Negligence – Surveyor – Valuation – Care home – Claimant bank instructing defendant to value care home and making loan to purchasers on basis of report – Business failing and claimant forfeiting lease – Claimant suffering loss allegedly as result of defendant’s negligent valuation – Whether defendant making errors in method of valuation – Whether defendant reaching valuation within permissible bracket of error – Claim dismissed
Manor House in Lynmouth was a Grade II listed building accompanied by ancillary supporting outbuildings for staff and stabling. It was owned by the local authority and let out by them for commercial use. Since the 1980s it was let as a 17-bed care home. The owner wished to sell the care home as a going concern and retire. The marketing of the property commenced about mid 2004, and the offer was accompanied with a new 40 year lease for care home use.
The claimant was approached by W who wished to borrow money in order to buy the care home. The claimant instructed the defendant valuer to value the property and, following receipt of a valuation by the defendant of £350,000, the claimant loaned money in order to enable W to acquire the premises. The business then failed over the course of several years and in the end in 2011, W left the property and the claimant, having taken professional advice, concluded that the only sensible course was to forfeit the lease. The claimant claimed the total loss which had occurred as a result of their lending and argued that that loss resulted from the defendant’s negligent valuation of the property.
The defendant denied negligence and contended, among other things, that the valuation which was given was one which fell within an appropriate margin of error, bearing in mind the complexities of valuing the property.
Held: The claim was dismissed.
In practical terms, the court had to form its own view, based on the evidence before it and its own evaluation, of the correct value as at the valuation date applying professional practice standards which applied at that date. Having formed its own view, the court then had to consider what the appropriate margin of error applicable to the valuation judgment should be, in order to determine the bracket within which a non-negligent valuation would have fallen. The appropriate percentage margin of error would depend upon the particular facts. As a matter of general principle, for a standard residential property, the margin or error might be as low as plus or minus 5 per cent. For a valuation of a one-off property, the margin or error would usually be plus or minus 10 per cent. If there were exceptional features of the property in question, the margin of error could be plus or minus 15 per cent, or even higher in an appropriate case. If the valuation in question was within the relevant margin of error of the court’s valuation, then it was within the bracket of potential non-negligent valuations and thus negligence would not have been established. Liability was to be established by reference to the results of the valuation, not purely and simply by reference to the details of how that result was arrived at. If the valuation was beyond the margin of error in relation to the court’s valuation and therefore outside the bracket, the valuer’s competence and the care used in his or her valuation was called into question. The court would examine at that stage whether in reaching a valuation outside the bracket the valuer had acted in accordance with practices which were regarded as acceptable by a respectable body of opinion in his profession. It was open to the court to submit the body of professional opinion to its own logical analysis and hold that it was not reasonable or responsible in the circumstances. The law properly focused on the end result, not the way in which that end result might have been achieved: K/S Lincoln v CB Richard Ellis Hotels [2010] EWHC 1156 (TCC); [2010] PLSCS 110 followed. Merivale Moore plc v Strutt and Parker [1999] 2 EGLR 71, Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas [2011] EWHC 2336 and Barclays Bank v Christie Owen and Davies Ltd [2016] EWHC 2351 (Ch) considered.
In the present case, the defendant faced a challenging set of circumstances. There were a very limited number of comparables and a leasehold interest of this length in a care home was a rare, if not unique, occurrence. Furthermore, there were features of the property which were idiosyncratic such as the fact that it was a listed period property and included a significant element of additional floor space. However, the circumstances of valuation here were not so exceptional as to justify a larger margin of error than 15%. A higher margin of error than 15% was bound to be reserved for the most exceptional cases. Whilst difficult and challenging, the valuation exercise did not justify a margin of error of 20%.
According to the RICS Appraisal and Valuation Standards (the Red Book), specialised trading related properties were considered as individual trading concerns and typically were valued on the basis of their potential earnings before interest, taxes, depreciation and amortisation (EBITDA) on the assumption that there would be continuation of trading. The valuer had to objectively analyse the circumstances of the property and the business within it in order to establish the EBITDA. Only changes from current trade assessment (CTA) which could be confidently predicted to achieved by a reasonably efficient operator (REO) could properly be reflected in the EBITDA as a sustainable trading and profitability position. Notional freehold values and the agreed sale price were not determinative of whether there had been negligence once it had been established that the valuation was within the margin of error of a valuation correctly conducted. In any event, the court accepted the defendant’s evidence that it had approached valuing the property in accordance with the GN1 guidance note in the Red Book on trade related property valuations and good will and an EBITDA/multiplier approach. The absence of reasons for the multiplier selected did not affect the legitimacy of its judgment as to the appropriate value of the property. The court was satisfied that, applying the EBITDA/multiplier approach, the correct valuation had been arrived at.
Nicola Rushton (instructed by TLT LLP, of Manchester) appeared for the claimant; Thomas Grant QC (instructed by Clyde & Co LLP, of Manchester) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Barclays Bank plc v TBS & V Ltd