Those who offered property advice in the boom time are in for a grim few months as the claims pile up
Professionals involved in advising on property transactions are likely to face a substantial upsurge in claims in the next six months.
As we approach the sixth anniversary of the height of the property market, when conditions for potential overvaluations were at their greatest, the time for bringing claims against valuers in relation to their advice is about to expire.
Solicitors are also facing a significant spike in claims relating to their advice on property transactions at the height of the housing market.
There are three certainties in life – death, taxes, and the fact that, when the property market falls, professionals face claims. Unfortunately, in this recession there is the added complicating factor of lenders, investors and developers being able to pursue claims under conditional fee agreements (CFAs) with the benefit of after the event (ATE) insurance, which has helped increase not only the appetite for claims, but also the number of firms prepared to take on claims at little or no cost to clients.
While the rules on the recoverability of success fees and ATE premiums changed on 1 April, many claimants had already rushed to enter into CFAs and take out ATE insurance ahead of that deadline, and will be seeking to bring claims against their professional advisers before the limitation period runs out.
The chief problem with these claims is that many are driven by the claimant’s view that, because property values are substantially lower now than they were in the boom times, the valuation advice they received at the time must have been wrong.
However, it is hardly surprising that the value being achieved on, for example, a distressed sale after repossession in 2010 is only a fraction of what it was valued at in 2007, when yields were falling and prices rising on a daily basis.
Between November 2007 and April 2009, average house prices plummeted by almost 20 per cent, so a 2007 valuation is bound to look too high in hindsight. However, unless the claimant can prove that no reasonably competent valuer would have given the advice provided by the defendant, the claim must fail.
Unfortunately, even where a claim is of no merit, the defendant professional will be forced into incurring substantial costs in defence of the claim – costs that will be irrecoverable unless the claimant takes the step of issuing proceedings.
This means that professionals and their insurers will often face substantial bills for defence costs, sometimes out of all proportion to the value of the claim, irrespective of whether it was of any merit.
As the deadline for these claims approaches, claimants with more speculative claims are likely to be issuing proceedings or seeking to enter into standstill agreements to keep alive their right to bring a claim in the hope the costs risk alone will be sufficient to force professional advisers and their insurers to reach quick settlements.