Why you have been asked to obtain advice
A lender may require independent legal advice because a guarantee or mortgage can create serious personal obligations. The solicitor's role is to explain the legal effect and risks of the documents independently from the borrower and lender.
Send the complete document pack first
Before booking, provide the guarantee, facility or loan agreement, mortgage or security documents, lender instructions and any prescribed solicitor certificate. This allows the solicitor to confirm the scope before the appointment.
Identity and independence
The solicitor will usually need to verify identity and ensure there is no conflict preventing independent advice. Where there are multiple guarantors, separate advice may sometimes be required depending on their circumstances and the lender's requirements.
What is explained
The discussion commonly covers the nature of the guarantee or indemnity, when liability can arise, how broad the secured obligations are, the consequences of default and what assets may be exposed under any supporting mortgage or security.
What the advice does not do
The solicitor is not guaranteeing that the borrower will repay the loan or that the investment is commercially sound. The purpose is to explain the legal documents and their consequences.
Signing and certification
If the advice has been completed and the lender's requirements are satisfied, the documents and solicitor certificate can be signed or completed in the required manner.
Guarantee, indemnity and mortgage are different obligations
Lender packs often combine several documents. A guarantee is a promise to answer for the borrower’s obligations; an indemnity can create a separate direct liability; and a mortgage or other security gives the lender rights against identified property. The advice appointment should distinguish these rather than describing the pack as simply “the guarantee”.
What “all monies” can mean
Some documents secure all amounts now or later owing under a wider banking relationship. Others are limited to a particular facility or a stated cap. Definitions such as “Secured Money”, “Guaranteed Money” and “Finance Documents” need to be read carefully because the commercial exposure may be broader than the principal loan amount shown on the first page.
Joint and several liability
Where more than one person guarantees the debt, the lender may have rights to pursue one guarantor for the whole guaranteed amount, subject to the documents. A private understanding between guarantors that they are “50/50” does not necessarily limit the lender’s rights.
What happens on borrower default?
The lender’s enforcement sequence depends on the documents. Do not assume the bank must first exhaust the borrower’s assets or sell the financed property before pursuing a guarantor. The guarantee may permit direct recovery and may also cover enforcement costs and default interest.
Independent advice and conflicts
The guarantor must be able to receive advice independently from the borrower and lender. If two guarantors have materially different interests, or one is under pressure from the other, separate representation may be appropriate. The solicitor also needs enough time and privacy to be satisfied the advice is understood.
Questions to ask before signing
- Is my liability capped, and if so what sits outside the cap?
- Am I giving a mortgage or charge over personal assets?
- Does the guarantee cover future increases or refinances?
- Can the lender vary the facility without my fresh signature?
- How can I be released?
- What happens if another guarantor is released or becomes insolvent?
What the solicitor’s certificate means
A lender certificate generally records that prescribed advice was given and understood. It is not a recommendation to enter the transaction, a valuation of the investment or a statement that the borrower is financially sound. A guarantor who understands the legal risk can still rationally decide not to sign.