A recent Court of Appeal decision will be good news for surveyors. The question before the court was whether a valuer owed a duty of care to the purchaser of a buy–to-let property which had been negligently valued.
Valuers will be aware that they can be found liable, or in negligence, to the purchaser of a residential property (that they will be living in), even when the report is prepared for the purchaser’s mortgage company. The Court of Appeal considered this principle in the recent case of Scullion v Bank of Scotland plc t/a Colleys  but in the context of a buy-to-let purchase.
The circumstances in which Mr Scullion came to purchase the property are somewhat convoluted but, suffice to say, Colleys prepared a valuation for Mr Scullion’s mortgagee which stated that the open market value of the property was £353,000 and that it could achieve a monthly rental income of £2,000. Having purchased the property in October 2002 Mr Scullion only managed to let it for £1,050 and it became clear that the rental valuation given by Colleys was substantially overstated. Eventually Mr Scullion put the property on the market and sold it in May 2006 for £270,000. Having made a substantial loss, and being heavily indebted to his mortgagee, Mr Scullion issued proceedings against Colleys, alleging their valuation was negligent and seeking damages.
In the first instance, the judge found for Mr Scullion and awarded him damages in respect of the negligently high rental value but not in respect of the negligently high capital value. Colleys appealed.
The Court of Appeal allowed Colleys’ appeal and dismissed Mr Scullion’s claim. The court decided that this case could be distinguished from previous cases in which valuers had provided valuations for (relatively modest) houses acquired as a residence by the purchaser, where the purchaser had effectively paid for the report (albeit through the mortgagee, often a bank or building society) and where it was almost certain the purchaser would rely on the mortgagee’s valuation report rather than obtaining their own valuation.
To succeed Mr Scullion needed to establish foreseeability of damage, a sufficient degree of proximity between him and Colleys, and that it was “fair, just and reasonable” to impose a duty of care on Colleys. The Court of Appeal found it was not sufficiently clear that it was foreseeable to the valuer that Mr Scullion would rely on his report rather than obtaining his own report. Further, it was by no means clear that the relationship was one of sufficient proximity and it was not just and equitable that a duty of care should be imposed on Colleys.
The court found four main reasons why there was no “inherent likelihood” that a purchaser buying a property for letting purposes would rely on a valuation provided to the mortgagee:
- This was a commercial transaction. At least when it comes to lower or middle range properties, purchasers of buy-to-let properties are, as a class, likely to be wealthier and more commercially astute than someone buying to occupy. As a result they were more likely to be able to afford, and so to obtain, an independent valuation or survey rather than relying on the mortgagee’s valuation.
- When the House of Lords previously considered this issue in the context of a purchaser acquiring a property as a residence it accepted evidence that surveyors knew 90% of purchasers relied on their mortgagee’s valuation so the overwhelming probability was that the valuation would be relied on (Smith v Eric Bush ). There was no evidence in this case that anything like 90% of purchasers of buy-to-let properties relied on valuations prepared by their mortgagee’s valuer.
- Where a property is bought with a mortgage, a buy-to-let purchaser needs to be satisfied that the rental income is going to be adequate to meet payments due under the mortgage as well as ensuring the price is a fair valuation. The court felt that a valuer valuing for a prospective mortgagee of a buy-to-let purchaser could expect that purchaser to have obtained his own report on important matters regarding rental - such as the fee for managing the property, the rent free period that might need to be given and the ease with which the property could be let.
- A valuer valuing a property for a buy-to-let mortgagee would understand that the mortgagee is primarily interested in the capital value of the property to ensure that any loan could be repaid from the sale proceeds of the property in the event of default on the mortgage.
The court had sympathy for Mr Scullion given that Colleys had been negligent and were likely to be insured. However, it reiterated that the law must be developed in a principled and coherent way and the fact that a particular result might seem fair did not mean that the law should be developed to achieve that result.
The case makes it clear that valuers of buy-to-let properties are very unlikely to be found liable in negligence to a purchaser when the report has been prepared for the mortgagee. This contrasts with the position in respect of ordinary domestic purchases, where a valuer may still be liable for damages for negligence to the purchaser even though the report has been commissioned by the mortgagee. It should also not be forgotten that the valuer does of course remain liable to his own client (whether lender or purchaser) in respect of a negligent valuation, whatever the reason for purchase.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.