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Written by rosalind renshaw

The Court of Appeal has ruled that buy-to-let purchasers are not owed the same duty of care by the lender’s surveyor as someone purchasing a property for their own domestic use. 

This was the finding in Scullion v Bank of Scotland plc (trading as Colleys), which has major implications for buy-to-let purchasers, valuers, lenders and insurers.

Mr Scullion, a buy-to-let investor, lost his legal battle after buying a property on the strength of a valuation commissioned by his lender, only to find that both its value and rental income were lower than had been stated.

The result puts an end to speculation that those who joined the buy-to-let rush in the early 2000s, only to see their property prices plummet, would seize the opportunity to make a claim against valuers. 

Marie-Louise Gobbi, the solicitor at Walker Morris who represented Colleys, said: “The Court of Appeal’s judgment clarifies the extent of the duty owed by valuers in buy-to-let situations. The decision is good news for surveyors, and provides a clear basis for resolving similar claims brought in the buy-to-let sector.

“Buy-to-let investors are not in the same position as ordinary domestic purchasers, and cannot assume they will automatically have the same rights and remedies. The case also provides crucial guidance on the calculation of damages in rental over-valuation cases.”

Mr Scullion had purchased a buy-to-let property, valued for the lender by Colleys. The rental obtainable was only £1,050 per month, compared to the £2,000 stated by Colleys, and the property was subsequently sold. 

Mr Scullion claimed Colleys had negligently over-valued both the capital value and likely rental income, and that he had relied on these valuations when deciding to purchase.

When the case first went to trial Mr Scullion was awarded damages of £72,234 based on the negligently high rental value. No damages were awarded in respect of the capital valuation which had not caused any loss. 

Fundamental to Mr Scullion’s case was the assertion that Colleys owed him a duty of care.

However, the damages were never paid as Colleys appealed and the Court of Appeal went on to overrule the decision on the basis that the transaction was commercial in nature. 

The court’s reasoning was that in ordinary domestic purchases it is highly likely that the purchaser will rely on the valuation, and if it is incorrect they may suffer losses. Therefore it is right that the duty of care extents to the ultimate purchaser – ie the modest residential owner occupier.
However, due to the investment nature of the purchase in this case, it was not sufficiently clear that it would have been foreseeable by Colleys that Mr Scullion would rely on its report rather than obtaining his own advice; for similar reasons there was no sufficiently clear proximity of relationship; and in any event, it was not just and equitable that Colleys should be liable to Mr Scullion because the transaction was commercial in essence.
The result was that Colleys owed no duty of care to Mr Scullion, and so had no liability to him in negligence and therefore no damages were owed.

The Court of Appeal also recognised that it was not correct to attribute all loss of revenue which Mr Scullion suffered in connection with the property to the inaccurate rental valuation. Clearly there were periods when it would have been unlet and/or unsold for reasons unrelated to the over-valuation.

The appeal decision therefore goes on to give crucial guidance as to how damages in rental over-valuation cases should be calculated and capped.
The decision is good news for surveyors. The Court of Appeal has made a strong statement that it was wrong in principle to extend the duty of the lender’s valuation surveyor to purchasers in commercial cases. Domestic owner-occupier cases are seen as a justified by consumer protection principles, with buy-to-let investors less deserving of protection and more likely to obtain and to be able to afford their own valuation.
Following this decision it is difficult to envisage a commercial case in which the court might be willing to find an implied duty owed by a valuer. 
As regards the assessment of damages, the Court of Appeal’s conclusion focuses attention on the losses actually caused by the negligence. 
The explosion of interest in the buy-to-let sector and ownership of property as an investment during the recent property boom and bust has prompted a surge in professional negligence claims. 

There will continue to be plenty of scope for dispute and debate, as different facts give rise to cases brought by those hoping to recoup losses suffered. However, it is thought that this case, and the important liability and quantum principles established, will encourage the swift and sensible resolution of many such claims.


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    Such a great post about home buyers inspection. Keep on posting!

    • 31 October 2011 22:25 PM
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    @Industry Observer

    "........The Court of Appeal has ruled that buy-to-let purchasers are not owed the same duty of care by the lender’s surveyor as someone purchasing a property for their own domestic use......".

    My point is to query the actual reasons that have been stated in the ruling, as above.:
    Why not the SAME duty of care if a BTL purchaser in future is paying the surveyor for his service?

    • 24 June 2011 12:13 PM
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    @Ray Evans

    I think you miss the point, though the case as reported undoubtedly is incomplete.

    It doesn't matter what the purpose of the mortgage and I think that is where the comments are probably beijng reported out of context.

