Providing a valuation for lending purposes does not make a surveyor liable for investment losses according to the High Court. The decision is good news for surveyors and their insurers as it further limits valuers’ duty to property investors.
Property investment company, Freemont, bought a derelict hospital site in North Wales for £310,000. It obtained outline planning permission and started to market the site to developers. It received two offers for the property of over £10 million.
A condition of the outline planning permission was for Freemont to provide the local council with a £5 million bond to finance works to listed buildings on the site. Lloyds Bank agreed to provide a bond and instructed Knight Frank to value the property for secured lending purposes. Knight Frank valued the development at £17m with outline planning permission and £18.7 with detailed planning permission.
Freemont decided not to accept the offers from the property developers, neither did it obtain detailed planning permission for the development. Over time the site became increasingly derelict and by 2012 it was considered to be valueless.
Freemont took Knight Frank to court, claiming that it overvalued the property. It alleged that the valuation was to enable it to assess the value of the property for sale. Freemont said that it would have accepted one of the offers on the property of around £10m had Knight Frank not negligently overvalued the development. It claimed its lost investment profits from Knight Frank.
The judge rejected Freemont’s claim. He said that Knight Frank did not know that Freemont would rely on the valuation when deciding whether to sell the land. The judge said that Knight Frank owed Freemont a duty of care in the valuation of the property, but that the valuation had only been provided for the purposes of obtaining a secured loan and was not negligent.
“This case clarifies of the duties of valuation surveyors and will be welcomed by the profession and insurers,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “It reinforces that a surveyor providing a valuation for lending purposes only will not be liable for any subsequent investment losses. The developer must prove that the surveyor knew that the report would be relied on in assessing the value of a property for sale if it wants to claim for any investment losses.”
Details of the case have been published by law firms Wright Hassall and Bond Dickinson.