Assessing the real value of property

Roger Pearson looks at a case of overvaluation that has leapt from the QBD to the House of Lords

A multi-million pound action which will focus on the legal obligation of surveyors to provide accurate valuation advice to clients and their liability if they fail to do so has leapt from the High Court's Queen's Bench Division direct to the House of Lords.

Earlier this year South Australian Asset Management (SAAM) won £7,337 damages and interest from London surveyors York Montague as a result of the over-valuation of a London docklands development site in 1990.

Now, in a rare legal move, the House of Lords has given York Montague leave to appeal direct to them against the High Court ruling.

The case centres on an agreement under which SAAM agreed to make a loan facility of £11 million available to a partnership of Jacobs Island Company (Riverside) and MIT Fergusons Wharf Developments to assist in purchase of the site at Fergusons Wharf, 192 West Ferry Road, and Roses Wharf, Mast House Terrace, London E14.

The loan agreement hinged on a £15 million open market value York Montague put on the property in June 1990. But at the High Court in April Mr Justice Phillips held that the £15 million valuation was "insupportable and negligent". Instead he agreed with SAAM that the true value at the time should have been £5 million.

SAAM made it a condition of the loan facility that the money could not be drawn until it received a satisfactory open market valuation, but after receiving the York Montague valuation it released the money. However, the bank now says had it known the true value of the site it would not have made the advance.

The bank claimed in the High Court that it had sustained losses of £9,754 as a result of failure of the scheme to build a complex of 422 flats on the site and the eventual sale of the land for £2.477 million.

However, the judge cut his award by 25 per cent on the basis the bank had failed to ensure that the valuation report at the centre of the case was the sort it needed, had failed to reassess risk classification and had not given York Montague direct explicit instructions.