Independent legal advice in property transactions 

At Hubbard Pegman and Whitney we provide Independent Legal Advice to those who require it in the course of a property transaction.

Have you been asked to give a Personal Guarantee?

One of the areas we provide this service is for directors who are required to obtain independent legal advice in relation to a Personal Guarantee when their company obtains a mortgage from a lender. This is a requirement by lenders to ensure the fairness and validity of the agreement. Here are a few key reasons for this requirement:

• Conflict of Interest: Directors have a fiduciary duty to act in the best interests of the company. However, when providing a personal guarantee, their interests may diverge from those of the company. By obtaining independent legal advice, directors can ensure that they understand the implications and potential risks associated with the personal guarantee, protecting their own interests while fulfilling their obligations to the company.
• Informed Consent: Personal guarantees are significant financial commitments that can have serious consequences for directors personally. Independent legal advice ensures that directors fully understand the terms, obligations, and potential liabilities associated with the personal guarantee. It helps them make an informed decision and provide their consent voluntarily, without any undue influence or coercion.
• Validity and Enforceability: Lenders often require directors to provide personal guarantees to secure a mortgage or loan for the company. If a dispute arises in the future regarding the guarantee’s enforceability, the fact that directors have obtained independent legal advice strengthens the lender’s position. It demonstrates that the directors had a clear understanding of the implications and potential risks when entering into the guarantee, reducing the likelihood of claims of misrepresentation or lack of understanding.
• Protection against Unfair Contracts: Independent legal advice acts as a safeguard against unfair contract terms or agreements that may be disadvantageous to the director. The advice helps identify any unfair or unreasonable provisions in the guarantee, enabling the directors to renegotiate the terms of the Guarantee or of the loan to the company or even change lenders, prior to making a commitment with serious consequences.

Overall, requiring directors to seek independent legal advice in relation to Personal Guarantee when obtaining a mortgage in company name provides a layer of protection for both the director and the lender. It ensures transparency, fairness, and informed decision-making in the context of significant financial commitments.

Are you a Non-Proprietor Borrower?

Another common situation where independent legal advice is required is when you borrow from a lender in a property transaction, but are not the proprietor. As a non-proprietor borrower, it is important to seek independent legal advice before signing a mortgage agreement. This is because being a non-proprietor means that you do not have legal ownership of the property, even though you may be contributing to its purchase and/or mortgage payments.

In some cases, lenders may require that non-registered proprietors to sign a mortgage agreement as a co-borrower or guarantor, which means that they will be liable for the mortgage payments if the primary borrower defaults. However, signing a mortgage agreement can have significant legal and financial implications, and it is important to fully understand the terms and consequences before doing so.

As an independent legal advisor we will review the mortgage agreement and explain the terms and conditions to the non-proprietor borrower, as well as advise on their legal rights and obligations. This will assist the borrower assess the risks associated with signing the mortgage, including the possibility of them having to pay the shortfall in the amount due to lender in the event of foreclosure or legal action in the event of default, although they may not have a remedy to recover that from the property or the legal owner.

Seeking independent legal advice will help non-proprietor borrowers make an informed decision about whether to sign a mortgage agreement and ensure that their rights and interests are protected.

Is a Deed of Consent required for an adult family member?

Another situation is when a property being mortgaged is the main residence of an adult family member who is not a borrower or proprietor and the lender requires them to execute a Deed of Consent subjugating their right and interest in the property to that of the lender, so long as the mortgage loan remains outstanding.  Lenders want to be able to take possession of the property in the event of default and as a non borrower does not execute a mortgage deed, they need to execute the deed of consent enabling lender to take vacant possession if needed.

If you are in the process of a property transaction and unsure of what this means for you, get in touch with us for independent legal advice. Currently, we are offering a free initial telephone consultation for new enquires. During this call we will tell you what we can do next to get started. Give us a call now for a friendly chat on 020 8735 9770.