Valuation evidence
The court has reaffirmed that comparable sales evidence is the best evidence when determining the retrospective valuation of a property.
In Paratus AMC Ltd and another v Countrywide Surveyors Ltd, the claimants brought a claim for professional negligence against the defendant for allegedly overvaluing a residential buy-to-let property that it had secured a re-mortgage against. The defendant had valued the property at £185,000. The claimant had agreed a 90 percent loan to value mortgage. The borrower defaulted and the property was repossessed and sold for £123,500.
The claimant alleged that the true market value of the property at the time of the loan was £154,000. The claimant's expert based its valuation on a price per square metre on the floor area of the property. The defendant's expert based its valuation of £175,000 on comparable sales evidence obtained from the Land Registry for the period immediately prior to the valuation.
The court preferred the defendant's expert's valuation method. The size of a property was only ever one factor, among many, to consider. Valuers would not normally have detailed information about floor areas of comparable properties and would not be expected to obtain such information before providing a valuation. It would be too onerous a duty to expect them to do so.
The court found that the true value of the property at the date of valuation was £175,000. Allowing for an eight percent margin of error, that provided an acceptable range of valuations from £160,000 to £190,000. The defendant's valuation was within that range and therefore was not negligently high.
Things to consider
With residential valuations, comparable properties preferably sold, or on the market, at the same time as the property in question, will generally provide the best evidence of the true value of the property. The margin of error permitted will depend on the nature of the property itself. The more unique the property, the wider the margin of error will be.
Etridge guidelines should be followed
The Court of Appeal has held that the Etridge guidelines should be followed even where a client appears to be determined to proceed regardless of the advice given.
This was the conclusion in Padden v Ashford Solicitors. The claimant was informed that her financial consultant husband had taken £200,000 from a client. The husband's solicitor advised her that the only way the husband could avoid prosecution was by repaying the money. The wife therefore agreed to remortgage the property to the particular client and to charge her interests in various shares and policies.
The wife was advised to seek independent legal advice before signing the relevant documents. She therefore went to the defendant firm of solicitors and had an initial meeting which lasted 15 minutes only. The wife stated that she intended to enter into the second mortgage despite the solicitor advising her not to do so.
At a subsequent meeting at the defendant (with a different solicitor), and at which her husband was present, the wife signed the second mortgage and various documents relating to the pension, shares etc. The solicitor certified in the mortgage that the wife had had the consequences of the transaction explained to her, that she understood the consequences and she had freely consented to it. The solicitor had not given any advice himself but had relied upon a statement from the husband that the wife had already spoken to a solicitor.
It later transpired that the husband had taken over £2 million from various clients and was sent to prison. The mortgagee enforced the charge and the property was sold. The wife sued the defendant for providing negligent advice.
The Court of Appeal, disagreeing with the judge at first instance, held that the defendant was in breach of duty to the wife. At the first meeting, the advising solicitor should have done more than just advise the wife not to enter the transaction. The solicitor should have questioned why the wife was willing to risk her home to protect her fraudster husband and keep him from prison. She should have been advised to find out the full facts from the husband's solicitors - he had taken far more than she had initially been told. If the extent of his dishonesty had been discovered, she should have been told that executing the documents was not going to keep the husband from prison.
At the second meeting, the solicitor should have seen the wife on her own and given the same type of advice as should have been given at the first meeting. The Etridge guidelines should have been followed and the wife told why she was being advised and that executing the documents would probably not save her husband from prison.
A new trial was ordered to determine whether the wife would have entered into the transaction even had the correct advice been given.
Things to consider
Even where the person receiving the advice appears to be well educated, determined to enter into the transaction come what may and in a hurry, the independent solicitor should still give full and proper advice, recording and repeating it back to the person, preferably in writing. Lenders would be well advised to seek confirmation that this has been done.
Trustee in bankruptcy v innocent purchaser
The Land Registry has preferred the interests of an innocent purchaser of property from a bankrupt over those of the bankrupt's innocent unsecured creditors.
In Pick v Chief Land Registrar, a vendor transferred her property to a purchaser despite having been made bankrupt. A bankruptcy restriction was only registered on the title some months following the sale. The purchaser failed to register the transfer during the relevant priority period, only seeking to do so some 10 months later. Despite the bankruptcy restriction, the Land Registry subsequently entered the purchaser as the registered proprietor and cancelled the bankruptcy restriction.
