Lender instructing defendant surveyor to value property – Lender relying on valuations and advancing loans – Borrower defaulting on repayments – Lender claiming valuations were negligent – Whether defendant’s valuations outside bracket of correct valuation – Whether defendant used correct methodology – Claim dismissed
On 6 July 1989 a borrower made an application to the claimant for an advance of £585,000 to finance the purchase of Arundale Hotel, Christchurch Road, Bournemouth. The claimant instructed the defendant, a local firm of chartered surveyors, to produce a valuation of the hotel. In July 1989 the defendant gave a bricks-and-mortar valuation of £675,000 (the first valuation) and the claimant advanced 90% of that valuation, namely £591,500, to the borrower, on the security of the hotel. In February 1990 the borrower applied for a further advance of £92,000 to enable him to pay for fixtures and fittings, which were required to improve the standard of the hotel. The claimant instructed the defendant to produce a current valuation of the hotel. On 5 April 1990 the defendant advised that the bricks-and-mortar value was £775,000 (the second valuation). In May 1990, relying on the report, the claimant advanced a further £58,000. Subsequently, the borrower fell into financial difficulties. In August 1993 the hotel was sold for £275,000. By January 1999 more than £800,000 was outstanding to the claimant. The claimant issued proceedings alleging that the defendant had been negligent in making the valuations. It was contended in particular that the defendant had been negligent in using the price-per-bedroom method of valuation rather than the more accurate profits method.
Held: The claim was rejected.
1. Having regard to the evidence and including the use of the price-per-bedroom method, at least as a cross-check, and the purchase price for the same purpose, it could be concluded that a value of £750,000 was probably the correct open market value at July 1989. In order to arrive at a bricks-and-mortar valuation, it was appropriate to deduct the sums of £40,000 as the value of the goodwill and £60,000 as the value of the fixtures and fittings. Therefore, the correct valuation would have been £650,000. The defendant’s first valuation of £675,000 was well within that bracket and accordingly the first valuation had not been negligent.
2. Following the first valuation, the markets in hotels continued to rise, although the rate of rise was slowing down in March and April 1990. It was not until after April 1990, when the defendant carried out the second valuation, that values turned and started to fall. On that basis the yield of 9.3% was more likely to have been right than any other figure and the true value of the hotel at the date of the second valuation on a bricks and mortar basis was £750,000. The defendant’s second valuation of £775,000 was well within that bracket and accordingly had not been negligent.
3. It was not necessary to consider the methodology used by the defendant because the valuations he had reached were well within an acceptable bracket. In any event, for the first valuation the price-per-bedroom method was justified because when the valuation was carried out the market exhibited the characteristics that made it a non-negligent approach, at least since the method had been used in conjunction with apparently credible evidence as to the purchase price. Furthermore, the charges of negligence based on mathematical error in the first valuation were to be rejected. It could also be concluded that the use of the price-per-bedroom method in the second valuation had not been negligent, because there were fewer comparables and no purchase price to test the price against.
John Wardell (instructed by Withers) appeared for the plaintiff; Oliver Ticciati (instructed by Berrymans Lace Mawer) appeared for the defendant.
Thomas Elliott, barrister
