Valuers and insurers win relief in landmark buytolet ruling.

5 July 2012

Valuers and insurers win relief in landmark buy-to-let ruling A recent judgment of the Court of Appeal in Scullion v Bank of Scotland has attracted attention due to the decision at first instance, where a duty of care found to be owed by valuers to domestic residential purchasers in Smith v Bush2, was extended to include investment by a buy-to-let purchaser. In Scullion v Bank of Scotland a buy-to-let landlord brought a claim against a firm of property surveyors for damages sustained after relying on a mistaken valuation report. The claimant had purchased a residential flat in reliance on a valuation report prepared for the mortgagee by Colleys (the valuation service of the Bank of Scotland). The property had been purchased for investment purposes, with the intention to then let the property out. After the completion of the transaction it was discovered that not only had the valuation of the flat market rate been excessive, but also that the flat could not be let for the amount predicted by Colleys or the amount required to meet the mortgage payments. The claimant sold the flat within four years, leaving mortgage arrears of around £70,000, and later sought damages. The judge at first instance held that there was a duty of care owed by Colleys to the claimant in tort, and that this duty had been breached. In reaching this decision he relied on Smith v Bush where it was held that a valuer would know that the valuation fee had been paid by the purchaser, and that the valuation would probably be relied on by the purchaser in order to decide whether to purchase property. The decision at first instance was appealed, and the issue for the Court of Appeal was whether Colleys did in fact owe the claimant a duty of care. The instant case was distinguishable from the situation in Smith v Bush since the transaction for which the valuation was obtained did not involve an ordinary domestic householder purchasing his home, but was for the purpose of an investment. It was noted by the judge that the transaction was essentially commercial in nature and it was more likely that the purchaser would obtain an independent valuation. It was not clear that it would have been foreseeable to Colleys that the claimant would rely on their valuation, rather than obtaining his own advice. The appeal was therefore allowed and it was held that there was no duty of care owed by Colleys to the claimant. The outcome of the case is very significant for investors looking to acquire property in transactions of a commercial nature, such as buy-to-let investors as in this case. In such transactions investors should ensure that they obtain their own valuation of the property from an independent estate agent or valuer rather than relying on reports prepared for other parties. • For additional information please contact: Edward Worthy of Gepp & Sons. The above is not legal advice; it is intended to provide information of general interest about current legal issues.