If you’re a director of a Special Purpose Vehicle (SPV) applying for a buy-to-let mortgage, you may encounter a requirement for Independent Legal Advice (ILA). This step ensures that directors fully understand their obligations when providing personal guarantees for company loans.
While ILA may seem like an additional hurdle, it is a relatively simple and affordable process, and securing it quickly ensures your mortgage transaction progresses without delays.
What Is Independent Legal Advice (ILA)?
1. Directors Understand Risks
2. Lenders Are Protected
Lenders mitigate the risk of disputes by ensuring the director has entered the agreement willingly and with full understanding.
When signing a personal guarantee, a director agrees to be personally liable for the loan if the SPV cannot meet its repayment obligations.
Why Is ILA Required?
1. Personal Guarantees
2. Clarity for Directors
Signing a personal guarantee carries significant risks, including personal financial liability. ILA ensures directors are fully informed of their responsibilities.
3. Legal Compliance for Lenders
Lenders require ILA to protect themselves from future disputes or claims of coercion. Without ILA, the transaction cannot proceed.
The ILA Process: Simple and Affordable
Step 1: Engage an Independent Solicitor
Step 2: Document Review
The solicitor will review the mortgage agreement, terms of the personal guarantee, and any associated risks.
Step 3: Legal Consultation
You’ll have a consultation, either in person or online, during which the solicitor explains your responsibilities and potential risks.
Step 4: Certification
Once you’ve demonstrated your understanding, the solicitor certifies the ILA, allowing the transaction to proceed.
Timeframe: This process is typically completed within 24-48 hours.
Cost: Fees for ILA are generally affordable, especially when compared to the overall costs of property transactions.
Common Misconceptions About ILA
It’s Too Expensive
In reality, ILA is one of the least expensive parts of the property transaction process. Solicitors specialising in ILA often offer competitive fixed fees.
I Don’t Need It for My Mortgage
I Don’t Need It for My Mortgage
Example Scenarios
Scenario 1: First-Time SPV Director
Situation: A first-time landlord sets up an SPV to purchase a buy-to-let property and must provide a personal guarantee.
Solution: The director engages an independent solicitor who explains the risks, certifies the ILA, and ensures the transaction progresses smoothly
Scenario 2: Multi-Director SPV
Situation: An SPV with two directors applies for a high-value mortgage to fund an HMO purchase. Both directors must sign personal guarantees.
Solution: Each director obtains ILA independently, ensuring compliance and protecting the lender.
Why Suggest Lawyers Online for ILA?
At Auction Finance, we often recommend reliable and efficient services like Lawyers Online. They specialise in providing quick and affordable ILA, which is particularly beneficial for time-sensitive property transactions.
Benefits of Services Like Lawyers Online:
- Competitive Pricing: Transparent, fixed fees for cost-effective advice.
- Quick Turnaround: Ideal for meeting tight property transaction deadlines.
- Remote Consultations: Convenient options for busy directors.
While there are other solicitors who can provide ILA, Lawyers Online is an example of a service that balances efficiency with affordability.
