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Smith v Bush duty of care not extended to buy-to-let

A difficult property market has started to give rise to an increase in claims against valuers, in particular in the buy-to-let market.

Where the claim is by a mortgage lender which has over-lent and finds its security worth less than its surveyor had advised, the claim is straightforward in terms of the contractual and tortious duty owed. What, however, of the scenario where the purchaser relies on a negligent survey commissioned by and reporting to the lender? Where the purchase is a typical modest residential purchase, with the claimant buying the property as a home, the answer is to be found in the well-known decision of the House of Lords in Smith v Bush [1990] 1 AC 831: the surveyor - although contracted to the lender - generally owes a duty of care to the buyer.Should the same principle apply where the claimant is purchasing as an investment - such as with a buy-to-let purchase? The issue arose in Scullion v Bank of Scotland plc (t/a Colleys) [2011] EWCA Civ 693. Reversing the first instance judge, the Court of Appeal held that no duty of care arose. Giving the judgement of the Court, Lord Neuberger MR applied the well known three-fold Caparo test, namely: (1) reasonable forseeability of damage (2) the degree of proximity between the parties and (3) whether it was in all the circumstances fair, just and reasonable to impose a duty.

Within that framework, the Court considered a duty did not arise. First, the present was a commercial transaction. Typically those involved would be more likely - and financially more able to afford - their own survey than in a typical “home purchase” case. Secondly, there was no evidence before the judge to establish that buy-to let purchasers typically relied on lender commissioned valuations in the manner that is usual with home purchasers. Thirdly (and fourthly) a buy-to-let purchaser would be as interested in the rental value of the property as its capital value, whereas the lender would be principally interested in the capital value (i.e. the value of its security).

Lord Neuberger considered Smith v Bush to be at “the outer-limits” in terms of establishing a duty of care. The decision in Scullion may appear harsh on the facts, as Lord Neuberger acknowledged. Up to Court of Appeal level, however, it would appear that surveyors (and their insurers) can breathe a sigh of relief at a decision that places a sensible limit on the duties they will ordinarily be taken to owe.

Richard Hayes / 2nd Nov 2011


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