Estate agents have been warned to expect higher professional indemnity insurance premiums in the wake of a Court of Appeal ruling that found in favour of a lender which claimed that a surveyor had over-valued a property.
The bridging lender, Tiuta International, was seeking damages for professional negligence.
In February 2011, it instructed De Villiers Surveyors to value a part-finished residential property in Sunningdale, Surrey.
De Villers valued it at £3.25m in its current state and £4.9m on completion.
On that basis, Tiuta lent some £2.5m to the developer.
Later that year the developer wanted an increased loan of just over £3m. De Villers once again valued the property at £3.5m in its current state and £4.9m on completion.
Tiuta agreed to provide the additional funds and refinanced the facility, entering a new, second agreement.
When the term of this second facility expired, over £2.8m was outstanding, and Tiuta appointed receivers to try and recover its losses.
However, on sale the property realised only £2.1m.
Tiuta then brought proceedings against De Villiers to recover its loss.
De Villiers denied negligence and said that the second transaction with the developer was separate from the first.
An earlier High Court decision ruled that Tiuta could only recover the amount involved in a second tranche of refinancing.
However, last Friday the appeal judges ruled that the second loan agreement was dependent on the first. The surveyors’ negligence could be applied to the entire two-stage agreement.
The case means that the Court of Appeal has rejected the “but for” principle traditionally applied to assessing any loss caused by negligence. The “but for” test allowed defendants in negligence cases to separate elements of a deal, thus limiting their liability.
It is expected that professional indemnity insurers will now immediately raise policy premiums for surveyors.
Estate agents should also expect higher negligence insurance premiums, as other claims are likely to follow, The Times has warned.
That’s a bummer. We can now expect the valuers to be tougher on valuations. That may cause us some difficulties going forward.
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Premium rates for surveyors PI including valuations for secured lending are already very high. The market capacity for surveyors is very limited. We may see this diminish further however I cannot see it affecting agents doing pure residential sales and lettings. There is plenty of capacity in the market and premium rates have never been so soft for agents. We may see some insurers trying their luck but I doubt there is going to be a major PI rate increase across the board for estate and letting agents.
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