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alleged negligent valuation new build residential property

25 July 2012

Test case RICS Red Book amendments

In this case Platform Funding Limited (PFL) sued Anderson & Associates Limited (AA) together with three other firms of surveyors (who had settled their actions pre-trial) for alleged negligent overvaluation of a new build flat.

PFL claimed they would not have advanced money to the borrower if it had not been for the overvaluation by AA. PFL claimed £99k made up of £75k damages and £24k lost funding costs. PFL also sued Bluestone Solicitors - its conveyancer for the transaction.

AA claimed contribution from Bluestone, as well as alleging contributory negligence against PFL.

This case stemmed from the dishonest marketing of 84 long leased residential properties in 2005/2006. There had already been a criminal trial involving parties other than those involved in the civil litigation case.

The scheme involved a company, Atrex, purchasing the flats for one price and then reselling them at an inflated price the same day so as to make a profit. The funds for the purchases/resales were obtained from funders such as PFL who provided mortgages to the second purchasers, but were unaware of the underlying scheme.

Various surveyors when valuing the flats on behalf of lenders were provided with 3 values of comparable properties on the same site by site agents for the developer Persimmon. They were never advised of any incentives or discounts that may have existed and nor, it was held, would such information have been provided even if requested.

Andersons maintained that the valuation by their surveyor was fair and reasonable when made in 2006 considering the state of the market and claimed that they were not negligent. They also alleged contributory negligence in that if proper procedures and checks were in place when the property was being purchased, the transaction would not have proceeded.

The flat in question was purchased in September 2006 for an open market value of £275k but was later repossessed and sold a year or so later for a fraction under £200k.

It was common ground between the parties that the market had fallen by the time of this sale. The expert valuers disagreed as to whether or not it had already turned by July 2006, when the flat was valued by AA . The purchaser had obtained a loan at a loan of £247,495 but failed to make any repayments.

Amendments had been made to the Red Book on 1 June 2006; the new guidelines dictated a holistic approach to the valuation exercise. This included extensive use of comparables to include any incentives, the market in the area, prices realised for similar new properties on other developments as well as the second-hand market and other information considered relevant by valuers.

No evidence was found that the AA surveyor considered anything other than the comparables of new properties in his valuation. Nevertheless it was held that a reasonable valuer would not be at be at fault if it did not ascertain the existence of a sub sale, the identity of sub purchase or the true price of the original purchase, where it could not have obtained knowledge (whilst exercising skill and care) of these matters.

Furthermore it was found that a valuer could not be faulted for using professional intuition where market prices had changed.

The court held that the cause of the entire loss by PFL arose from:

  • dishonest marketing and sales
  • the collusive manner in which solicitors conducted conveyancing, including various breaches of money-laundering, Law Society and Council of Money Lending rules
  • the fact that there were clear restrictions on providing information to valuers (except selected comparables)

It was also held that the scope of the AA surveyors retainer was to provide a valuation according to the Red Book. AA were not retained to provide a valuation of a property not sold on the open market where the comparables had been dishonestly inflated. Therefore, the entire loss incurred by PFL was overwhelmingly caused by others and not the valuation by the AA surveyor.

As to AA s allegation of contributory negligence, it was held that there was no demonstration the sub prime underwriting by PFL was undertaken without reasonable skill and care, though independent lending expert evidence was presented. The court dismissed this allegation because AA had not been negligent and had not caused any of PFL s loss and therefore there could be no contributory negligence.

AA were awarded indemnity costs, having made a Calderbank offer of a walk away which PFL did not accept and clearly failed to beat. AA was entitled to a judgement against Bluestone in the contribution proceedings and also awarded indemnity costs.

Citation 2012 EWHC 1853(QB).

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