Partner Article

Purchaser beware ? reliance on a mortgage lender's survey

With Watson Burton LLP Law Firm

Purchasing a property, whether in a personal or business capacity, requires a lot of prudent thought and careful decision making. Most property purchases are funded with the assistance of a mortgage. A bank or building society will generally only offer a mortgage when it has instructed a surveyor/valuer to provide a valuation lenders report. This valuation must be carried out to a degree of reasonable care and skill.

It is important to remember that despite the report likely being funded by him, it is not completed for the purchaser. The sole purpose is to provide the lender with a brief valuation, allowing lenders to decide whether the property provides sufficient equity to redeem the legal charge, should the buyer default.

In Smith v Bush (1990) the House of Lords established that a duty of care was owed by a valuer to both the lender and the borrower/buyer.

However, Be Careful

This fails to put purchasers in the clear. Basic surveys are only intended to identify the obvious defects in the property. Inherent defects may remain hidden, and the survey is a general one so if problems do occur, a purchaser will be in difficulty.

Smith v Bush also confirmed that the duty owed to a purchaser can be limited or excluded by the surveyor’s standard terms providing such provisions satisfy the test of reasonableness, found in sections 2 and 11 of the Unfair Contracts Terms Act 1977.

Lord Griffiths emphasised that the burden rests with a surveyor to establish the disclaimer was fair and reasonable. He also referred to specific factors for consideration when making this decision:

• the equality of bargaining powers between the parties
• the practicability of obtaining independent, alternative advice
• considering costs and time

This bears specific relevance to first time/young buyers who feel they cannot afford to pay twice for the same advice, especially when buying at the bottom end of the market.

Extra Protection?

Even when buying a lower market property, it is always safer to get a structural survey carried out as this provides detailed analysis of the building and may highlight potential problems that may occur with the property.

If a basic lender’s valuation is relied upon and the valuer is found negligent, meaning he failed to perform to a reasonable degree of skill, then generally your damages will be re-coverable. However, if the defect would not have materialised from a basic valuation then your claim is weakened as the surveyor will unlikely be judged negligent.

Lord Griffiths emphasised “I expressly reserve my position in respect of valuations of quite different types of property for mortgage purposes, such as industrial property, large blocks of flats or very expensive houses, in such cases it may well be that the general expectation of the behaviour of the purchaser is quite different. With very large sums of money at stake prudence would seem to demand that the purchaser obtain his own structural survey to guide him in his purchase and, in such circumstances with very large sums of money at stake, it may be reasonable for the surveyors valuing on behalf of those who are providing the finance either to exclude or limit their liability of the purchase.”

There is a presumption that if a basic survey is shown to prospective purchasers and they rely upon it, then a duty of care is established. This duty of care can be limited/excluded by the surveyor provided it is deemed reasonable to do so.

Remember for both prudence and peace of mind the recommended survey is a full structural. This detailed report covers all possible identifiable defects at the time of the survey, thereby providing greater protection to purchasers. Purchasing property is such an important decision that it is necessary to obtain all the information available to assist making the right decision. The liabilities that could arise with structural defects can be significant and a full survey will reduce the possibility that a purchaser will have to put his hand in his pocket.

If you have any queries in relation to this article, or any other property matter, please contact Tom Wills at Watson Burton LLP on 0113 2355592 or email tom.wills@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .