Surveyor found negligent in a “buy to let” valuation
In the recent case of Scullion v Bank of Scotland (t/a Colleys) the High Court has widened the categories of person to which a surveyor may owe a duty care. Although it had been previously established that a surveyor engaged by a mortgage lender to value a modest house at the lower end of the property market held a duty of care to the purchaser it was generally considered that commercial borrowers would be treated differently to residential borrowers. However, in Scullion the Court has recently found that a valuation given in connection with a buy to let (BTL) purchase did give rise to a duty of care to the purchaser.
Mr Scullion purchased a two bedroom flat on a BTL basis. Colleys was engaged to provide a capital and rental valuation on behalf of the lender. The report over-valued both the capital value of the flat (at £350,000) and stated that the likely rental income was £2,000 per month. After completion Mr Scullion could only rent the property out for £1,100 per month. This was insufficient to cover the mortgage repayments and so he sold the property at a loss. Mr Scullion sought damages from Colleys on the basis that both the rental yield and the capital valuation were negligent.
Despite Colleys’ argument that, because Mr Scullion’s purchase was an investment, it would not be fair, just or reasonable to impose a duty of care the Court sided with Mr Scullion.
The Court held that providing accurate information about the rental income was part of the scope of the surveyor’s duty. In defining the scope of the duty the surveyor’s knowledge of the purchaser’s reliance on the valuation had to be taken into account. It was noted that such reliance was likely to be shown in the case of “a potential mortgagor seeking to enter the lower end of the housing market” but would not be so readily implied in the case of an expensive property, whether residential or commercial. Despite the fact that Mr Scullion had obtained advice from a BTL mortgage provider and property agents this was not enough to convince the Court that Mr Scullion’s transaction was akin to a commercial development. It was held that it was self evident, given that this was a BTL property, that the rental value was going to be relied upon by Mr Scullion.
The Court observed that Mr Scullion’s purchase was not a very expensive type or a commercial property. He was like many other people at the time, seeking to get involved in BTL investments and was “in no sense a professional property developer”. In BTL transactions the Court noted that a borrower will be heavily reliant on the assessment in the valuation and will use this to make an assessment as to whether or not to enter into the transaction. The position in relation to expensive or commercial property was reserved.
The courts are taking a broader approach to the obligations of surveyors. This case adds BTL investors to the categories of people a valuer may owe a duty of care. It invites BTL investors who allege that they have suffered loss as a result of surveyors overstating rental income on property purchased when the market was at its peak to bring claims. That said it is worth noting that Mr Scullion was an unsophisticated BTL investor, he was not acting commercially and it was his first BTL property. He was relying on the valuation rather than market research or his own risk assessment (as a commercial enterprise would do). Therefore, it appears that although the Court has shown a willingness to widen the scope of the duty of care each case will continue to be assessed on its own facts. As this decision has been granted permission to appeal we can expect The Court of Appeal to clarify the position in due course.