What is a Personal Guarantee?

A personal guarantee form is typically required in a mortgage application in England when a third party, often a family member or business partner, is willing to provide a financial guarantee to support the primary borrower’s ability to meet their mortgage obligations. This form serves as a legally binding commitment, ensuring that the guarantor will cover the mortgage payments if the primary borrower defaults, providing additional security to the lender.

It is also required when a limited company is purchasing a property and the Director is required to personally guarantee the property.

Why is Independent Legal Advice usually required?

Seeking independent legal advice before providing a personal guarantee is important for several reasons:

Understanding Legal Obligations: Personal guarantees are legally binding commitments that can have significant financial and legal implications. Independent legal advice ensures that you fully comprehend the terms, obligations, and potential consequences of the guarantee, helping you make an informed decision.

Protecting Your Interests: Legal advisors can review the terms of the personal guarantee to ensure they are fair and reasonable. They can help you negotiate better terms, clarify ambiguous language, and provide guidance on potential risks. This ensures that you are not agreeing to an arrangement that is overly burdensome or unfair.

Minimising Risk: Independent legal advice can also help you assess whether a personal guarantee is the most appropriate way to support a financial arrangement, or if there are alternative methods that better protect your interests. Advisors can help you explore other options that might be less risky.

Legal Compliance: Legal advisors can verify that the personal guarantee adheres to all necessary legal and regulatory standards, protecting your interests and ensuring that the agreement is legally sound.

In summary, seeking independent legal advice before providing a personal guarantee is a prudent step to protect your legal rights, financial interests, and ensure that the terms are reasonable and fair. Legal advice can also help you explore alternative options that may be more beneficial in your specific circumstances.