Third-party legal charges: using your property to secure someone else's loan

What a third-party charge is

A legal charge is a mortgage: it gives a lender security over property, registered at HM Land Registry. With a third-party charge, the property owner (the chargor) isn’t the borrower. You’re putting up your property to support someone else’s borrowing.

Common examples:

• a parent charging their home to secure a child’s business or bridging loan
• a director’s spouse charging the family home for the company’s borrowing
• a business partner offering an investment property as additional security

Legal charge vs third-party legal charge

An ordinary legal charge secures your own loan. A third-party legal charge secures someone else’s. The document may look similar, but the risk is different: you get none of the money, and you have no control over whether the loan is repaid.

The risks

Losing your property

If the borrower defaults, the lender can enforce the charge, which can mean taking possession and selling your property. That can happen even if you’ve never missed a payment on anything yourself.

All monies

Many charges secure all money the borrower owes the lender, including future loans and overdrafts. Ask whether the charge is limited to the specific loan, and whether there’s a cap.

Selling or remortgaging

While the charge is registered, you can’t usually sell or remortgage without the lender’s consent, and the lender may need to be repaid from the sale.

Personal liability

Some third-party charges include a personal covenant to pay, making you liable beyond the value of the property. Others limit recovery to the property. Your solicitor will check which applies.

Questions to ask

• How much is being borrowed, for what, and for how long?
• Is the charge limited to this loan and to a maximum amount?
• Am I personally liable, or only the property?
• How and when will the charge be released?
• Does anyone else live in the property who will need to sign an occupier’s consent?

Why independent legal advice is needed

A third-party charge is exactly the kind of transaction the House of Lords had in mind in Etridge. Lenders almost always require a certificate confirming you were advised by an independent solicitor, without the borrower present, and that you’re signing freely. See ILA for a third-party legal charge.