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Bank wins negligence claim against property valuers

Bank wins negligence claim against property valuers

A bank has won a professional negligence claim against a specialist property company that failed to carry out two valuations correctly.

The court heard that the valuations concerned two arcades in a seaside town. The corporate owner of one of the arcades wished to buy the other and run them as a joint business. It had been a customer of the bank for many years and had a significant borrowing history.

In 2007 it applied for a loan of £1.8m to purchase the second arcade and to perform building work so that the two could be operated together. The bank instructed a specialist property company to perform valuations.

The valuers used a turnover multiplier basis of valuation. It valued the company’s existing arcade at £2.7m and the second one at £1.5m.

The bank loaned the monies and the acquisition went ahead. In 2010 the borrower went into administration and the arcades were sold for £1.35m, leaving the bank substantially out of pocket.

The bank's case was that the valuers had taken the wrong approach, which resulted in negligent over-valuations of both arcades. It argued that the valuers should have adopted an EBITDA-based approach (earnings before interest, tax, depreciation, and amortisation). It claimed just over £1m comprising capital losses and interest.

The court ruled in favour of the bank saying the EBITDA approach would have resulted in more accurate valuations.

However, the court reduced the damages figure by 40% because the bank had been contributorily negligent itself in failing to respond to the borrower’s mortgage history in the way a competent bank should have done

It had previously advanced money to the borrower in 2003 under a commercial mortgage, which the company directors had dishonestly used to purchase a property in Spain. The bank had overlooked the company's lack of integrity and obvious misuse of the money on the basis that it could still make a profit out of its banking relationship with the customer.

Please contact us about the issues raised in this article or any aspect of professional negligence claims.