Consultant Zone

The Importance of Valuation Instructions

Phimister v DM Hall LLP [2012] CSOH 169

The issue was the scope of the surveyor’s duty to a purchaser. Phimister sought damages from DM Hall for professional negligence in respect of a mortgage valuation report, on the grounds that the firm owed him a duty of care to check the area of the property as part of their valuation. The Pursuer [a Scottish litigation] had sought a valuation for mortgage purposes, even though it was his intention to develop the site in the future. The valuer was challenged on the basis that he should have checked the land area as presented by the estate agents in its particulars of sale.

The claim failed and it was the judgement of Lord Glennie that the purpose of a mortgage valuation report was not to check the acreage of a site, but to provide a valuation for mortgage purposes. As such the main value would lie in the buildings, unless the acreage of the site was a relevant factor in assessing the value for mortgage purposes. The judgement also accepted that a mortgage valuation report was not the appropriate tool to assess development potential; if the purchaser wanted such an assessment, he should have instructed a development appraisal to be carried out.

This case highlights the importance of clear instructions to valuation companies when seeking their opinion of value. We often comment that the valuation process, including the instructions to a valuer and the way the report is interpreted upon receipt, need serious consideration by lending underwriters. Latterly we believe there was a focus on the valuation figure only.

This judgement may be significant in professional indemnity claims situations, and in particular when dealing with development finance. It is important that all parties ensure that instructions are absolutely clear at the outset, and the report is considered in detail before any lending decision is made.