The supportive decision of Scullion v Bank of Scotland remains good law after a challenge to a Court of Appeal decision was withdrawn by a buy-to-let investor.
The Court of Appeal had previously decided that valuation surveyors who provide advice to a lender on the value of a buy-to-let property do not owe a duty of care to the borrower. This outcome was good news for surveyors and their professional indemnity insurers who were facing a flood of negligent valuation claims from buy-to-let landlords who had lost money on their properties.The case centres on a Mr Scullion, who applied for a mortgage of £283k to buy an investment property priced at £353k. His mortgage lender appointed Colleys as valuation surveyors, who valued the property at the purchase price with a likely rental income of £2k per month. After the purchase completed, Mr Scullion was only able to let the property for £1,100 per month. He sold the property, but only realised £250k after prices crashed. Mr Scullion brought a claim for damages against Colleys for negligently overvaluing the property and its likely rental income.
Colleys defended the action on the grounds that it did not owe a duty of care to the borrower. In the original case, the court found in favour of Mr Scullion, agreeing that Colleys had negligently overvalued the property and its likely rental income. The Judge said Mr Scullion’s buy-to-let investment was similar to a residential purchase, where valuers do have a duty of care to borrowers, and that Colleys should have known that Mr Scullion would place reliance on its report.
This decision was overturned in the Court of Appeal. The Court decided that buy-to-let purchases were effectively commercial transactions. Investors were likely to be more commercially astute than residential purchasers and many had multiple properties, making them a different type of borrower to residential property purchasers. The Court said it would be reasonable to expect investment buyers to assess likely rental income, rather than relying on the lender’s valuation report.
The Court also said that as the lenders were principally interested in the capital value of the property as security for a loan, their valuers would approach the task from that perspective rather than the viewpoint of the purchaser.
Mr Scullion was due to challenge the Appeal Court decision in The Supreme Court in April 2013, but withdrew before proceedings started.
“Valuation surveyors would have faced a deluge of claims from buy to let buyers who had lost money on their investments had the case gone the other way,” said James Burgoyne, Director Brunel Professional Risks. “There is already evidence that claims management companies were gearing up to target valuation surveyors. Now fortunately there is little prospect of a buy to let investor being successful in a claim for negligent valuation against the lenders’ surveyors.”