Time please - know your limits - DAC Beachcroft

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Time please - know your limits

Published 25 November 2016

Although there has been a significant decline in claims against surveyors relating to valuations between 2007 and 2009, claims are still being made. Due to the time that has passed since those valuations, whether a claimant, usually a lender, is out of time for bringing a claim needs to be considered closely in every case as it may provide a complete defence to claims.

The Limitation Act 1980 ("the Act") governs the time period within which a claim must be made. In summary, the Act provides that the limitation period is the later of either:

  • six years from the accrual of the cause of action (often referred to as primary limitation); or
  • three years from the date on which the claimant had the requisite knowledge required to bring the claim (subject to a 15 year long stop from the date of the defendant's breach of duty) (often referred to as secondary limitation).

In relation to the six year limitation period, the cause of action accrues in contract when the contract is breached. In valuation claims, this is the date the negligent advice was given (i.e. the date of the valuation report). As a result a claimant will normally have six years from the date of the valuation report to bring a claim in contract. Notably, if the contract is executed as a deed, a claimant will have 12 years to bring the claim.

In tort, however, the cause of action accrues when the damage is first suffered. This can be much harder to establish. In Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] the House of Lords held that a lender suffers damage when the borrower's covenant plus the value of the security (i.e. the property) is worth less than the value of the sum advanced.

Determining the value of a borrower's covenant at various points in time can be difficult and the courts have acknowledged that this might require expert input. The decisions of Toombs v Bridging Loans Ltd [2014] and Canada Square Operations Ltd v Kinleigh Folkard & Hayward Ltd [2015] provide recent helpful guidance on this issue.

Importantly, the burden is on the lender to adduce evidence that a borrower's covenant is sufficient to bridge any gap between the amount lent and the security value such that no loss has occurred to start the clock ticking. Absent any evidence to suggest otherwise, a borrower's failure to make repayments can be enough to demonstrate that their covenant was insufficient to make good the difference between the actual value of the property and the sum advanced. In addition, once a cause of action has accrued, it will not matter if the borrower's covenant is sufficient at a later date (for example, evidenced by the resumption of mortgage repayments). In other words, once the clock has started for limitation purposes it will not stop.

As set out above, the limitation period can also be extended to three years from the date the claimant had the requisite knowledge to bring the claim. Knowledge in this context means knowledge of the material facts about the damage, the identity of the defendant and that the loss was attributable to the alleged negligence. Knowledge also includes knowledge which a claimant might reasonably have been expected to acquire from facts ascertainable by them, or with the help of expert advice which it is reasonable for them to seek.

In the context of lender claims, lenders will often allege that they did not have knowledge of valuers' negligence until they obtained a subsequent valuation of a property, often as part of the repossession process. Valuers should therefore closely examine when lenders obtained any subsequent valuations and whether it would have been reasonable for them to have done so at an earlier date.

Lenders are likely to find it increasingly difficult to bring claims that result from valuations provided prior to 2010, and those that are brought are likely to turn on whether the lender can say anything positive about the borrower's covenant. The courts have provided more assistance as to how they will tackle this difficult issue, and lenders now have to ensure that they are able to provide hard evidence relating to the strength of a borrower's covenant. The fact that they will also have to have evidence of when they first had knowledge of the alleged negligence, and justify the timing of that knowledge, may provide valuers with the ability to defeat some claims entirely at an early stage of a dispute.

A final word of caution. There is still the possibility that claims being brought as a result of recent/future repossessions may still be in time, even if the valuation underpinning the lending took place as long ago as 2005. Such a scenario may emerge if the loan account default is relatively recent. These instances are likely to be the exception rather than the norm but it will not be until the fifteenth anniversary of the original valuation that the risk can be put completely to bed.


Duncan Greenwood

Duncan Greenwood


+44 (0)113 251 4760

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