Key Court of Appeal decision provides clarity on property surveyors’ duties to lenders18 Jul 2016
The Court of Appeal decision in the professional negligence case of Tiuta has implications for valuers and lenders alike.
Tiuta International Limited (in liquidation) (Tiuta), a bridging lender, instructed De Villiers Surveyors Limited (De Villiers) to provide valuations for a residential development in Berkshire.
In February 2011, Tiuta agreed to make an initial facility available to the borrower of £2,221,768 based upon De Villiers (accurate) assessment of a gross development value (GDV) figure for the property of £4,465,000. In November 2011 however, Tiuta relied on a revised GDV figure of £4,900,000, again supplied by De Villiers, when agreeing to provide an increased loan to the borrower of an additional £272,000. The first loan was repaid by the second loan.
The borrower failed to repay the second loan at the expiry of the term and Tiuta appointed LPA receivers. Tiuta took action against De Villiers in an attempt to recover around £890,500 – its full loss arising out of the refinance loan – claiming that De Villiers was negligent in its apparent overvalue of the GDV. De Villiers argued that any loss should be limited to that caused by the second additional loan facility on the basis that only the second valuation was inaccurate.
On 20 March 2015 the High Court granted summary judgment to part of the claim, in favour of De Villiers, ruling that Tiuta’s loss should be limited to £272,000; the amount of the ‘top up’ advance. The Court held that Tiuta had already incurred the losses by the time De Villiers came to give the second valuation. The fact that the first loan was repaid by the second meant that the first loan stood apart from the second loan.
Tiuta appealed and the Court of Appeal overturned the earlier decision. The Court said Tiuta “would not have entertained the second transaction and [its] loss is the total advance of the second loan, less the [borrower’s] covenant and the true value of the security”. The Court stated that De Villiers had valued the property aware that Tiuta would advance funds to the borrower up to the property’s full reported value in reliance on the second November 2011 report.
On the face of it, this decision could be hugely significant for lender and surveyors. Lenders could now recover their full losses of a defaulted loan in the event of a negligent additional valuation, rather than just an amount by which any additional sum exceeds an original loan.
However, Lady Justice King rightly points out in Tiuta that valuers could – and should – protect themselves by amending their terms and conditions to limit their liability in similar circumstances to Tiuta.
If you have any queries regarding this article or for further advice on any of the issues raised or the implications of the decision, please contact either David Jones of Kuits’ Litigation team or Nicholas Lowe of the Banking and Real Estate Finance team on 0161 832 3434.