The wrong valuation method landed a surveying firm with a hefty negligence bill.

Property valuers Christie were found liable after they over-valued three seaside gaming arcades by £1 million.

Barclays Bank appointed Christie to value three arcades in Great Yarmouth.  They provided a valuation of £4.2 million based on the turnover of the businesses, plus a multiplier.  As a result Barclays increased its lending to its customer by £1.8 million to allow it to refurbish two of the arcades and purchase the third.

Within two years the customer’s business went bust.  All three arcades were sold, leaving Barclays with a shortfall of £1 million.  It accused Christie of negligent valuation and started a claim to recover its losses.

The court decided that Christie used the wrong approach in assessing the value of the properties.  Rather than basing its valuation on turnover, the court said should have calculated the value using earnings before interest, tax, depreciation and amortisation (EBITDA) plus a multiplier.  The latter approach is the preferred method set out by RICS Red Book.

The court ordered Christie to compensate Barclays for its loss, but reduced the payment by 40{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53}.  It considered Barclays had contributed to its losses by advancing a loan to a customer with a record of dishonesty.  The borrower had used a previous loan to buy a property in Spain, rather than investing it in the business.

Surveyors should follow RICS Red Book guidelines when making valuations unless there are exceptional circumstances requiring the use of another method,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks said: “The courts are only likely to accept an alternative valuation method if it is widely used in the market or if there is substantial evidence that the alternative method can deliver a robust valuation.  Neither was the case here.”

Reports on the case have been published by law firms Kennedys and CMS and by legal publisher Lexis Nexis.