Hope Capital Limited v Alexander Reece Thomson LLP [2023] EWHC 2389 (KB)
Background
Alexander Reece Thomson LLP was instructed by Hope Capital Limited and Hope Capital 2 Limited (“Hope”) to provide a valuation of a property known as Cedar House in 2018. Alexander Reece Thomson LLP was a firm of Chartered Surveyors and property consultants. Cedar House was situated in a plot of around 0.667 acres of land in the village of Cobham, Surrey and was constructed in the 15th Century.
Alexander Reece Thomson LLP valued Cedar House at £4,000,000 in its report of 14 February 2018 (“the Valuation”). Cedar House was intended to be security for a bridging loan. The loan was for £2,215,440, excluding interest and fees, and was provided to St Anselm Heritage Properties Limited (“St Anselm”) by Hope. St Anselm ultimately defaulted on the loan and receivers took possession of Cedar House on 12 November 2018. Cedar House was sold on 2 October 2020 for £1,400,001.
Hope sought to bring a negligence claim against Alexander Reece Thomson LLP on the basis that the Valuation was negligent and that they would not have agreed to the loan if the Valuation had reflected the true value of Cedar House. Hope argued that the true valuation was actually only £2,150,000. It also claimed that it had suffered a total loss of £2,527,749 as a result of entering into the transaction. This included loss in capital, loss of interest on the loan and loss of profits. Hope accepted, however, that its loss would be capped by reference to the difference in value between the Valuation of £4,000,000 and what it says was the correct 180-day valuation of Cedar House, which was £1,950,000.
Alexander Reece Thomson LLP accepted that it had breached its duty. It argued that the true value of Cedar House was £3,175,000 but accepted that this also fell outside the bracket within which a reasonably competent value should have fallen. It denied causation and loss and alleged contributory negligence against Hope. Alexander Reece Thomson LLP also argued that loss should be calculated as the difference between the value of the property and the loan, taking into account any discount for contributory negligence and interest.
At trial, the Judge considered the expert evidence provided by both parties and concluded that the true valuation of Cedar House in February 2018 was £2,750,000 and agreed with Hope’s expert that a 10% reduction was the appropriate reduction for a 180-day valuation. He concluded that the true 180-day valuation was £2,475,000.
Court decision
The Judge considered the appropriate band of tolerance around Cedar House’s true value and concluded that the bracket was no more than plus or minus 15%. He attributed this to Cedar House being an uncommon property. This meant that a valuation of 15% either above or below the true value of Cedar House would not have been considered negligent. The Judge commented, however, that even if using a more generous bracket of 20%, the Valuation carried out by Alexander Reece Thomson LLP of £4,000,000 was significantly outside of this bracket. He therefore concluded that Alexander Reece Thomson LLP’s Valuation was not competent.
The Judge found, however, that there were a number of factors which led to the drop in value of Cedar House from 2018 to the sale price of £1,400,001. He found that difficulties with the National Trust contributed to Cedar House’s perception as a property with a ‘chequered past’ or a ‘problem property’ and concluded that these issues, coupled with an unprecedented collapse of the market due to Covid-19 led to a reduction in the value of the property at the point it was sold in 2020. He also considered Hope’s conduct to have contributed to making Cedar House incapable of quick realisation. As such, he concluded that Hope would not have suffered any loss of capital. He also stated that the net costs incurred by Hope were due to the complexity and duration of the sale process. The Judge ultimately concluded that the capital advanced under the loan and the costs incurred would still have been less than the amount of security based upon the true 180-day valuation of £2,475,000
The Judge ultimately found that although Alexander Reece Thomson LLP was negligent, Hope suffered no actionable loss as a result of this negligence and subsequently dismissed the claim.
Comment
A surveyor instructed to value a property on behalf of a lender will owe a duty of care to that lender. A surveyor may be found to have breached their duty where their valuation falls outside of an accepted bracket of possible valuations for that property. If this ultimately leads to the lender suffering a financial loss as a result of the surveyor’s incorrect valuation, the lender may be able to bring a professional negligence claim against the surveyor.
How can Nelsons help
Charlotte Dowdy is an Associate in our Dispute Resolution team, specialising in commercial litigation and professional negligence claims.
For advice on or further information in relation to the subjects discussed in this article, please contact Charlotte or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.
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