SPECIAL FEATURE: All That You Survey

The duty of care owed by surveyors/valuers to their clients was recently considered by the High Court in the case of Freemont (Denbigh) Limited –v- Knight Frank LLP.

The case involved a valuer employed by Knight Frank who had been instructed by Freemont to provide a valuation of a plot of land for the purposes of securing finance to develop the land.

Knight Frank had been instructed in August 2006 to value development land for lending purposes. Knight Frank valued the land at £17m with the benefit of outline planning permission and £18.7m with detailed planning consent.

Subsequently Freemont received offers from other developers to purchase the land for £10.45m and for £11.1m.

However, Freemont rejected both of these offers on the basis that they were far below the valuation which it had received from Knight Frank.

Outline planning permission was later granted but detailed planning permission was never obtained and the site was not developed.

The listed buildings on the land had fallen into such disrepair that the costs of reinstatement was so high that the whole land was considered to be worthless by Freemont.

Freemont subsequently sued Knight Frank and alleged that it had relied on their valuation in deciding whether or not to accept the offers from the developers which it had received.

Because none of those offers had matched the level of Knight Frank’s original valuation, they had been rejected.

Freemont claimed that Knight Frank had been negligent in overvaluing the land and that the loss in value of the land was caused by that negligence.

Freemont claimed for the loss of profit which it had suffered by not accepting the offers which it had received for the land, damages for all subsequent marketing costs and the costs of selling the land. It also claimed, in the alternative, for the loss of chance of selling the land.

However, the Court dismissed Freemont’s claim and found that the duty of care owed by a valuer to the land owner extended only to producing the valuation for the bank’s consideration.

The duty of care was limited to the purposes for which the report was prepared and Knight Frank’s terms of retainer stated clearly that the report was specifically for the purpose of obtaining financing and that it was not provided for Freemont to rely on when forming its development plans in the future.

There was no contractual basis for allowing the land owner to rely on the report for any other purpose.

The Court found that Knight Frank had fulfilled its duty of care to give a fair valuation of the land for Freemont’s purposes of obtaining finance.

Freemont was not entitled to claim against Knight Frank for losses suffered as a consequence of relying on the report for other purposes. The Court refused to extend that duty beyond the valuer’s contractual duties.

This case is good news for surveyors and professional indemnity insurers as it shows that surveyors who provide valuations for lending purposes cannot be held responsible for investment losses by lenders who rely on the valuation for other purposes.

The case also highlights the need to establish the scope of a retainer at the outset and to record clearly in the contractual documentation the purpose for which a report is being provided and any limits of the retainer.