The Court of Appeal has overturned the controversial decision of the High Court in Scullion v Bank of Scotland plc t/a Colleys in which the High Court ruled that a residential property surveyor owed a duty of care to a buy-to-let investor is respect of future rental yield.      

Background

Mr Scullion, a self employed tradesman, wished to buy a new build flat in Surrey in 2002 for the buy-to-let market. The lender commissioned a valuation survey, which was undertaken by Colleys. The flat was valued on an open-market basis at £353,000 and assessed a rental income of £2,000 per calendar month. Mr Scullion was only able to let the flat out at around half this figure and brought a claim against Colleys for negligence.  

The High Court found that Mr Scullion had suffered no loss on the capital value of the flat  largely due to incentives that were offered by the developer. The High Court ruled that Colleys owed Mr Scullion a duty of care despite the fact that he was a buy-to-let investor purchasing a property using finance from a specialist buy-to-let mortgage provider.  

The High Court’s reasoning was that Colleys knew or ought to have known that there was a very high probability that Mr Scullion would have relied on the valuation report in his decision making process when deciding whether or not to proceed with the transaction.

The Court of Appeal’s Decision

The Court of Appeal followed the leading case of Smith v Bush which held that although a duty of care was owed by the surveyor to a purchaser of low-end residential property in circumstances where a valuation was produced for the lender, the duty did not extend to those commercial transactions.  However on a point of law it was found that Mr Scullion’s transaction was one such transaction and that no duty of care existed, allowing the appeal and dismissing Mr Scullion’s claim.

The Court of Appeal did not rule out that a claim could not succeed in the future. The distinction between a straightforward residential purchase and a more commercial buy-to-let purchase remains. However, the Court of Appeal made three assumptions which, although they will apply in most cases, if rebutted on the facts of a particular case, would not stand as a barrier to a claim against a surveyor succeeding:

• Buy-to-let investors can afford a second valuation of their own and are more commercially minded.
• Rental assessment is not commented on or researched in any great detail by the surveyor; this should be a matter of specialist advice for the investor.
• Rental assessment is not as important to the lender as the capital value, as it is this which will be used to repay the loan should the borrower default.  

There are quite limited circumstances in which a claim against a surveyor by an investor could still succeed on the basis of rental yields and surveyors should continue to exercise caution when advising lenders in relation to buy-to-let property. Property investors are minded to have their own proper valuation survey carried out with specific instructions.  Surveyor may wish to qualify statements of rental yield as ultimately in our view this is a dark art and not an exact science. What someone is willing to pay to a willing landlord is quite subjective and may not be wholly reliable.

The Judgment can be found here.