Buy-to-let property – Valuation – Duty of care – Defendant’s surveyor valuing property for mortgagee in connection with buy-to-let transaction – Claimant purchasing property in reliance on valuation and estimated rental figure – Whether defendant owing claimant duty of care – Whether disclaimer excluding defendant’s liability – Whether defendant entitled to raise ex turpi causa defence – Whether claimant relying on valuation — Whether defendant providing negligent report – Claim allowed
In 2002, the claimant purchased a two-bedroom flat from a developer on a buy-to-let basis. He sought finance from a specialist mortgage provider (M). The application form stated that the purchase price/estimated value of the property was £353,000, and the claimant applied for a mortgage of £283,000. The defendant was a firm of surveyors and valuors. The surveyor responsible for the valuation of the property (C) provided M with a valuation report that assessed the open market value of the property at £353,000 and the achievable rent at £2,000 pcm. The claimant’s monthly mortgage payment was just under £1,440 pcm.
On exchange of contracts, the developer gave the claimant a “gifted deposit” of 15% of the purchase price, with a further payment of 10% of the purchase price being deferred for one year, making a total consideration on completion of just over £300,000. Following completion, the claimant was able to let the property for only around one-half of the monthly rent that C had predicted. He subsequently raised the finance to settle his liability to the developer and, in May 2006, sold the property for £270,000.
The claimant brought a claim for damages for the loss suffered on his investment as a result of C’s alleged overvaluation of the purchase price and the rental value that the property could achieve. He contended that when he purchased the property it had been worth only in the region of £250,000. The defendant denied liability contending that: (i) it did not owe any duty of care to the claimant on the basis of the principles established by the House of Lords in Smith v Eric S Bush (a firm) [1989] 1 EGLR 169[ [1989] 17 EG 68 and [1989] 18 EG 99; (ii) any such duty had been excluded by a disclaimer in the mortgage application form; (iii) it was entitled to raise the defence of ex turpi causa (whereby a claimant was unable to pursue a cause of action if it arose in connection with his own illegal act) because the claimant had made fraudulent representations as to the price of the property to the mortgage lender; (iv) the claimant had not in fact relied upon the valuation; and (v) the valuation had not been negligent.
Held: The claim was allowed.
(1) Although each case turned on its own facts, a buy-to-let transaction was not so different from the ordinary residential house purchase in issue in Smith. In common with the purchaser who was buying his own house, the buy-to-let purchaser required that the valuer’s assessment of the open market value of the property would be sufficient to satisfy the lender that the property was good security for the loan. A valuer had to appreciate that the decision to purchase a modest residential property in a buy-to-let transaction was more likely to depend on the accuracy of the valuation report. In an ordinary residential purchase, the purchaser would make his own judgment as to whether his income and resources were sufficient to enable him to meet the mortgage payments. In contrast, the buy-to-let purchase depended on the accuracy of the anticipated rental value and that it would exceed by a sufficient margin the periodic payments that would be due under the mortgage, so that, as an investment, the transaction would be self-financing.
(2) In the instant case, the only disclaimers on which the defendant relied were those in the small print of the application form. The report did not contain. On the evidence, the disclaimers in the application form had not been brought to the claimant’s attention and were not as prominent as the obvious disclaimers in Smith. Moreover, the defendant had not discharged the burden of showing that it would be fair and reasonable to rely on the disclaimer clauses in the circumstances of the instant case. This was a valuation of a small domestic property of relatively low value that the defendant provided in return for a fee. The defendant had to be taken to have known that the claimant would rely on its professional expertise and there was no evidence that he was expected to obtain a valuation from another source.
(3) The defendant had failed to establish that the claimant was debarred from pursuing his claim by the doctrine of ex turpi causa. It had failed to show that the claimant had deliberately misled M.
(4) The claimant had relied on the defendant’s report. He had not decided to proceed with the purchase on the basis of a different valuation. Nor had he thought that the report was inaccurate, but had decided to go ahead nonetheless. The claimant had been aware that the purchase would only be funded by M and would make commercial sense only if the valuation showed that the property was good security for the loan and that it would generate sufficient rental income to pay the mortgage instalments. The claimant’s decision to accept the mortgage offer and to complete the purchase was made only because the defendant had provided a valuation report that led to the offer of a mortgage. Any losses suffered by the claimant from accepting the mortgage offer and completing the purchase had resulted from the defendant’s valuation report.
(5) On the assumption that a valuer took sufficient care to be satisfied as to the accuracy and integrity of its information, the defendant’s valuation of £353,000 exceeded by some margin the maximum value that any competent and careful valuer could have ascribed to the property. In the circumstances of the instant case, a competent valuer would not simply have accepted the price given to him at face value, but would checked that no discounts were to be given by the developer. C’s open market valuation of the flat and its achievable rental value had been substantially overstated, outside the permissible margin of error, and resulted from a failure to act in accordance with the standards of care and competence to be expected of his profession. C had adopted a compliant and uncritical approach and placed far too much reliance on the figure that the developer gave as the asking price and, subsequently, as the intended sale price of the property.
Philip Noble (instructed by Miller Rosenfalck) appeared for the claimant; Tom Leech (instructed by Walker Morris, of Leeds) appeared for the defendant.
Eileen O’Grady, barrister