Emmet Thomas Scullion v Bank of Scotland Plc (trading as Colleys) [17.06.11]
Court of Appeal decides property surveyor does not owe duty of care to buy-to-let investor when carrying out valuation for mortgage purposes. In 2002, Mr Scullion bought a flat from a developer on a buy-to let basis. The money for the purchase came from a specialist buy-to-let mortgage provider, who obtained a valuation from Colleys.
Colleys over-valued both the capital value and anticipated rental income of the flat. Mr Scullion subsequently sued Colleys for negligence and won at first instance. The Judge held that a purchaser of a buy-to-let property was entitled to rely on such a valuation and, accordingly, decided that Colleys owed a duty of care to Mr Scullion. Colleys appealed.
The Court of Appeal held unanimously that the duty of care between a valuer instructed by a lender and a prospective purchaser which was recognised by the House of Lords in Smith v Eric S Bush , did not extend to a buy-to-let purchaser.
In reaching its decision, the Court of Appeal distinguished Smith v Eric S Bush in a number of ways, including the following:
- It was not just and equitable that Colleys should be liable to Mr Scullion because the transaction was commercial in essence.
- People entering into commercial transactions were more likely to be able to afford an independent valuation - whereas, in a domestic purchase, it was highly likely the purchaser would rely on the mortgage valuation.
- There was no evidence to suggest that buy-to-let investors generally did not obtain their own valuations.
- As only limited advice was given by Colleys about the flat’s likely rental income, one would expect a buy-to-let investor to obtain their own report on such matters.
The message for buy-to let purchasers is clear: they should obtain their own valuations and not rely on valuations which have been prepared for the lender.
This decision will be welcomed by valuers and their insurers, who have already been badly hit by the downturn in the housing market.
It does though raise further questions. For instance, will this case have an impact on domestic purchasers of properties at the top of the market, who may also be able to afford their own valuations (the Smith decision involved purchases of properties of relatively modest value). Alternatively, where valuers have reason to believe that a buy-to-let purchaser would rely on their valuation because, for example, they have had direct contact with the purchaser, will that give rise to a duty of care that didn’t exist in this case?
It is also worth highlighting the court’s confirmation that a claimant may recover the shortfall in rent between the rental value estimated by the valuer and the actual rent achievable. Although that did not assist Mr Scullion, to whom the valuer owed no duty of care, it is a principle that valuers will need to be wary of when providing valuations that comment both on the value of the property and its rental yield.