Cases - Dunfermline Building Society (in building society special administration) v CBRE LTD

Record details

Name

Dunfermline Building Society (in building society special administration) v CBRE LTD

Date

[2017]

Citation

EWHC 2745 (ch)

Legislation

• Supply of Goods and Services Act 1982
• Contracts (Rights of Third Parties) Act 1999

Keywords

Valuation – lenders – margin of error

Summary

In a claim alleging a negligent valuation the court had to determine whether a valuer's market valuation of a development site fell within the margin of error permitted to a reasonably competent valuer.

This litigation arose out of the crash of 2008. The BS alleged that relying on the defendant’s valuation it had advanced a loan to the purchaser of a mixed use development. D had valued the premises at £17.5m as at April 2007. The purchaser defaulted under the loan and the property was sold in 2012 for £3.75m. The claim alleged that the proper value of the property in 2007 was £15m and that but for D’s report the BS would not have made the advance.

D firstly disputed reliance on his report. Further it was contended that the valuation fell within the margin of error permitted to a reasonably competent valuer (the bracket). The valuer did not argue that even if the valuation fell outside the bracket, it was, nevertheless, not negligent.

As regards reliance the Court determined that the BS had relied on the report. Any loan approval given by the building society prior to instructing the valuer was only given in principle and was subject to the valuation. The report and market valuation played a real and substantial part in the lending decision (see paras 78-79, 82 of judgment).

Next the Court determined what the correct valuation of the property was at the date of the report. The parties’ respective experts differed over the assessment of private residential £ per square foot (£psf); the most significant aspect of which, in financial terms, concerned whether the comparable evidence should be adjusted for market movement. The Court accepted that the relevant market for flat sales had moved upwards to a noticeable extent during the 12 months before the valuation date, and hence that it was right in determining the private residential £psf to make such an adjustment (paras 56,101, 103-105, 116-118).

There were no comparable properties so that the usual comparison method of valuation was of no assistance. Some weight could be attached to the offer price, as a check on the residual valuations carried out but not so much as to cause the property's market value to be higher than its assessed residual land value. (paras 157, 172-184). Considering all the relevant factors, the market value of the property at the valuation date was about £16.2 million (para.185).

As for the bracket – given that the development and the property were unique so that the use of comparables was only of limited assistance, the appropriate bracket was 15% (paras 186, 189-190, 194-196).

HELD: Although there were flaws in the valuer's approach, the market valuation on the valuation date was within 15% of the market value as determined by the court, accordingly there was no actionable negligence and the claim was dismissed.