgage if the company defaults. The independent legal advice is to ensure that each director understands their risks and benefits clearly.
- In a Joint Mortgage Sole Proprietor situation, parents or even one-half of a couple are legally required to pay a mortgage without gaining legal title to the property. Sometimes this is done to help a young couple onto the property ladder or even to avoid second home stamp duty. The independent legal advice requirement is there to ensure that each party understands their rights and obligations.
- In a Second Charge agreement, where a party makes themselves liable for a mortgage or loan repayment while not receiving any of the money or benefitting from its use. This is very similar to becoming a guarantor of the loan. As it would, in theory, be possible to take advantage of someone by making them liable to a second charge, there is typically a requirement that the one made liable receives independent legal advice and understands all the risks to them.
- In an Occupier Waiver Form, a lender requires all occupiers of legal age to sign a waiver giving away any rights they may have to live in a property should the lender repossess it. Clearly, these occupiers should know exactly what rights they are waiving, and independent legal advice makes sure they understand what they would be giving away and why.
- In a Deed of Trust, joint owners of a property or asset are protecting that property or asset so that it can be transferred to a beneficiary at some future point (such as a home becoming the property of an heir upon the owner’s death). It may be necessary that the beneficiary of such a trust receive independent legal advice about the terms of the trust created.
- In an Employment Settlement Agreement or Compromise Agreement, the employer often agrees to pay a specified amount towards an independent review of the settlement itself and the provision of independent legal advice to the employee. Like all other independent legal advice examples, this is to ensure that the employee fully understands the agreement and is not in any way entering into a contract blindly.
Independent legal advice for mortgage
One of the most common reasons for seeing Independent legal advice is as a requirement for a mortgage. Oftentimes, the bank or lender in the mortgage agreement has plenty of lawyers and solicitors, and you do not. The bank’s solicitors look after their client’s interests, not yours. That is why many mortgages and other types of legal agreements require you to get advice from an impartial lawyer – one who does not work for the ‘other side’.
As in any independent legal advice situation, the advice given makes sure you understand the risks and benefits of the agreement to you just as well as the bank does.
Independent legal advice personal guarantee
There are many situations where a lender may be uncomfortable lending money to a person or corporate entity. Simply put, if the corporation folds, the bank may not be very high on the list of creditors, and they might lose their investment. If the loan is to a person who is a bad credit risk, the bank is in a similar position – if they default, they probably don’t have any money, so they can’t effectively be sued.
Either way, the bank loses money. If that is even remotely likely, most banks will not make the loan.
The solution in a corporate setting is to get one or more directors or shareholders of the company to personally guarantee the loan or mortgage. The guarantor benefits by the company gaining a mortgage – and presumably becoming more profitable. The bank benefits by being able to recover from the director or directors if the company folds before paying off the mortgage.
In this case, the independent legal advice is primarily to ensure that the director(s) understand the risks and know what they are agreeing to.
In a personal loan, the independent legal advice is to ensure the guarantor knows they will be required to make payments on the borrower’s behalf if they default.
A settlement agreement, Independent legal advice
Separation agreements can come at a difficult emotional time and can often end up being bitterly contested in court later. One of the ways these agreements can be contested is by alleging that one party’s solicitor engineered the agreement to benefit their client unduly and/or that the non-client party did not fully understand what they agreed to.
In a Separation Agreement, independent legal advice makes sure that both parties fully understand the implications of their separation agreement and that they are dividing their property and resources in a way that both parties clearly understand. It also saves a great deal of time and money by eliminating an entire branch of potential legal proceedings, as any allegations that one party was misled or failed to understand the agreement can be negated of the independent legal advice provided can be proven to be essentially flawless.
cost of Independent legal advice
This can vary from situation to situation. Some law firms charge based on their time, and independent legal advice covering a very complex contract with multiple parties can end up costing many thousands of pounds. On the other hand, most independent legal advice requirements are straightforward. They can be completed by reading all of the documentation and conducting an interview with the borrower or guarantor over Skype, Zoom or any other video conferencing service. In these cases, the firm usually charges a flat fee.
Our fees for independent legal advice are FIXED and can start from as little as £70 plus VAT.
Online Independent legal advice
Traditionally, independent legal advice required at least one face-to-face or in-person interview with each party to be protected, as the solicitor is essentially guaranteeing that these parties do understand the agreement. However, advances in video conferencing technology and the COVID epidemic have changed the landscape of independent legal advice.
Today, it is possible to arrange independent legal advice remotely from the beginning to the end of the process. There is still usually some physical paperwork to sign, but this can be done from your own home or office, and any interviews that must be done can be done via video conferencing or even a telephone call.
How long does Independent legal advice take?
There are two ways to look at this question. As the solicitor providing the advice has to thoroughly read and understand the agreement and discuss the advice recipient’s place in that agreement, the whole process can take a few days. From your point of view as an advice recipient, though, the main investment of time will be the interview itself.
A typical independent legal advice interview takes between 30 minutes and one hour, though very complex matters can take longer. This is not just the solicitor asking you questions. You should see this as an opportunity to ask any questions you may have about the agreement, your role in it, the risks and the independent legal advice process. Naturally, if you have many questions, the interview may be longer.
Independent legal advice for family law
When the courts are called upon to resolve family law issues, it is almost always a difficult time emotionally for everyone involved. Often, the court must resolve financial disputes as part of its overall process. Likewise, parental rights are often in dispute as well.
In the course of resolving such disputes, the courts strongly favour agreements reached by the parties between themselves, so long as these agreements are reasonably equitable to the parties and any dependents they may have, fully understood by both parties and entered into willingly.
Independent legal advice, therefore, is often required. It can ensure that both parties fully understand the implications of the proposed agreement and that they are dividing their rights and resources in a way that both parties clearly understand.
Independent legal advice waiver
Can you simply sign a waiver instead of seeking (and paying for) Independent legal advice?
Generally, no. The purpose of independent legal advice is to ensure you fully understand your part in an agreement and that you have had legal advice on the risks and costs. Signing away your rights with a waiver, in fact, implies that you did not receive such advice and that you are not fully informed as to your part in the agreement. This could make the lender vulnerable later if you were to challenge the agreement in court on that basis.
In fact, many agreements require you to have received independent legal advice before you can sign a waiver in the first place. Because you are essentially ‘signing away rights’ with a waiver, independent legal advice is doubly important. In principle, you should not be able to sign away rights without first knowing what they are.
So, simply put, such agreements are generally not accepted in place of independent legal advice. They wouldn’t do either party any good.
If you need independent legal advice, we can help you. Feel free to use this link to book your appointment for independent legal advice: https://calendly.com/innovativesolutionsforeverydaychallenges-/independent-legal-advice