Mortgagee receiving application for bridging loan secured by two properties – Mortgagee instructing defendants to value properties – Loan being advanced – Mortgagor defaulting – Mortgagee obtaining possession and selling property at a considerable loss – Whether valuation had been negligent – Whether mortgagee had relied on valuations – Mortgagee’s claim dismissed
In 1989 the underleases of 9 and 10 Belgrave Square, London SW1, and their respective mews were put on the market at a combined price of £4.5m. The underleases provided for rent reviews in 1996 and 2017 to full market rent without regard to tenants’ improvements. The use of no 9 was restricted to that of a single dwelling, non-profit making charity, cultural society or a private club. The use of no 10 was limited to that of headquarters of a non-profit making or professional institution. The only permitted use of the properties’ mews was as a residential flat and garage. The purchaser agreed the price of £3.95m with the vendor with the intention of reselling them for £8.5m.
The plaintiff provided bridging loan finance based entirely on the security of the property. Under its operation manual two valuations of a property were to be obtained and the lower of the two was to be accepted and not more than 75% of the forced sale value was to be loaned against any security. The vendor applied to the plaintiff for a loan of £4.5m for six months. The plaintiff instructed the first defendant and a valuation of £8.5m was given which was subsequently revised to £6.5m. The second defendant on being instructed submitted a valuation of £8m which was subsequently revised to £7.2m. In November 1989 the plaintiff made an advance of £4.7m based on a purchase price to the vendor. However the vendor failed to resell the property and fell into default and the plaintiff recovered possession of the properties. By February 1993 the plaintiff was in receivership. In May 1993 the properties were sold for £2.35m. The plaintiff issued proceedings claiming that they had been negligently advised in relation to the value of the properties. The second defendant conceded that it had been negligent but disputed that the valuation had been relied upon.
Held The plaintiff’s claim was dismissed.
1. The figure most likely to have been put forward by a reasonable valuer using the information at the relevant date would have been the mean figure of the range of valuations put forward by the expert witnesses which was £3.35m.
2. The first defendant had been aware of the rent review provisions but had failed to give them due weight and had failed to request and obtain a sight of the leases. Therefore the defendants had been negligent.
3. The plaintiff had relied on the valuations in the belief that they were forced sale valuations and would not have proceeded if it had known that they were open market valuations. Therefore it had acted on its own fundamental mistake rather than any negligent misrepresentation made by the defendants and accordingly the plaintiff had failed to prove that it had relied on the valuations.
James Ramsden (instructed by Clifford Chance) appeared for the plaintiff; Romie Tager QC and Nigel Jones (instructed by Williams Davies Meltzer) appeared for first defendant; Robert Moxon-Browne QC and Sarah Vaughan-Jones (instructed by Wansbroughs Willey Hargrave, of Bristol) appeared for the second defendant, Hampton Residential Ltd.