A recent Court of Appeal decision has established that the duties imposed by a surveyor's retainer are not limited to carrying out his inspection and valuation with reasonable skill and care. The surveyor's retainer may contain some obligations which are "unqualified". Failure to comply with such obligations is a breach of contract even if in doing so the surveyor exercised reasonable skill and care.

A tale of two houses

In this case, a surveyor had provided a valuation of a partly-built residential property (House A) to a bank for mortgage purposes. The surveyor was instructed to contact the borrower to arrange an inspection, and the borrower indicated to the surveyor which property (amongst a number that were under construction) was the subject of the valuation.

Unknown to the surveyor, the borrower had deliberately led him to value the wrong property (House B). On the strength of the valuation, the borrower was advanced a loan by the bank, which took a mortgage over House A. The mistake was discovered when the borrower defaulted and the bank repossessed House A. House A was worth less than House B: the valuation figure provided by the surveyor had therefore been wrong.

If in doubt, sue the surveyor

Even though it was said that the surveyor had exercised reasonable skill and care in carrying out his valuation, including in locating (incorrectly, as it turned out) the property to be inspected, he was found liable to the bank for its losses.

Two reasons were given for this decision. First, in a surveyor's retainer there is an inherent obligation to inspect and value the right property. Secondly, part of the valuation certificate signed by the surveyor stated: "I certify that the property offered as security has been inspected by me." House A had been offered as security; House B had been inspected: this was a breach of contract.

Comment

Surveyors (and their PI insurers) will be concerned that the exercise of reasonable skill and care will not be enough in some circumstance to defeat overvaluation claims. In this context, the balance of risk and return (the surveyor's fee was £250; the claim more than £30,000) is weighted even more heavily in favour of the instructing banks than is already the case in the conveyancing market. As Sir Anthony Clarke (who dissented from the majority decision in this case) put it, for a surveyor to have charged such a low fee and agreed to be liable to a bank even if they exercised all reasonable skill and care would be "a very odd agreement for them to have made."

In fact, the minority view is arguably the more persuasive: "It seems to me to make no sense", said Clarke, that, in relation to House A, the surveyor "assumed an absolute obligation to locate it but only a qualified obligation to exercise skill and care in the inspection and valuation of it."

Nonetheless, the effect of this decision is that fulfilling a valuation retainer may require something more than the exercise of reasonable skill and care.

Further reading: Platform Funding Ltd v Bank of Scotland Plc [2008] EWCA Civ 930

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 07/08/2008.