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To whom is a duty owed?

If a purchaser instructs a surveyor directly to carry out a survey on his behalf the surveyor will owe the purchaser a duty of care both in contract and in negligence.  The precise duty will usually be defined by their agreement but generally if the surveyor has been negligent establishing that he owed a duty of care will not be a problem.

However in the vast majority of cases the purchase will be financed by a mortgage and often the lender will require a surveyor to carry out a valuation which will be paid for by the borrower.  Many purchasers do not obtain any other report from a surveyor.

However the mortgage “survey” is usually only a valuation and therefore far less extensive than a survey carried out for a purchaser. Nevertheless the surveyor is expected to identify major problems that affect the value and will be liable to the lender if he negligently fails to do so.

Even though there is no direct contractual link between the purchaser and the surveyor in this situation, in 1990 the House of Lords in the linked cases of Smith –v-  Bush and Harris –v- Wye Forest District Council decided that the surveyor did owe the purchaser a duty of care.

The House of Lords, which was very much influenced by public policy considerations, decided it was not unreasonable for a purchaser of a “modest house” to rely on the valuation and also decided that the attempt by the surveyor to exclude liability by notice and/or contractual terms failed as being unreasonable.

More recently, in June 2011, an attempt was made to extend this duty to cover a buy-to-let investor (Scullion –v- Bank of Scotland PLC).

Mr Scullion relied on a valuation obtained by his mortgagee when buying a buy-to-let property.  The court found the valuer had been negligent.  Although Mr Scullion was successful at first instance the Court of Appeal overturned the decision deciding that Smith–v- Bush was at the outer limit of what was justifiable legally and that a surveyor did not owe a duty of care to an investor/purchaser (except perhaps in cases where the surveyor had particular knowledge that the purchaser was relying upon him and for example was an inexperienced and unsophisticated investor).

Interestingly the court did accept that a property valued at £300,000 should still fall within the “modest house” description in Smith  –v- Bush.

Consequences of a surveyor’s negligence

If a duty of care is established then it will be necessary for the purchaser to show that the surveyor breached that duty.  Whilst in some cases that may cause problems, in many instances e.g. where the surveyor failed to spot major defects, this will not be too difficult.

If a breach is established it is then necessary to show that the breach caused a loss and to quantify that loss. This may be significantly more difficult than many people would assume.

Suppose for example the surveyor failed to notice a major defect in the property and the purchaser now has estimates to correct the problem demonstrating it will cost £50,000. Many people wrongly assume they will be entitled to claim £50,000 (i.e. the cost of repair) from the surveyor.

This is not correct.  The Courts have held that a surveyor who has been negligent is not liable to pay the cost of the repair (as this would in effect mean the surveyor was guaranteeing the property).  The surveyor is only liable in damages for the “diminution in value”.  This means the difference between what the property was worth if the defect had not existed and what it was worth with the defect.

In many cases this will be less than the cost of repair and may even be negligible.

The calculation of damages is usually complex and particularly difficult questions can arise where for example, the purchaser might not have proceeded if he had been made aware of the defect and, since the purchase, there have been substantial falls in property prices.

Conclusion

Compared with the cost of buying a property, the cost of commissioning a surveyor to advise on condition and value is relatively small and may well be recovered in negotiations with the vendor if items of repair are found.

If instead the purchaser simply relies on a valuation carried out for a mortgagee, whilst in some circumstances the surveyor may owe a duty of care this is likely to be far less certain and far more likely and particularly in the case of expensive  or investment property there may well be no duty at all.

Finally it is vital when considering bringing a claim against a surveyor who has been negligent to seek experienced and specialist legal advice as the area is highly complex.

If you would like more information on this group negligence claim please get in touch with Ignacio Morillas- Paredes at Ignacio.morillas@colmancoyle.com

Ignacio has experience in professional negligence group litigations and is currently involved in a substantial professional negligence Group Action in connection with foreign property purchases.

As a dual qualified English solicitor and Spanish lawyer (abogado), Ignacio will develop  Colman Coyle’s Spanish speaking service; advising  UK clients in their dealings with Spain and Latin America, as well as Spanish speaking clients with legal needs in the UK.

He qualified as an abogado  in 2001 and as an English solicitor in 2005 through the

QLTT (Qualified Lawyer Transfer Test).

Ignacio can be contacted at Ignacio.morillas@colmancoyle.com or  +44 (0)20 7354 3000

See more information on Professional Negligence Group Actions or Ignacio Morillas- Paredes full profile

Over a decade ago, the British fell in love with the idea of owning a property abroad; enticed by television shows featuring sunny countries, foreign property exhibitions, expensive glossy brochures, and all paid weekend breaks to see dream homes first hand. Purchasers strived to fulfil a wide range of expectations; these ranged from wanting a holiday home in a sunny destination, to acquiring a steady rental income from a sound investment, or the allure of ever rising prices and the idea of a quick profit.

Everything was wonderful for many years; purchasers were completing on properties, maybe some experienced delays or small inconveniences, but the properties were built and completions took place. The prices kept rising and the wheel kept turning. Then suddenly, the credit crunch arrived to our shores; it was not only the UK that was hit but many other countries too. The dream was over, and in the words of US leading investor, Warren Buffet, in relation to recessions, “It’s only when the tide goes out that you learn who’s been swimming naked”. In other words, it was only then that those who had taken on excessive risk were exposed.

