Chattertons Solicitors Banner Image
News and Events

One day son, all this (hopefully) will be yours

View profile for David Rogerson
  • Posted
  • Author

You always hope that whatever property you buy will be worth what you paid for it but what if the valuation you relied on was wrong? If a surveyor is negligent when producing a property report, what loss can be recovered?

The general rule is that a professional will be liable for the foreseeable consequences of his negligence, provided the consequences are within the scope of the duty of care. This general rule is subject to the leading case of South Australia Asset Management Corpn v York Montague Ltd and Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] UKHL 10 (SAAMCO), which held that a surveyor who merely provides information (as opposed to advice) has his liability for damages limited to the difference between the purchase price of the property and a competent valuation. This means that a claimant will usually be unable to claim for associated costs of his purchase of the property, such as losses attributable to a fall in the property market.

The SAAMCO cap does not apply when a surveyor goes further than merely providing an inaccurate valuation, and advises a client on a course of action to take. If the surveyor is negligent in that advice, he will be responsible for all the foreseeable loss which is a consequence of the client adopting that advised course of action.

In the case of Kenny & Good Pty Ltd v MGICA (1992) Ltd [2000] Lloyd’s Rep PN 25, the defendant surveyors valued a residential property for a bank, and stated in the valuation that the bank, the mortgagee and MGICA (the claimant mortgage insurer) would all be able to rely on and use the report. The surveyors overvalued the property, and stated in the valuation that the property was “suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years”. Based on this advice, a loan was made to the property owner. The property owner then defaulted, and the property was sold at a great loss; partly because it was originally overvalued and partly because of a considerable drop in the market.

MGCIA, as indemnifiers, brought a claim against the surveyors for the difference between the amount loaned and the amount obtained on sale, rather than the difference between the negligent valuation and a competent valuation as would usually be the case.

The court held that the terms of the instructions constituted more than the mere provision of information, since the surveyors were effectively advising that the transaction could be entered into. As such, the surveyors were found liable for the losses that ensued from the fall in the market.

The general rule for measuring damages in respect of negligent property surveys is the diminution in value of the property between what a competent surveyor's estimate would have been and the negligent valuation.

Unless the surveyor took on an advisory role (i.e. more than merely providing information), and unless special circumstances apply as in Kenny, loss is likely to be assessed as the diminution in value between what the surveyor negligently valued the property at, and the true value that the purchaser would have paid for the property at the time but for the negligent report. Defendant surveyors can help avoid a Kenny result by ensuring they clearly define what they are providing, and by presenting retrospective surveyors' evidence should the matter progress to trial.

If you feel that you have a claim based on a negligent survey, seek specialist advice on the basis of your claim and the likely losses that can be recovered.

Head of Dispute Resolution at Chattertons, David Rogerson, Direct dial : 01636 675563