It is not uncommon for independent advice from a separate solicitor to be needed before a transaction can proceed. Examples where it may be needed are directors’ guarantees, joint mortgages where there is a sole proprietor, occupier waivers and transfers of equity. What is this advice, and how do you go about arranging it?
What is independent advice?
The modern requirement for independent advice stems from cases in the 1990s. It was not uncommon for banks to require a personal guarantee or a charge over the family home to secure business lending. However, where property was jointly owned, people found themselves subjected to court claims to enforce agreements that they had signed up to without legal advice. Most commonly, a wife had signed papers giving a bank rights over the family home to support lending to a husband’s business without the benefit of legal advice allowing her to understand the implications of what she was doing.
The House of Lords declared a principle that in these circumstances, there would be a presumption of ‘undue influence’ on the partner who did not directly benefit from the lending secured by the documents unless the bank could prove that person had received individual legal advice. If the court finds that undue influence is present, the security will not be effective against that person.
When is independent advice needed?
Banks will require a certificate from an independent solicitor when a party who is not benefitting from the loan or other financial transaction is required to sign documents giving the bank security over their property. It is also required if an occupier of property waives their rights, or a property owner transfers equity.
To protect the person needing advice, the independent solicitor has to see them face-to-face (or via video conferencing facilities) and without anyone else involved in the transaction being in the meeting. The solicitor may be able to suggest ways in which the person requiring the advice can minimise the potential impact on them. Without the certificate, the bank will not allow the transaction to proceed. To find a solicitor who is able to help with independent advice, see https://www.samconveyancing.co.uk/news/conveyancing/independent-legal-advice-4849
The process evolved to protect banks, ensuring that they could enforce their security, but in practice, it should ensure that no one signs over rights against their home or other property without understanding the implications.