Margin of error in surveyors and valuers negligence claims
In the case of Blemain Finance Ltd v E.Surv Ltd [2012] EWHC 3654 (TCC) the court considered the margin of error in surveyors and valuers negligence claims. The Claimant sought damages in negligence against the Defendant surveyors in relation to the valuation of a residential property. The Defendants surveyor had valued the property at £3.4m in July 2007. The owners got into financial difficulties and the property was repossessed and sold for £2m.The Claimant recovered nothing from the sale. The losses were agreed between the parties at £302,000.
In another claim , Webb Resolutions Ltd v E.Surv Ltd [2012] EWHC 3653 (TCC), the same Judge had considered the correct approach to the law in relation to negligent valuations, and the parties had agreed in this case that Webb could be treated as the principal judgment in respect of this case as the same experts and legal teams had been involved.
The Defendant owed the Claimant a duty of care by way of an implied term in their contract to carry out the valuation to the standard expected of a reasonable valuer of ordinary competence and experience.
The Judge referred to his earlier decision of K/S Lincoln and Others v CB Richard Ellis Hotels Limited [2010] EWHC 1156 (TCC) where he summarised the authorities as to the margin of error in Surveyors and valuers claims.
(a) For a standard residential property, the margin of error may be as low as + or – 5%;
(b) For a valuation of a one-off property, the margin of error will usually be + or – 10%;
(c) For a property with exceptional features, the margin of error could be + or – 15%, or even higher in an appropriate cases.
In deciding whether M’s valuation was negligent, the court had to apply a margin of error or bracket by reference to the evidence. How the surveyor arrived at the figure of £3.4m was entirely unexplained but he did make clear that the figure was provided by the prospective borrowers. The three comparable properties he identified offered a range of £1m, and the expert evidence was that that was simply too wide a range.
The surveyors observation that the comparable properties were in a worse location was not borne out by the evidence. The judge considered they might even have been in a better location. The Defendants performance of the valuation exercise was negligent. There was no justification of the valuation in the valuation document.
The court then went on to consider whether despite the negligence a valuation had been produced within a reasonable bracket or margin of error.
This was a second mortgage of a one-off property of unusual design and the court held that the margin on either side of the correct valuation was ten per cent. It was not a sufficiently one off property to justify a margin of £15% although in reality it made no difference to the claim whether it was 10% or 15%.
The correct valuation was £2.8m, with a 10 per cent range either way That would take the upper limit of the valuation to £3.08m.
All the Defendants evidence had been geared towards getting to a figure of £3.1m and then arguing for a large bracket into which the £3.4m would just about fall. That only strengthened the view that the Defendants valuation was negligent.
The valuation was one to which no reasonable valuer could have arrived at because the surveyor had failed to approach the valuation exercise in the right way. But for the negligent valuation, the Claimant would not have made the loan.
With regard to contributory negligence, the Defendant had to show that the losses had been caused by the Claimant. The appropriate standard to be applied to the Claimant was that of the reasonably competent second charge lender. The Defendant could not demonstrate that a reasonably competent lender would not have made the loan and the allegation of contributory negligence failed.