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Buy to let landlords have lost the chance to claim compensation from surveyors who overvalued an investment property following a successful appeal.
The Court of Appeal reversed a previous ruling against Bank of Scotland owned valuers Colleys in which a judge held a surveyor had a duty of care to a home buyer.
The decision means a valuer instructed by a lender has no legal obligation to a buyer who may rely on their valuation to underwrite the price and likely rent a property will achieve.
If a property fails to meet the valuer’s assessment, the buy to let investor cannot claim compensation for negligence.
The original claim in this case came from Mr Scullion, a self-employed builder.
In October 2002, Scullion bought an apartment in Cobham, Surrey for £299,800 as a self-funding buy to let investment.
He also hoped to make a profit on the purchase price from selling the flat at some later date.
Colleys valued the flat for Mortgages plc, a subsidiary of Bank of Scotland.
The valuer stated the market value of the flat at that time was £352,950, with a rental assessment of around £2,000 a month.
Scullion bought the flat but had trouble marketing the property at a rent of £2,000 a month, and eventually let the property for £1,050 per month in April 2003.
He sold the flat in May 2006 for £270,000 because the rent did not cover overheads from the proceeds. Scullion paid the lender £260,000.
In the March 2010 hearing, Scullion alleged the valuation provided by Colleys was negligent and claimed compensation for the rental and capital losses.
Giving judgment, Richard Snowden QC agreed Colleys had a duty of care to Scullion because the valuer knew he would rely on their valuations when deciding whether to buy the flat.
The judge also ordered Scullion could recover his overheads, including mortgage interest payments and general letting expenses, less the rental income he received.
The Court of Appeal rejected the lower court’s decision and held Colleys did not owe Scullion a duty of care, so he was not entitled to recover the lost overheads awarded in his initial claim.
The judges concluded in a domestic purchase the buyer is likely to rely on the valuation, but in an investment purchase, Colleys could not reasonably foresee that the investor would rely solely on their advice.
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