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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.
Independent Legal Advice (ILA) is a legal safeguard for both directors and lenders in property finance transactions. It ensures that:
Directors are made fully aware of the financial obligations they are undertaking.
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.
Most lenders require directors to sign personal guarantees for SPV loans. This ensures the lender has recourse if the company defaults
Signing a personal guarantee carries significant risks, including personal financial liability. ILA ensures directors are fully informed of their responsibilities.
Lenders require ILA to protect themselves from future disputes or claims of coercion. Without ILA, the transaction cannot proceed.
Despite its importance, obtaining ILA is neither complex nor expensive. Here’s what to expect:
The solicitor must be independent from the mortgage transaction to avoid conflicts of interest.
The solicitor will review the mortgage agreement, terms of the personal guarantee, and any associated risks.
You’ll have a consultation, either in person or online, during which the solicitor explains your responsibilities and potential risks.
Once you’ve demonstrated your understanding, the solicitor certifies the ILA, allowing the transaction to proceed.
Cost: Fees for ILA are generally affordable, especially when compared to the overall costs of property transactions.
In reality, ILA is one of the least expensive parts of the property transaction process. Solicitors specialising in ILA often offer competitive fixed fees.
ILA is a quick process that rarely causes delays. Engaging a solicitor early ensures it fits seamlessly into your timeline.
Most lenders require ILA for SPV mortgages involving personal guarantees. Without it, the lender will not release funds.
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.
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.
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:
While there are other solicitors who can provide ILA, Lawyers Online is an example of a service that balances efficiency with affordability.
Ans: Lenders require ILA to ensure directors fully understand the risks of personal guarantees, protecting both parties.
Ans: Typically, the process can be completed within 24-48 hours, depending on document review and availability.
Ans: No, ILA is generally affordable, with fees often ranging from £150 to £350 depending on the solicitor and complexity of the case.
Ans: No, the solicitor providing ILA must be independent to avoid conflicts of interest.
Ans: Without ILA, the lender will not release the mortgage funds, halting the transaction.
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