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Court ruling will impact on buy to let landlords

Posted: 9th August 2011   In: Commercial Property

Many buy to let landlords buying a new property rely on the valuation carried out by the surveyor acting on behalf of the mortgage lender.

Until now they have been reasonably secure in doing so because the law accepted that these surveyors owed a duty of care to the purchaser. It meant that if the valuation was wrong, the purchaser would have a legal comeback against the surveyor.

This principle was established in the case of Smith v Bush in 1990. The reasoning then was that the purchaser was effectively paying for the valuation and so was entitled to rely on it, even though it was being carried out primarily for the lender.

However, the Court of Appeal has now ruled that this principle only applies when the purchaser is an ordinary householder buying a home to live in. It doesn’t apply to buy to let landlords who buy a property to rent out.

The issue arose when landlord Emmet Scullion bought a property he wished to let out. The mortgage lender engaged a firm of surveyors who provided a report on the value of the property and the monthly rent that could be achieved.

The landlord relied on these figures but they turned out to be over optimistic. The rental value didn’t even meet the cost of the mortgage repayments.

The landlord sold the property four years later at a loss and sought damages from the surveyors claiming they had been negligent.

The case went all the way to the Court of Appeal which ruled against the landlord. It held that people who bought properties to let were likely to be richer and more commercially astute than owner occupiers, and would be able to afford an independent valuation.

They could not therefore bring a negligence claim in the same way as an ordinary householder.

The court also held that a valuer in these circumstances would expect a prudent buy to let purchaser to obtain his own advice about issues such as how easy it would be rent out the property, the rent that could be achieved and other terms or fees that would need to be agreed.

The ruling may seem a little harsh but means landlords will need to commission their own surveys if they want to be legally protected in future.

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