Surveyor’s negligence – Valuation – Residential property – Claimant mortgage lender alleging negligence by defendant in valuation of flat in new development – Correct approach to valuation – Whether defendant’s valuation falling outside acceptable margin of error – Claim dismissed
The first claimant was a provider of mortgage loans secured on residential properties. The second claimant was a special purpose vehicle formed by the first claimant to purchase packages of secured loans from it. The defendant firm of surveyors provided valuation services to the first claimant pursuant to an ongoing agreement.
In 2004, the claimants instructed the defendant to value a first-floor, two-bedroom flat in York in connection with a mortgage application; the borrower sought a loan of £166,500 on an interest-only basis over 10 years. The flat was in a purposed-built block forming part of a development carried out in 2003 to 2004. The application form stated that the borrower had purchased it for £166,500 in 2003 and estimated the current value at £185,000. In fact, the original purchase price had been only £139,400. The defendant’s mortgage valuation report, provided in July 2004, confirmed £185,000 as being the current market value and indicated that the property was suitable security for mortgage purposes. The first claimant advanced £166,430, inclusive of fees, to the borrower in reliance on that report. In March 2005, that loan was included in a sale of the beneficial ownership of a package of mortgage loans, and their related security, to the second claimant. The first claimant remained the mortgagee of the property and the party entitled to receive the mortgage payments from the borrower.
The borrower fell into arrears with repayments in late 2007 and, in May 2008, the first claimant obtained a possession order against him. It then sold the property in September 2008 for £123,500, of which it received net sale proceeds of £118,103 after deduction of fees.
The claimants brought proceedings against the defendant for damages for negligent valuation. Their expert gave evidence that the property had been worth £153,340 as at July 2004; that valuation was partly based on a percentage increase from the original purchase price to reflect the rise in the market in the intervening period and partly on the derivation of an average price per square metre from comparables. The defendant’s expert advanced a valuation of £175,000.
Held: The claim was dismissed.
(1) When valuing the property, it was unsafe to rely on the original purchase price as setting a base to which the effects of the then rising market were then applied. In accordance with the advice of the RICS, the possibility that the developer might have given incentives to purchase, such as a reduction in the purchase price, should lead to caution in the use of purchase prices of new property. Nor was it appropriate to take an approach to valuation by conducting an arithmetical exercise based on a price per square metre. The evidence did not support a correlation between area and price; although size was a relevant matter, it was only one among the numerous factors that might inform the judgment of the valuer. Having regard to the overall tenor of his evidence, and his consideration of comparables, the evidence of the defendant’s expert was preferred. Accordingly, the true value of the property in July 2004 was found to be £175,000.
(2) Whether the defendant was in breach of duty depended on whether his valuation was within the range of values that might have been given by a competent valuer, exercising reasonable care and skill: Merivale Moore plc v Strutt & Parker [1999] 2 ELGR 171 and Legal & General Mortgage Services Ltd v HPC Professional Services [1997] PNLR 567 applied. Although it was always a question of fact whether, in the particular case, the valuer had exercised the care and skill of a reasonably competent valuer, there was much to be said for some consistency of approach on the permissible “margin of error”: K/S Lincoln v CB Richard Ellis Hotels Ltd [2010] EWHC 1156 (TCC); [2010] PLSCS 156 considered. An acceptable margin of error in the instant case was 8%, taking into account the lack of consistency and clarity in the comparable evidence; the buoyancy of the market at the relevant date; heightened buoyancy in respect of the particular development owing to the limited availability of properties there by the relevant date; and the greater difficulty of the valuer’s task in respect of flats in blocks when compared to standard houses on newly built estates, owing to their lesser susceptibility to meaningful external inspection. Applying that approach, the acceptable range of valuations of the property was between £160,000 and £190,000. The defendant’s valuation was not negligently high.
Timothy Harry (instructed by Eversheds LLP, of Cardiff) appeared for the claimants; Hugh Evans (instructed by Beachcroft LLP, of Leeds) appeared for the defendant.
Sally Dobson, barrister
