A Court of Appeal ruling looks set to nip in the bud a potential “avalanche” of professional negligence claims against surveyors by disgruntled buy-to-let investors who have lost money in the property crash.
The court has decided that a surveyor did not owe a duty of care to a buy-to-let investor in the landmark case of Scullion v Bank of Scotland Plc (trading as Colleys).
The case centres on a dispute between buy-to let investor Emmett Scullioin and his valuer Andrew Collins of surveyors Colley, which is now part of the Bank of Scotland.
Collins valued a flat bought by Scullion at £353,000, with rental income of £2,000 per month.
However, Scullion was only able to let the flat for around £1,000 per month, which fell far short of the figure needed to cover the mortgage. He later sold the property in 2006, receiving just £270,000 for it.
Scullion sued Colleys, alleging negligent overvaluation of both the capital and rental values. The judge in the case dismissed the first part of the claim but agreed with the rental element, awarding Scullion compensation of £72,234 at the quantum ruling last October.
However in a judgement last Friday, the Court of Appeal overturned that decision and concluded that Scullion had not been owed a duty of care and as a result was not entitled to recover his lost rental income.
The Court of Appeal’s overriding reason for finding against Scullion was that he had bought the property for purely commercial investment purposes and that he was not an ‘ordinary, domestic householder purchasing his home’.
It concluded that buy-to-let investors were more likely to be commercially astute, willing and able to obtain independent advice and ‘less deserving of protection by the common law against risk of negligence than those buying to occupy as their residence’.
Duncan Greenwood, professional risks partner at national law firm Beachcroft, said the ruling would close off an avenue of claims against the surveyors, who could use the Court of Appeal’s decision to their advantage when defending claims brought by lenders.
He said: “Surveyors and their insurers, who have been facing a potential avalanche of claims from investors in the buy-to-let market seeking to recover lost rental income, should be delighted with this result.
“Surveyors may also be able to use the decision to their advantage in defending lender claims,” he explained. “A lender should be assessing many factors when considering the viability of a loan secured on a buy-to-let property. In reality, however, some lenders appeared not to undertake any meaningful enquiries beyond requiring the rental estimate to be no less than 125% of the mortgage repayments.
“The time has come for careful analysis of the basis of this assumption. If hard data can prove that it was woefully inadequate to proceed on that basis, the courts are likely to be far more sympathetic to defendant surveyors who argue that lending on that basis was imprudent.”
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