The court has confirmed that the Land Registry was right to do so pursuant to s 86 of the Land Registration Act 2002. S 86 provides that a trustee in bankruptcy's title is void as against a person to whom the bankrupt registered proprietor makes a registrable disposition if:
- The disposition is made for valuable consideration
- The person to whom the disposition is made acts in good faith and
- At the time of the disposition
- No notice or restriction is entered in relation to the estate
- The person to whom the disposition is made has no notice of the bankruptcy petition or adjudication.
This is despite the fact that the bankruptcy restriction was entered on the title before the purchaser sought to register her title. The trustee argued that the purchaser could have protected her position by registering the transfer within the priority period.
The court held that the time of the disposition was the relevant time, rather than the time of registration although protection only becomes effective once the proprietor is registered. If the transferee does not become registered, the protection does not come into operation
Things to consider
In such circumstances, one of two innocent parties is inevitably going to be disappointed. The fact that there was delay in the bankruptcy restriction being registered at the Land Registry did not help the trustee in protecting its interests.
Application to amend too late
In Hayer v Hayer, the defendant's father transferred a property to the defendant and purported to create a trust over it by which the defendant held it on trust in equal shares for himself and the claimant. The claimant later sought an order for sale. The defendant denied he had entered into a trust deed and alleged that his signature on the deed was forged.
At the end of a five day trial, the judge suggested to the defendant that he might have signed the trust deed under the undue influence of his father. The defendant sought to amend his pleaded defence to include an alternative allegation that if the trust deed had been signed by him, it was unenforceable due to the assertion of undue influence upon him. The claimant opposed the application to amend on the basis it was a whole new case which was inconsistent with the pleaded one. He also sought an adjournment to enable him to deal with the new case and obtain relevant evidence.
The judge found on a balance of probabilities that the defendant had signed the trust deed. Permitting the late amendment, he also found that this had been done under the undue influence of the father. He refused an adjournment and set aside the trust deed.
The claimant appealed on the basis that justice required that there should have been an adjournment so that he could have an opportunity of rebutting the amendment. Additionally, the defendant had provided no evidence to justify why such a substantial amendment should be permitted so late. The court had also failed to give adequate weight to the injustice done to the claimant by allowing the amendment and not allowing him to challenge it properly.
The Court of Appeal held that a judge could give an indication of how a case should be conducted but should then let the parties get on with it. The judge had been wrong not to permit the claimant to cross-examine witnesses on what was a new case. The defendant had produced no evidence to support his case of undue influence or to explain why the amendment was made so late. The judge had erred in permitting the amendment and in refusing to permit an adjournment so the claimant could respond to what was a new claim. Those elements of the judgment would be set aside, leaving the judge's finding that the defendant had signed the trust deed so that it was validly executed.
Things to consider
The court should be slow to permit an amendment where it is introduced at such a late stage in the proceedings. The party seeking to make such an amendment should also produce cogent evidence explaining why the application to amend is made so late.
No duty of care owed by surveyor
Where there is no contract, no duty of care and no reliance, a surveyor will not be liable to a potential purchaser for failing to provide a valuation.
In Squirrell v Bradleys Surveyors Ltd, the claimant property developer exchanged contracts on three properties he intended to buy, demolish and then replace with 14 new houses. Following exchange, the claimant obtained an offer of financing, subject to valuation. The claimant paid for the defendant to undertake the valuation, though it was the proposed lender that instructed the defendant.
The lender queried the valuation provided which was substantially more than the claimant was paying. The defendant alleged that the claimant had advised he was paying the higher figure which had influenced its valuation. The lender withdrew. The claimant could not complete and lost his deposit. The claimant brought proceedings against the defendant for the lost deposit and the estimated loss of profit on the proposed development.
The court held that there was no contract between the claimant and defendant. The defendant had acted for the lender, not the claimant. Moreover, the claimant had not relied on the defendant's valuation (as is usually the case) as he had already exchanged contracts before the valuation was sought. The valuation explicitly stated that it could only be relied upon by the lender. It was not provided to the claimant. It was never suggested by the lender that the loan would be provided merely upon receipt of the valuation. In the circumstances, no duty of care was owed to the claimant by the defendant.
Things to consider
It would not have been fair, just or reasonable for the defendant to be liable for the losses that had flowed in this case as that would have put the defendant in the position of guaranteeing that the loan would be made when that was outside of its power.
