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Scope of valuer’s duty on buy-to-let valuations

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Posted by Susan Hopcraft on 24 June 2013

Susan Hopcraft Partner

The question whether surveyors owe a duty of care to buy-to-let investors where a valuation was prepared just for the lender, has been resolved finally after the Supreme Court appeal was withdrawn. This leaves the Court of Appeal’s finding that no duty of care is owed as the final word.  

Buy to let investors are now less likely to be able to claim in professional negligence where a surveyor has overvalued their investment when they acquired it, though the outcome will be welcomed by valuers and their insurers.  

The general position is that the duty of care owed by a surveyor to their client can extend to other people who rely on their reports. Typically the duty of care owed by a surveyor in carrying out a mortgage valuation for a lender could render them liable to a borrower as well as the lender, even though the report was commissioned by the lender, not the borrower.  

Scullion v Bank of Scotland plc

However, in Scullion v Bank of Scotland plc (trading as Colleys) the valuer tried to distinguish a residential borrower buying their main home – to whom the duty of care is generally still owed – and a professional investor who was buying for investment purposes. Was the same duty owed there? 

Mr Scullion purchased the property, a flat valued at £350,000, as a one-off investment. The investment formed part of his pension plan and he relied on the over-valued rental income provided by the surveyor.  

The first court decided that the duty did extend to buy to let investors. This was because the small flat purchased by Mr Scullion was of the modest residential type similar to a normal residential purchaser. It was not a very expensive house where it could be expected that a purchaser would get his own report. Mr Scullion was, like many other people at the time, purchasing buy-to-lets as an investment and was "in no sense a professional property developer". The judge saw no basis for distinguishing between the purchaser of a modest house and someone, like Mr Scullion, engaged, as the judge saw it, in a BTL business in a modest way.  

However, at appeal the decision was different. In essence the court decided that people entering into commercial transactions are likely to be able to afford independent valuations, in contrast to domestic purchases who would commonly rely on mortgage valuations. No evidence was put forward to demonstrate that ordinarily buy-to-let investors would not obtain independent valuations. Also, in view of the limited information the valuation provided specifically on rental income, an investor would be expected to have obtained their own report. The negligent valuer was not liable to compensate Mr Scullion for the loss caused by Mr Scullion’s use of the valuation report.

Mr Scullion obtained permission to appeal this decision to the Supreme Court, the highest court. This appeal was due to take place in April 2013, but on the morning of the hearing the matter was withdrawn, presumably acceptable terms having been agreed between the parties. No doubt the valuer’s insurers were keen to maintain the precedent set by the Court of Appeal.

Summary 

The decision may seem a little severe given that Mr Scullion was not a sophisticated investor with a large property portfolio but instead was making an isolated investment property. Nonetheless it makes clear that the law will treat differently valuations made for owner occupiers, and those made for investors. Lenders may wish to make sure their borrowers are well aware of the limitations on the lender valuation and suggest that investors concerned to know they are paying the appropriate price for a property or relying on the rental income obtain their own valuation report.

About the author

Susan is a disputes and professional negligence lawyer, mainly in the financial services sector.

Susan Hopcraft

Susan is a disputes and professional negligence lawyer, mainly in the financial services sector.

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