On its own negligence is insufficient to establish liability, there must be loss which stems from the negligence.
The High Court has considered this issue in Skykomish Ltd v Gerald Eve LLP [2025] EWHC 1031 (Ch).
The case concerned the valuation of a site – a derelict building – in Aberdeen which was to be demolished and replaced with purpose-built student accommodation which was then to be rented out. Construction of the development was to be carried out through a special purpose vehicle, Visage, a Northern Irish company, which was to be granted a 170-year lease of the property and subsequently the development. The ground rent provisions were central to the dispute.
The claimant provided mezzanine finance of over £3.5m with a profit share, ultimately secured on the leasehold to Visage, in reliance upon a valuation of £16,580,000 provided by the defendant in February 2015. The development was completed in July 2017. Repeated attempts were made, unsuccessfully, to sell it. Ultimately a sale was achieved for £4.2m in October 2024. The claimant lost its investment and sought damages from the defendant for what it argued was its negligent valuation.
The February 2015 valuation was to be a red book valuation in order to attract a primary lender to fund the bulk of the construction cost. The defendant’s terms of engagement included an obligation to inspect the property and prepare the valuation with reasonable skill, care and diligence.
The defendant failed to inspect the property and so was in breach of duty. It also failed to warn the claimant about three things:
- the upward-only, uncapped ground rent review mechanism which strongly favoured the landlord;
- the inherent lower saleability of leasehold interests generally and;
- that the valuation was heavily opinion led rather than based on comparable evidence.
The failure to inspect had not affected the valuation and the court concluded that the warnings, if given, would not have deterred the claimant from lending.
The claimant’s decision to proceed was primarily based on the valuation figure of £16,580,000. The court found that the true value of the leasehold interest in February 2015 was £15,100,000 with a margin for error of 12.5%. The defendant’s valuation fell within that range and so was not negligent.
Over the course of the development, the deterioration in the market – rising inflation leading to falling demand – coupled with the lease terms created a perfect storm for the claimant: risks materialised and the hedges put in place to mitigate them failed. While with hindsight this was clear it was neither foreseen nor reasonably foreseeable at the time.
Louise Clark is a property law consultant
