No Duty of Care owed by Valuers to Buy to Let Borrowers; Official!
The Court of Appeal, in a case decided in June, ruled that there was a no of care owed by a Bank’s Valuer to a buy to let borrower.
The Court drew a distinction between the commercial nature of buy to lets as opposed to the “ordinary” purchase of property as a residence by a borrower.
In effect, the Court of Appeal has created, second class citizens out of some buy to let borrowers.
Background:
The case involved a buy to let borrower who took out a mortgage with Bank of Scotland.
The Bank of Scotland appointed their own valuer to value the property and its potential rental income.
The borrower claimed he had relied upon the bank’s valuation both as to value and rent achievable in his decision to buy a property to let.
The rental actually achieved was £1050 per month and not the target rental of £2000 per month.
As a result the borrower decided to sell the property.
Although, there was no capital loss when the property was sold, the borrower sued the Valuers for a negligent rental valuation: the borrower arguing he would not have gone ahead with the purchase in the first place.
The Court’s Reasons
The Court of Appeal drew a clear distinction between domestic purchases (i.e. where the borrower lives in the property) and a commercial purchase –as in the case of buy to let properties.
The Court felt it was necessary to protect ordinary purchasers, who might rightly rely on a valuation and be able to sue if it proved incorrect and they suffered loss.
As a buy to let is an investment, there should be no similar duty of care extended to the borrower, who would be more able to carry out their own independent valuation and rely on that rather than the Bank’s valuation.
Moral of the Story
The Court was at pains to differentiate between domestic and commercial borrowers.
The distinction is somewhat arbitrary.
There may be many buy to let investors who could never be described as commercial organisations.
There are the reluctant or accidental Landlords so called because they have been forced to let their properties because of falling values rather than sustain a loss on the sale.
There are many domestic buyers who would be foolish in relying on only the Bank’s valuation as the basis for their purchase.
The simple advice would be whether you are a domestic or commercial borrower to commission your own independent survey and valuation.
The value of an independent survey can bring unexpected benefits as we posted here.
The shame of it all is that the statistics still show only 1 in 5 purchasers commission a survey before purchase.
You have been warned –again!
