Summary

In assessing the retrospective market valuation of a property a valuation method which relied upon comparable sales evidence obtained from the Land Registry for the period immediately prior to the historical valuation was to be preferred to one which primarily relied upon the application of a price per square metre to the floor area of the property.

Facts

The claimants (P and R) claimed damages against the defendant surveying company (C) in respect of its alleged overvaluation of a property. The claimants (P and R) claimed damages against the defendant surveying company (C) in respect of its alleged overvaluation of a property. P's business was the provision of loans secured on residential properties. A third party (S) had sought to re-mortgage a buy-to-let property and sought finance from P. S stated in his self-certified mortgage application form that the property was worth £185,000 and sought a 90 per cent loan-to-value mortgage. C was engaged to value the property and it confirmed that it was suitable security for the mortgage and that its market value was £185,000. S was granted a mortgage by P which later sold the beneficial ownership of the mortgage to R which was a related specific purchase vehicle used by P to repackage its portfolio of mortgages. At law P remained the mortgagee of the property and entitled to receive from S the payments in respect of the loan. S defaulted on his mortgage, P gained control of the property and sold it for some £123,500. P and R, relying on expert evidence, contended that C had negligently over-valued the property as at the time that it had carried out the valuation the property had a market value of only £154,000. C contended, relying on expert evidence, that the market value of the property had been £175,000 and that its valuation of £185,000 was within the acceptable margin of valuation error.

Held

(1) The valuation method of C's expert, which relied upon comparable sales evidence obtained from the Land Registry for the period immediately prior to the valuation, was to be preferred to P's method, which relied primarily upon the application of a price per square metre to the floor area of the property. Although size of a property might be a relevant matter, it was only ever one factor among many that might inform the judgement of the valuer in any given case and it did not do so by any arithmetical exercise of the kind envisaged by P's expert evidence. Further, valuers would not normally have detailed information about the floor areas of comparable properties. The contention that a reasonably careful valuer would obtain such information from developers was to be rejected: First, it was implausible that developers who had completed developments would respond with floor areas whenever valuers enquired in connection with a sale. Second, it was implausible that the ability of a valuer to carry out a competent valuation would turn on whether he could obtain that information about floor areas in respect of comparables; that would mean that the method of valuation would differ depending on whether the information was available. Third, it was implausible that the method of valuation should impose such an onerous duty on the valuer. The fees paid in respect of valuations were modest. Whilst a valuer was not excused from doing what was necessary to provide a competent valuation merely by the low level of his remuneration, the fee set some parameters to what was reasonably to be expected of him. Accordingly, the true value of the property when the mortgage was granted by P was ??175,000 (see paras 24, 36-41 of judgment). (2) In percentage terms, the acceptable margin of error for the valuation of the property was 8 per cent, K/S Lincoln v CB Richard Ellis Hotels Ltd (2010) EWHC 1156 (TCC), (2010) PNLR 31considered. That gave a range of acceptable valuations from ??160,000 to ??190,000 and C's original valuation fell within that range. Accordingly, it was not negligently high (paras 51,52). (3) (Obiter) The fact that high loan-to-value lending created high risks in any given case did not mean that it was imprudent for those whose business it was to make such loans; it was their interests that were in issue when considering contributory negligence. However, if P was going to make an advance with a high loan-to-value ratio, it needed to ensure that it had properly investigated and verified the matters of central importance. On the evidence, P had failed to make proper enquiries as to S's financial position, and if it had it would have found that he was unable to verify his declared income or to give a satisfactory explanation for his inconsistent statements of earnings or his failure to give proper disclosure of his liabilities. The reasonable conclusion for P in the circumstances would have been that S was dishonest and that it should not have made the advance to him. The egregious nature of P's lack of care meant that had damages been appropriate it would have been appropriate to make a deduction of 60 per cent of the entire loss to reflect G's contributory negligence (paras 80-83).

Judgment for defendant