Property owners tell valuers ‘it’s your fault’ after crash

Published 04th May 2010

Legal actions against estate agents and surveyors reached record levels last year, as property owners counted the cost of steep falls in the values of their assets.

There were 25 High Court cases alleging professional negligence over valuations of residential or commercial property last year, according to Reynolds Porter Chamberlain, the law firm. This compared with only one case in the previous five years.

The demands for compensation echoed the rush to court after the recession of the Nineties, when valuers also were sued for negligence.

Some claims last year alleged that premises in shopping centres that suffered from high rates of tenant insolvencies during the recession had been negligently over-valued. There were similar complaints about newly built property in city centres such as Manchester and Leeds, where the market had been over-supplied.

There were also claims that the cost of putting a development on hold had been underestimated and that a property subject to fraud was valued negligently.

The increase in litigation comes after a fall in commercial property prices of 45 per cent from peak to trough and a 22 per cent decline in house prices. Although prices of both types of property have recovered some of their value, many lenders that sold-on repossessed properties at the bottom of the market will not have benefited.

Legal experts have said that lenders are placing the blame at the door of surveyors when there is no evidence that the fall in the value of the property was a result of negligence.

Alexandra Anderson, a partner at Reynolds Porter Chamberlain, said: “Losses of British and Irish banks on loans in the UK property market run to billions of pounds. This has put a lot of pressure on banks and investors to pursue any option open to them to recover their losses, including launching a negligence claim against the surveyor who valued the collateral for the loan.

“There can sometimes be a ready assumption that when property prices fall because of a drop in the market, the surveyor who valued the property is to blame. But even if the valuation was inaccurate, that doesn’t necessarily mean that there was negligence.”

The rise in legal action comes after a number of banks began to threaten surveyors with legal action for overvaluing properties that they had subsequently repossessed and sold for a much lower sum. They include Bradford & Bingley, the taxpayer-owned lender, and GMAC-RFC, which lent to buy-to-let investors and sub-prime borrowers during the boom. There were about 45,000 repossessions last year.

The Royal Institution of Chartered Surveyors has previously warned that the threat of legal action can put a surveyor out of business because the firm must inform its professional indemnity insurer of the claim, even if it is successfully fought. It might no longer be able to afford the higher premiums.

Bradford & Bingley was among a group of lenders that were involved in securitisation — the buying and selling of loanbooks between lenders — a practice that was blamed by some for the sub-prime crisis.

Surveyors have claimed that many of the properties at the centre of investigations into inaccurate valuations had securitised loans against them and that lenders rather than valuers were to blame for the upward pressure on prices until 2007.

Source: ' Times '

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