The Appellate Committee of the House of Lords has recently dismissed an application for permission to appeal a Court of Appeal decision that valuers have an unqualified obligation to value the correct property.
The case concerned the nature of the obligations undertaken by a surveyor (“C”) who was instructed by a mortgage lender (“P”) to value a property offered by a borrower (“H”) as security for a loan. The property to be valued, 1 Bakers Yard, was situated at Plot 1, an area of land on a new development which had been divided up into 5 plots; none of which displayed a house number. At the time of the valuation the house that stood at Plot 1 was little more than a shell, having no windows or roof. A house that had almost been completed stood on Plot 5.
However, due to representations made by H to C as to the location and identity of the correct security, C inspected and valued the house at Plot 5 rather than Plot 1. P relied upon the valuation and advanced a loan to H, the security for which was 1 Bakers Yard. Following the repossession of 1 Bakers Yard and subsequent sale, P suffered a shortfall and sought to recover it from C.
Decision of the Court of Appeal
By a majority, the Court of Appeal followed the Judge’s decision at first instance and held that, in addition to a valuer’s duty to exercise reasonable care and skill in carrying out a valuation, valuers have an unqualified obligation to value the correct property. By failing to fulfil that obligation, C was in breach of contract.
Moore-Bick LJ, giving the leading judgment, stated that:
“…although there is a presumption that those who provide professional services normally do no more than undertake to exercise the degree of care and skill to be expected of a competent professional in the relevant field, there is nothing to prevent them from assuming an unqualified obligation in relation to particular aspects of their work.”
C had argued before the Court of Appeal that a valuer was required to do no more than exercise such skill and care as might be expected of a reasonably competent valuer and that included locating the property to be inspected. They sought permission to appeal to the House of Lords which was refused. Accordingly, the decision of the Court of Appeal remains good law.
Given the current economic downturn, it is likely that the number of repossessions will grow. That, combined with further falls in the housing market, inevitably will lead to a rise in litigation as lenders seek to recover any shortfalls they suffer from professionals, including valuers. In the previous recession, litigation of this type was prevalent and led to a number of key principles being established regarding the duties owed by valuers to lenders, a lot of which were handled by this firm.
The Court of Appeal decision in this case imposes a strict duty on valuers to ensure that they have carried out a valuation of the correct property. Sir Anthony Clark MR, in his dissenting judgment in the Court of Appeal, drew attention to the difficulties that valuers may face in identifying the correct property in areas where properties are under construction or are flats. However, as the duty to value the correct property is strict, if that is what they have been instructed to do by their client, a valuer must ensure that they overcome these difficulties and take further instructions if they are in any doubt in order to ensure that they do not face a claim in future. Otherwise, valuers may seek to protect themselves by issuing disclaimers in their valuations. The decision is helpful to lenders as it effectively provides them with a guarantee as to the correct identity of a property or further ammunition in their shortfall recovery arsenal other than where the valuer has protected himself in advance of producing this valuation.
For further information please contact Georgina Squire or the Partner with whom you usually deal