ILA is required when a transaction is due to take place that puts a party at legal and financial risk but there is no direct benefit to them. A separate solicitor with no connection to other parties needs to give this advice and issue the ILA certificate to prevent a potential conflict of interest and protect the relevant party from entering into a financial agreement which they do not fully understand. The idea is to protect everyone involved in the agreement by seeking out impartial legal advice from a professional with no influence or interest in the agreement taking place.
In some cases, such as Royal Bank of Scotland v Etridge, financial agreements have been overturned and made void because it has been demonstrated in court that the person agreeing was not made aware of all the risks and possible financial implications at the time of signing. As a result, getting an ILA certificate is now a mandatory requirement with many legal financial arrangements and in these situations, it cannot be waived. Many firms such as Sam Conveyancing can offer advice as to whether you need ILA.
It is worth noting that getting an ILA certificate does not guarantee that the agreement will be upheld in the event of a dispute, but it strengthens the position that it was not signed under duress or without full understanding of obligations. This reduces the possibility of the agreement being set aside on the grounds of competency or undue influence, and the burden is on the person who made the agreement to prove otherwise.
When Should I Get ILA?
There are many situations where ILA is mandatory, and some where it is a good idea to seek it anyway, in situations such as if you are not the property owner but have a financial interest in the property, or you are assisting in the purchase of the property either by helping with the deposit or acting as a guarantor.
When is ILA required?
ILA is mandatory in the following transactions and cannot be waived.
Personal Guarantees, where someone is acting as a guarantor on a loan taken out by someone else.
Director’s Personal Guarantees such as on corporate mortgages and loans.
Occupier’s Consent, requested by your lender if a non-mortgage occupier resides at the property, or the person was not occupying the property when you took out the mortgage.
Transfers of Equity when there are changes to the co-ownership of a property.
3rd Party Legal Mortgages when someone who is not the borrower offers the lender security on the funds borrowed.
What Advice Is Given?
Your independent solicitor will explain the nature of the documents you are signing in clear, simple language. They will outline in basic terms the purpose, monetary amount and terms of the agreement, as well as the implications, both potentially positive and negative. In addition, they will reiterate the seriousness of the risks involved, outlining the consequences of breaking the agreement and what other assets will be at risk.
They can also advise as to whether you should negotiate with the lender on the terms of the financial agreement. Finally, they will explain that you have a choice as to whether or not to sign the agreement. At the end of the appointment, you are given a signed certificate outlining the advice given.
Seeking ILA is prudent for many agreements and transactions whether outside parties, for example, your lender, insist on it or not. It protects all parties within the agreement and reduces the risk of disputes further down the line.