If you are exploring private lending options for a commercial loan in Australia, you will encounter a term that surprises some first-time borrowers: borrower pays legals. Unlike bank lending, where many legal costs are absorbed by the institution or bundled into the product pricing, private lending requires the borrower to pay all legal costs — including the lender's own solicitor fees. Understanding this model is essential for budgeting accurately and avoiding unexpected expenses at settlement.
What Does "Borrower Pays Legals" Actually Mean?
In a private lending transaction, there are typically two sets of solicitors involved:
- The borrower's solicitor — engaged by the borrower to review loan documents, provide independent legal advice, and act on the borrower's behalf during settlement.
- The lender's solicitor — engaged by the lender to prepare loan agreements, mortgage documents, guarantees, conduct title searches, and manage the lender's side of settlement.
Under the borrower-pays-legals model, the borrower is responsible for paying both sets of legal costs. This means you are paying your own solicitor for their advice and representation, and you are also paying the lender's solicitor for the work they perform on the lender's behalf.
What Do the Legal Costs Cover?
The lender's legal costs typically include:
- Preparation of loan documentation — the loan agreement, mortgage, personal guarantees, and any ancillary documents required for the transaction.
- Title searches and due diligence — searches of the property title to confirm ownership, identify encumbrances, check for caveats, and verify that a first mortgage can be registered.
- PPSR searches — searches of the Personal Property Securities Register to identify any registered security interests over the borrower's personal property.
- Company and director searches — ASIC searches to verify the borrowing entity's details and the identity of its directors.
- Settlement attendance — the solicitor's time and costs associated with attending to the electronic or physical settlement of the loan.
- Mortgage registration — the fees payable to the relevant state or territory land titles office to register the mortgage on the property title.
- Stamp duty on the mortgage — in some jurisdictions, stamp duty is payable on mortgage documents (though this has been abolished in several states).
Your own solicitor's costs will cover their review of the loan documents, provision of independent legal advice (which is a requirement for guarantors), and their role in the settlement process.
Why Does Private Lending Use This Model?
The borrower-pays-legals model is standard in private lending for several practical reasons:
Smaller Loan Books
Banks process thousands of loans and can spread legal costs across their entire portfolio, absorbing or subsidising individual transaction costs. Private lenders operate with smaller, more concentrated loan books. Absorbing legal costs on every transaction would materially affect their operating model.
Transaction-Specific Costs
Every private loan involves bespoke documentation tailored to the specific transaction, borrower, and security. This is different from bank lending, which often uses standardised, template-driven documentation. The custom nature of private lending documentation generates real costs that must be covered.
Transparency
Arguably, the borrower-pays-legals model is more transparent than the bank approach. With a bank, legal costs are hidden within the product pricing — you pay them, you just do not see them as a separate line item. In private lending, every cost is disclosed upfront, so borrowers know exactly what they are paying and to whom.
How Much Should You Expect to Pay?
Legal costs in private lending vary depending on the complexity of the transaction, the jurisdiction, and the solicitors involved. As a general guide for a straightforward first mortgage commercial loan in Australia:
- Lender's solicitor fees: typically range from $2,000 to $5,000 plus GST for standard transactions. Complex deals involving multiple securities, unusual structures, or additional documentation can cost more.
- Borrower's solicitor fees: similar range, depending on the scope of work and the solicitor's rates.
- Disbursements: title searches, ASIC searches, registration fees, and other out-of-pocket costs are additional and typically run to several hundred dollars.
It is always advisable to request a cost estimate from both solicitors before proceeding, so there are no surprises at settlement.
Budgeting for Legal Costs
When evaluating a private loan from a lender like Esteb Capital — where first mortgage rates start from 10% on interest-only terms of 6 to 12 months for business and commercial borrowers Australia-wide — legal costs should be factored into the total cost of the facility from the outset.
A sensible approach is to calculate the total cost of borrowing as follows:
- Interest for the anticipated loan term
- Establishment or application fees (if applicable)
- Lender's legal costs
- Your own legal costs
- Valuation fees (if required)
- Any discharge or settlement fees at the end of the term
Adding these together gives you the true all-in cost, which you can then weigh against the value of the opportunity the loan enables.
Can Legal Costs Be Capitalised?
In some cases, legal costs can be added to the loan amount rather than paid out of pocket at settlement. This depends on the lender's policy and the loan-to-value ratio — there needs to be sufficient equity in the security to accommodate the additional amount. Discuss this option with your lender or broker early in the process if cash at settlement is a concern.
The Bottom Line
Borrower-pays-legals is not a hidden charge or an unusual practice — it is the standard operating model in Australian private lending. Understanding it, budgeting for it, and factoring it into your feasibility assessment ensures there are no surprises. It is simply part of the cost of accessing fast, flexible, short-term commercial finance. The key is to go in with your eyes open, get cost estimates early, and treat legal fees as what they are: a known, manageable expense in a broader commercial transaction.