It is widely accepted that no one can expect pinpoint accuracy from a valuation. Therefore, valuations within a permissible range will not be negligent even if some aspect of the valuation process can be criticised as having fallen below reasonably competent standards.
The margin of error for a standard residential property may be as low as plus or minus 5%. By contrast, the margin of error in respect of a one-off property will usually be plus or minus 10%. However, the margin of error for properties with exceptional features may be plus or minus 15% – and may be higher in some cases: see K/S Lincoln v CB Richard Ellis Hotels Ltd [2010] PNLR 31 (TCC).
The litigation in Capita Alternative Fund Services (
The judge explained the principles that the courts will apply when considering negligence claims against advisers, as well as considering some of the minutiae of valuations, although he also accepted that overdependence on statistics and mathematics is undesirable. After drilling down into the minutiae, it is important to stand back and consider what is reasonable.
The judge agreed that the valuers had not had the experience or expertise to advise competently. Consequently, they should have refused to act, or “bought in” the expertise, or advised that it be obtained. The judge rejected the suggestion that the valuers could acquire experience “on the job”. It was illogical to suggest that experience could be gained on a project of this nature when relevant experience was required to complete the work competently.
The valuers tried to rely on the fact that they had obtained information from another agent. However, the agent in question was acting for the developer that was offering the land for sale and was not in a position to give independent advice. Consequently, it was foolhardy in the extreme to rely on the advice given in place of a full retail performance analysis.
In the absence of relevant experience, the valuers did not know whether: (i) their research was appropriate or adequate; or (ii) the information obtained was accurate or reliable. The dangers were even greater in circumstances where the market being considered was secretive and the parties from whom information was being sought had particular vested interests to advance.
However, the investor’s attempt to recover additional damages caused by the economic downturn was unsuccessful. The valuers had negligently valued the investment at £62.85m, when it was worth £44.8m, but were not liable for the loss caused by its subsequent slump in value to £7.2m because they had not agreed to advise the investor as to the commercial viability of the investment (that is, as to whether to proceed with the transaction) in addition to advising on value.
Allyson Colby is a property law consultant
