Surveyor – Valuation – Duty of care – Appellant surveyor valuing property for mortgagee on buy-to-let transaction – Respondent purchasing property in reliance on valuation and estimated rental figure – Capital and rental valuations provided by appellant inaccurate – Appellant held to be liable to respondent in damages – Whether appellant owing duty of care to respondent – Appeal allowed
In 2002, the respondent wanted to purchase a two-bedroom flat to which he had been alerted by a company that specialised in finding investment properties for its clients. That company introduced him to a mortgage broker, through whom he applied for a buy-to-let mortgage. The application form included a provision authorising the lender to obtain a valuation at the respondent’s expense and an acknowledgement by the respondent that neither the lender nor the valuer was to be treated as giving any assurance to him as to the value of the property. The broker instructed the appellant firm of property surveyors to produce a valuation report for the mortgage lender; the respondent paid the fee for that report. The report valued the property at £353,000, with an achievable rental value of £2,000 per month and average suitability for letting within 60 days.
The respondent proceeded to purchase the flat for a total consideration of £300,007.50, after discounts from the ostensible purchase price of £352,950. Of that sum, £290,766 was funded by the mortgage lender. The property remained unlet for several months, after which a rent of only £1,050 per month was achieved with the tenant vacating after a year. The respondent sold the property in May 2006 for £270,000.
He brought a claim for damages against the appellant. Allowing the claim, the judge held that the appellant had owed a duty of care to the respondent in respect of the valuation report and had negligently overstated both the capital and rental valuations of the flat: see [2010] EWHC 572 (Ch). At a separate hearing on quantum, he found that the respondent had suffered no loss in relation to the negligently high capital valuation but awarded damages of £72,234.54 plus interest and costs for loss attributable to the rental valuation: see [2010] EWHC 2253 (Ch); [2010] PNLR 5.
The appellant appealed on liability. It contended that the respondent had not relied on its valuation and that, even if he had, it had owed no duty of care to him in that regard.
Held: The appeal was allowed.
It had been open to the judge, on the evidence before him, to find that the respondent had relied on the valuation report when deciding to proceed with the purchase of the flat. However, the appellant had owed no duty of care to him in the preparation of that report. Both as a matter of fact and according to its terms, the report had been prepared for the mortgage lender in its capacity as prospective mortgagee. Although the appellant had known that there was a high probability of the report being shown to the respondent and that he was paying for it, it had not been foreseeable that he would rely on the report when deciding to proceed with his purchase rather than obtaining his own valuation advice: Smith v Eric S Bush (a firm) [1989] 1 EGLR 169; [1989] 17 EG 68; [1989] 18 EG 99 and Caparo Industries plc v Dickman [1990] 2 AC 605 considered.
In that regard, it was relevant that the transaction that the mortgage lender was proposing to fund was, to the appellant’s knowledge, the purchase of a residential unit for the purpose of an investment rather than as the purchaser’s residence. It therefore differed from cases of an ordinary domestic householder purchasing a home, in which the purchaser could be expected to rely on the valuation report produced for the mortgage lender: Smith distinguished; Omega Trust Co Ltd v Wright Son & Pepper [1997] 1 EGLR 120; [1997] 18 EG 120 considered. The fact that the underlying transaction was a buy-to-let rather than a purchase for owner-occupation had several repercussions. First, the transaction was essentially commercial from the purchaser’s point of view. People who purchased property for buy-to-let purposes were likely to be wealthier and more commercially astute than those who bought to occupy, and be more likely to obtain and afford an independent valuation or survey; they could properly be regarded as less deserving of protection by the common law against the risk of negligence. Second, unlike purchases by owner-occupiers, there was no evidence that most relied only on valuations prepared for their mortgagees rather than obtaining their own valuation. Third, any valuer would appreciate that a buy-to-let purchaser was at least as interested in the rental value as the capital value. Since rental value could be a difficult and sensitive issue, a valuer acting for a prospective mortgagee could expect a prudent purchaser to obtain his own advice on rental matters, including issues such as the ease of letting, the level of rent, management fees and the probable period of any voids. Where the purchaser could be expected to instruct his own valuer on rental, the natural inference was that the valuer would be asked also to advise on capital value. Fourth, where a property was bought to let, the valuer instructed by the prospective mortgagee would appreciate that its client was primarily interested in the property’s capital value, to ensure that any loan secured on the property could, if necessary, be repaid out of the proceeds of sale.
For those reasons, there was no inherent likelihood that a purchaser, buying the flat for the purpose of letting it out would rely on a valuation provided to the mortgagee, rather than obtaining his own valuation advice on the rental and capital values. Accordingly, the respondent had not established foreseeability of damage, a sufficient degree of proximity between himself and the appellant or that it would be fair, just and reasonable to impose on the appellant a duty of care towards him.
Tom Leech QC and Thomas Grant (instructed by Walker Morris, of Leeds) appeared for the appellant; William McCormick QC and Philip Noble (instructed by Miller Rosenfalck LLP) appeared for the respondent.
Sally Dobson, barrister
