Overview
A case which shows that negligence alone will not be enough to establish liability, as well as demonstrating how bad timing can be extremely costly for investors.
Background
The case concerns a derelict building on a large site in Aberdeen, Scotland. It was going to be demolished and the land redeveloped as Purpose Built Student Accommodation (‘PBSA‘), to be rented out.
The construction of the development was to be carried out through a special purpose vehicle ‘SPV’. Visage, a Northern Irish company, was to be granted a 170-year lease of the development, and it is the valuation of this lease which is central to the case. The development was completed in 2017.
The survey
Skykomish Ltd (the ‘Claimant‘) were using this valuation to secure funding, using the figure of £16,580,000 provided by Gerald Eve LLP (the ‘Defendant‘).
In February 2015, the Defendant was engaged to undertake a valuation survey. It was a ‘Red Book’ valuation in line with the Royal Institution of Chartered Surveyors’ (‘RICS‘) standards. This is the usual survey required to attract a lender considering funding a construction project.
The Defendant’s terms of engagement included an obligation to inspect the property and prepare the valuation report with reasonable, skill care and diligence.
Good timing is invisible. Bad timing sticks out a mile.”
Tony Corinda
The sale price
The development was completed in 2017 and achieved c.75% lettings in the first year, however, after repeated attempts to sell it, it finally sold for just £4.2 million in October 2024. The Claimant lost its investment and sought to claim damages from the Defendant for a negligent valuation. The Claimant argued that they failed to meet the RICS Red Book standards, in particular, the absence of an onsite inspection and failure to advise of the effect on Market Value of the onerous lease.
Outcome
It was clear that no inspection of the property had taken place, and the Defendant failed to explain why this had not occurred. They had also failed to adequately warn the Claimant about several pertinent factors, such as the upward only uncapped ground rent review mechanism and the inherent low saleability of the leasehold interests in general. Further, they had not emphasised that their valuation was heavily opinion led rather than based on comparable evidence.
The judge noted that this was not good quality work from the Defendant. The judge had sympathy with the Claimant and understood that they rightly felt aggrieved at the service they had received. However, it still had to be shown that the Claimant’s losses flowed from these factors.
External factors
Between the date of the valuation and the sale of the development, many external factors came into play, not least Brexit and the conflicts in Ukraine and the Middle East. The Retail Price Index (‘RPI‘) moved from 1% to 3.6% during that time, as well as the Bank of England base rate moving from 0.1% to 5.25%. Aberdeen was also susceptible to the declining oil and gas industry, which led to a fall in rental values for residential accommodation. Therefore, in the Scottish property market, rising inflation and falling demand, together with factors already mentioned, combined to create the “perfect storm” for the Claimant.
The judge found that, whilst hindsight shows that this was a very bad deal, at the time this was neither foreseen or reasonably foreseeable. Factoring in the impact of any or all these events was not possible for the valuers at the time.
Conclusion
As the site was always going to be demolished to build the PBSA, its condition was irrelevant. The failure to carry out an inspection was a breach of the terms of the Defendant’s engagement, but it could not be said to have had any effect on the valuation given.
Furthermore, the Court decided that even if appropriate warnings had been given, it would not have led the Claimant to walk away from this deal, especially considering how well this market was performing in 2014, which in retrospect was the peak of the market.
The decision to go ahead was primarily based on the valuation figure of £16,580,000 million. After considering the evidence and making the calculations, the judge found that the true valuation of the leasehold interest in 2015 was £15,100,000 with a margin of error of 12.5%. The Defendant’s valuation, therefore, fell within that range, so was not negligent in that regard.
The judge concluded that the Claimant’s grievances did not translate into legal loss. He concluded that “no theory of law provides for recovery” in these circumstances and the claim failed.
It is understood that this decision is now subject to appeal.
Independent opinion
The judge was critical in the case of the evidence given by some of the valuation experts. There was concern that the Claimant’s valuation expert had stepped in after two previous experts had ceased to act, effectively taking over the valuation instruction third hand, was simply reaffirming what had gone before without sufficient questioning, rather than providing their own independent view of the matter. This was referred to as “anchoring” or being unduly influenced by the “house view” already expressed.
Expert Evidence, however, were retained as banking experts by both parties in this case and praised by the judge for being “measured and thoughtful” in the evidence they presented.
Link: Skykomish Ltd v Gerald Eve LLP [2025] EWHC 1031 (Ch) (01 May 2025)
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