Country house — Listed building — Security for loan — Plaintiff lender relying on retrospective valuation — Consideration of valuation criteria required — Use of comparables as valuation tool — Lender’s duty in relation to self-certifying mortgage application form — Plaintiff’s claim refused
In June 1988, Mr and Mrs W purchased a Grade II listed building known as the Manor House, Costerworth, Grantham. In January 1989, the property was valued between £350,000 and £375,000. At the time, the property was being renovated in way that would enhance its value. R, of the defendant firm, was asked to value the property in connection with a secured loan by the plaintiff to Mr and Mrs W. Having inspected the property and considered four comparables in the area, R prepared a brief valuation report in February 1990 stating that the property was worth £400,000. The report made no distinction between a market valuation and a mortgage valuation. The plaintiffs advanced £300,000, after R completed a self-certification mortgage application form.
W was made redundant by the company of which he was a major shareholder and defaulted on the loan. The plaintiffs obtained a valuation of £200,000 on the house from another firm in November 1991. The property was eventually sold for £120,000 in June 1993, when it has been empty for some time and the condition had greatly deteriorated. Two days before the sale, the plaintiffs instructed S to make a retrospective valuation of the property as at February 1990. He stated that it would have been worth £200,000 at that time. The plaintiffs commenced proceedings against the defendants on the basis that they had overvalued the property by some £200,000.
Held Judgment for the defendants.
1. In assessing the value of a property, the valuer should look at: the property itself, the comparables and the market.
2. The retrospective valuation by S was incorrect in that it had failed to take into account the property’s history, viz that it had undergone complete internal renovation prior to February 1991, but that it had been subsequently neglected and that when S saw the property, it had greatly deteriorated.
3. A valuer might use a slightly different property to the one being valued as a comparable while appreciating its differences, eg nearness to an airfield. Thus, a property might only be used as a comparable in a valuation exercise provided there was sufficient information about it.
4. The valuer gave a “snapshot” of a property at a given time. Where it was clear that there were adverse market trends, then the prudent valuer would alert his client. On the facts there was no such duty in the present case.
5. A valuer could act for both lender and borrower in a mortgage transaction as solicitors did.
6. Assuming a 10% margin of error, the defendants’ valuation was, while a little on the high side, non-negligent.
7. A valuation would differ depending on whether it was for mortgage or marketing purposes: see Allied Trust Bank Ltd v Edward Symmons [1994] 1 EGLR 165.
8. Obiter: The very nature of a self-certifying loan affected the amount that the plaintiffs were willing to lend. While they could not be criticised for failing to ask for bankers’ references, etc at the outset, the plaintiffs knew of W’s uncertain business affairs. That would have prompted a prudent lender to make additional inquiries. Accordingly, if there had been negligence on the part of the defendants, the damages would have been reduced by 15% to reflect the plaintiffs’ contributory negligence.
William Bojczuk (instructed by Llewlyn Zeitman) appeared for the plaintiffs; Simon Monty (instructed by Pinsent & Co) appeared for the defendants.