By way of example, we are currently in a group of cases where our clients are pursuing claims for professional negligence against solicitors that sadly failed to protect our clients’ interests when purchasing properties in Spain.

Some of these failures entail situations such as properties sold without planning permission or where the planning permission granted did not match the property our clients bought, purchase contracts that did not state completion dates, clauses within the contracts which were in breach of applicable consumer protection laws and European Directives.

Most cases feature the topic of Bank guarantees which were not provided to the clients in order to protect their investments.  In others, the so called “off-plan” sales, the land did not belong to the seller/developer therefore there was very little chance a property could be built on the land   All in all our clients have been left in the unfortunate situation whereby they have parted with substantial amounts of money which have now been lost.

Now most of these developers, if these were actually proper developers, and not a company set up to “make a killing”, have no financial means and the properties effectively belong to the banks.  The properties have not been finished, or where they have, these properties do not resemble the properties which our clients agreed.  In almost all cases action against the Spanish developer would be pointless.

If unfortunately you have suffered from similar problems, at Colman Coyle we have the expertise and language skills, where they are required, to advise you on issues connected with an overseas property purchase, or with the services of a professional, where you have been let down. In some circumstances, we may offer our clients a Conditional Fee Agreement often known as a ‘No win no fee’ if the circumstances so require it.

Cases for Professional Negligence with a foreign element tend to be very technical and complex, so we would suggest contacting us directly to discuss for a free initial discussion on your potential negligence claim.

Contact Ignacio Morillas-Paredes on 020 7704 3443 or Ignacio.morillas@colmancoyle.com for a free initial discussion

Mr and Mrs P had purchased the newly built property in the summer of 2004 for £575,000. Prior to purchase they instructed a surveyor to carryout a “full structural survey” which revealed some minor items of repair but indicated there was no reason not to proceed with the purchase.

The property was sold with the benefit of the NHBC Buildmark policy.

Following completion serious problems became apparent. These included soil erosion to the rear garden which was falling into the adjacent railway embankment, serious issues with the damp proofing and tanking and a list of other defects.

The NHBC identified several hundred items of defects in their reports but, despite effects to resolve matters amicably little progress was made.

The surveyor denied all liability, the builder appeared to be insolvent and the NHBC were unwilling to assist.
Eventually Mr and Mrs P instructed Colman Coyle in January 2009 and after unsuccessfully attempting to resolve matters at a Pre-Action Meeting, proceedings were commenced in the Technology and Construction Court in the spring of 2009.

This involved a claim against the surveyor for negligently failing to identify the problems and against the builder for building in breach of the NHBC requirements.

In due course a trial date was set for March 2010 – quite a tight timetable given four parties and experts in three separate disciplines were required.

After experts for both sides had met and reported it was clear the cost of the repairs was in the region of £400,000 and it was genuinely in doubt as to whether it would be better to simply knock the house down and rebuild!

Despite continuing to deny liability until the eleventh hour, a week before trial both the surveyor and the builder agreed settlement terms and Mr and Mrs P will therefore now receive substantial damages and their costs.

In a recent decision, the Court of Appeal held that the Claimant’s negotiating position with a third party was inevitably informed by the robust and bullish advice it had received from the Defendant.  In this case, the Claimant was advised that it had a “not less than 70 per cent” chance of succeeding and on that basis rejected early offers of settlement made by the third party. Therefore, when a solicitor advises their client to commence proceedings rather than settling, or vice versa, such advice will have a direct link with the final outcome in causation, unless otherwise shown. The Court of Appeal held that the burden of proof was on the solicitor to refute this presumption and show that the advice was not directly linked to the outcome. Although these types of cases are decided on their individual facts and that this particular case may go to a further appeal, it highlights the issue of causation as being a vital component to any successful claim.

Causation not only applies to solicitors’ advice but any instance where a loss can be either directly or indirectly attributed to another party where a duty of care is owed.  A vital aspect to consider before making a claim for professional negligence is therefore, would the likely outcome have been the same regardless of negligent advice/action?

Case: Levicom v Linklaters [2010] EWCA Civ494

A recent decision handed down by the Technology and Construction Court stated that although there may be justified criticisms in the way a professional valuer produced valuations of a group of hotels, the figures presented to investors were within a permissible bracket around the correct valuation.

It was held that although a duty of care was owed by the Defendant to the Claimants and that they had breached that duty in providing inaccurate valuations, the Defendant would not be held liable in negligence for their error because the valuations were within a reasonable bracket of the true valuations.  His Honourable Judge Coulson held that at the time when the Defendant was producing the valuations, there was a limited number of comparable properties and the investment market in hotels was in its infancy, both of which posed significant difficulties for valuers.

Overall, when a professional valuer has over or underestimated an asset, one must also consider whether the difference from the true valuation is within an appropriate margin of error, which may be specific to an individual field.

Such consideration is likely to be invaluable, in light of the fluctuations in the current UK property market.