A negligent property overvaluation case has been thrown out by the courts for being outside the six year time limit to make a claim. The decision shines a light on how case law will be applied to limitation defences in negligent valuation cases.

In November 2006, Bridging Loans Limited advanced £502k to a borrower to fund the purchase of a residential property with planning permission.  It relied on a valuation provided by surveyor, Toombs, which valued the property at £730k.

The borrower failed to repay the six-month bridging loan by the due date, so on 11 May 2007 the lender wrote demanding repayment by 27 May 2007.  When no repayment was forthcoming, Bridging Loans obtained possession of the property. It then discovered that despite Toombs’ valuing the property on the basis of it having planning permission for a trio of three storey houses, in fact permission had only been granted for a trio of two storey properties.  Bridging Loans concluded that the true value of the property had been just £450k, far less than Toombs’ valuation of £730k.

Bridging Loans started proceedings against Toombs for negligent valuation on 16 May 2013.

In court, the judge used the rule established in the case of Nykredit Mortgage Bank v Edward Erdman Group Ltd (1997), to determine the point at which Bridging Loans first sustained measurable loss.  He decided that damage had been suffered when the demand letter was sent on 11 May 2007, so just over 6 years before proceedings had been issued.

As a result, Toombs applied for summary judgement because the case was outside the six year time limit to make a claim.  The case went to appeal where Bridging Loans argued that under the rule in Nykredit, the true value of the property and therefore the loss it suffered, had not been established by 11 May 2007.  It said the court may have found the true value to be somewhere between the lender’s and surveyor’s valuations.

The appeal judge rejected this argument as Bridging Loans had not provided any additional evidence about the possible alternative valuations.  He granted summary judgement to Toombs on the grounds that the case was outside the six year time limit.

This case will be reassuring to valuation surveyors and their professional indemnity insurers as it shows how the Nykredit rule will be applied by the courts,” says James Burgoyne, Director – Claims & Technical, Brunel Professions. “With the passage of time it has become increasingly difficult for lenders to bring negligent valuation claims against surveyors resulting from the financial crisis.  It is likely that the vast majority will now be time barred.

News of the case has been reported by Law-Now, DWF and The Barrister magazine.

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