What is an Independent Legal Advice Certificate?
An independent legal advice certificate is a document produced by a qualified solicitor.
It is directed towards the financier, or lender, and is essentially issued for their benefit.
The certificate essentially confirms a number of things to the lender, which include:
- The lawyer is qualified and registered to practice law and to provide legal advice.
- That the lawyer acts for the personal guarantor personally only, and not the lender, or the borrower.
- The loan documents and guarantee deed have all been fully reviewed by the lawyer.
- Legal advice has been provided to the personal guarantor about their personal risks and obligations.
- The personal guarantor understood that legal advice.
The certificate of legal advice is an evidentiary document to prove the matters it states within it, and will be relied upon later as proof of such in the event of any dispute.
Why is it required for Personal Guarantors to get Legal Advice?
Well, in short, because the lender requires it as a special condition of their loan.
There is no legislative requirement that personal guarantors obtain legal advice. However, there is a legislative requirement for lenders to ensure that each party to the loan (including any personal guarantor) does understand the nature of the transaction and the legal agreements being presented and offered.
One of the ways lenders use to ensure compliance with their obligation is to make it a special condition of their loan offers.
Such special conditions are understandable (and reasonable) given a personal guarantor is not receiving any money themselves, does not ‘legally’ benefit form the loan, and is not in control of the borrowers obligations to meet the loan repayments.
Why Personal Guarantors should get Legal Advice.
As a personal guarantor, you are agreeing to meet the financial obligations owed by another party (the borrower).
You may later become liable under the personal guarantee, at any time in the future, and in circumstances that may be entirely out of your control.
A deed of guarantee will give the lender rights to enforce those financial obligations upon you personally, which could be financially devastating for you.
It is essential for a guarantor to fully understand the terms, risks, and obligations associated with their commitment under the deed.
Proper legal advice on a deed of guarantee is important to ensuring you make an informed decision about taking on such an important commitment, and the risks personal guarantees carry.
