Knight Frank is facing a £3m-plus claim from the Bank of Ireland over a valuation of a farm redevelopment in Darlington, County Durham.
The bank claims that Knight Frank overvalued Castle Farm Barns, at Walworth, Darlington, by as much as £745,000, underestimated development costs by more than £500,000 and failed to advise on the effect the bailout of Northern Rock would have on the property market.
It is seeking to recover losses of £2.4m, plus interest of more than £1m.
According to a high court writ, the bank relied on a valuation report sent to it in October 2007 when advancing a loan facility of up to £2.3m to La Maison Properties & Investments (UK), which planned to refurbish the farmhouse and convert four barns into six homes.
The bank says Knight Frank advised that the market value of the property as at 15 June 2007 was £1.4m and that its gross development value was £3.5m.
However, it alleges that a competent valuation of the property at that time was only £670,000 and the gross development value at the same date was only £3.1m.
The project was hit by delays and cost overruns and, in April 2009, the bank demanded repayment.
The borrower failed to repay the loan and the part-developed property was sold for just £825,000 in November 2010.
BoI also claims that Knight Frank failed to warn there was a risk that the collapse of Northern Rock would adversely affect the market for residential mortgages.
One lawyer said: “This is the tip of the iceberg. There are an awful lot of valuation cases of this nature, but most are settling in mediation. It is inevitable after a frothy market calms down.”
Knight Frank is vigorously defending the claim but declined to comment.