    Had the buyer, residential for themselves or BTL, instructed a valuer, surveyor, call them what you like for a valuation, Home Buyers Inspection Report (does that waste of paper still exist?) or a full structural there would have been a direct contractual relationship and a direct Duty of Care.

    Here the valuers Duty lay to the lender as they instructed him.

    Seems pretty simple to me so I am obviously missing a critical trick somewhere along the line.

    • 23 June 2011 17:01 PM
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    I wonder if the lender will sue the surveyor once Mr Scullion stops paying the mortgage on a property that their surveyor over-valued?

    • 23 June 2011 14:00 PM
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    "........The Court of Appeal has ruled that buy-to-let purchasers are not owed the same duty of care by the lender’s surveyor as someone purchasing a property for their own domestic use......".

    In my view a ridiculous ruling!

    @Industry Observer

    I agree with you, except it need not be a requirement to have a 'full structural'. Whatever is asked for the contract is between the instructor (who pays) and the instructed.
    However, what I fail to understand is what is the logical reason for a difference in the service, responsibility and duty of care given by the professional if it is for a BTL or for a domestic purchaser who has instructed?

    • 23 June 2011 12:38 PM
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    (Coming from the big commercial world)
    The issue with this for me is that he used the bank's surveyor who has the bank's interest at heart rather than the borrowers, if he had retained his own surveyor and they had done the same the outcome might be different. The court has essentially viewed him as negligent for being inept in not using is own surveyor with his interests at heart but being silly/cheap in using the other parties'.
    Banks at the time were quite happy with high valuations (both types) as it enabled them to lend more to customers and hence get more income from them - the opposite to many bank now.
    There will still be plenty of cases to come, this has only closed the door on mis-valuation by the other party's surveyors only.

    • 23 June 2011 11:12 AM
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    It might be a non-story for you Industry Observer (by the way I agree with the rest of your comments) but that will not be the case for surveyors, their insurers or the big chains expanding into BTL (see other stories on this newsletter)

    • 23 June 2011 11:11 AM
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    This is a non story how could there be any liability when the contract was between the lender and the valuer?

    Had the buyer commissioned a full structural report and had a direct contractual relationship and then suffered loss AND that loss could be attributed to negligence on the part of the valuer (as opposed to an honest professionally based opinion for which you cannot be sued) then there would have been a case.

    • 23 June 2011 11:03 AM
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    Good point prepare to dive

    Perhaps we may see BTL investors now being advised to appoint their own independent valuers.

    How much should I charge?

    • 23 June 2011 11:03 AM
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    It's important to remember that this was about the duty of care that the lender's surveyor owes to the buyer. Now established as nothing, if It's a BTL purchase. However, that's very different to the relationship between a surveyor and his/her direct client. This judgement is NOT about a buyer or a lender who hires a surveyor directly and who gets bad advice from them.

    • 23 June 2011 10:56 AM
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    Fair point from Voice of Sanity. "Ignorance is not a defence" answers the question I posed in the last paragraph of my posting.

    • 23 June 2011 10:06 AM
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    As a surveyor and estate agent trying to renew my PII this is the best news I've heard for ages.

    If surveyors are not liable to buy-to-let purchasers, the next port of call will probably be the businesses that advise BTL investors on purchasing and potential rental levels. I hope you are all well insured as you could have a number of claims coming your way!!

    • 23 June 2011 10:05 AM
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    The situation is that as it is a commerical transaction the investor is deemed to have knowledge of what he is investing in, ignorance is not a defence.

    A homebuyer is deemed to have no knowledge and therefore solely reliant on the advice.

    If an agent or surveyor is buying a house for their own accomodation in an area they work in the issue could get clouded HOWEVER in this case its clear.

    If the investor is not able to see that the valuations are 30% out of line then he must shoulder responsibility is what the courts are saying.

    In an aside one would hope that the RICS would ask to see the surveyors paperwork to justify his findings and if not good then professional sanctions should be taken as he has, it seems from the information given, sullied the repution and professionalism of the RICS.

    • 23 June 2011 09:44 AM
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    On balance I'm glad because I dislike the so-called compensation culture whereby if someone makes a bad decision it must always be someone else's fault.

    If compensation had been awarded when there is a shortfall on the surveyor's forecast then by logical extension a surveyor should reap a bonus if the buy-to-let investor achieves a greater return than forecast.

    Having said that I'm finding it hard to see why the courts would differentiate between what Mr Smith the homebuyer and Mr Jones who has bought one or two investment properties should expect from a surveyor. Yes, the latter is a "commercial" transaction but as we all know, at the end of the day the hypothetical Mr Jones isn't a businessman, he's a private individual and will think and act like one.

    • 23 June 2011 09:19 AM
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