Surveyors' PI: Negligent Overvaluations, the Margin of Error and Causation

United Kingdom

The wave of judgments concerning valuers claims (see Surveyors’ PI: overvaluations and contributory negligence and Surveyors’ PI: application of the ‘but for’ test) continues with the decision in Barclays Bank Plc v TBS & V Ltd.

Barclays Bank Plc was unsuccessful in bringing a claim against TBS & V Ltd (TBS) for the alleged negligent property valuation of a care home in Lynmouth. The judgment is a broadly positive result for valuers, reinforcing the fact that the courts are comfortable in finding a 15% permitted margin of error. At the same time it does highlight some potential pitfalls in the running of a causation defence to such claims.

The key issues the court had to address were (1) the valuation methodology and (2) the acceptable margin of error. The court also recorded its views on whether a restructuring of a loan broke the chain of causation.


In 2007, the bank loaned its customer £250,000 to enable it to buy, as a going concern, a 40-year lease on a care home in Lynmouth. The bank made the loan in reliance on a £350,000 valuation by TBS. In 2011, the borrower’s business failed and the lease was forfeited.

The bank claimed that TBS had negligently over-valued the property and sought to recover the resulting loss from the valuers. The bank alleged that the true value of the property in 2007 was only £130,000 as against TBS’ valuation of £350,000.



TBS had reached the valuation of £350,000 using the EBITDA (earnings before interest, taxation, depreciation, amortisation and rent) method and applying a multiplier. In order to determine whether the valuation was negligent, the court followed the approach in Merivale More Plc v Strutt & Parker (1999); it was for the court to apply the professional practice standards in force at the valuation date and then determine the correct value of the property at the date of valuation. Relying upon (as referenced by both experts) the RICS Appraisal and Valuation Standards (also known as the Red Book), and the related Guidance Note 1 (GN1), on considering the overall definition of market value, the court determined the principal methodology was indeed the EBITDA/multiplier method. Based on the bank’s expert’s evidence, the court also considered the lack of guidance in the Red Book and GN1 on the selection of a multiplier to be deliberate so as to avoid a mechanical approach being adopted and to allow for the specialist judgment of a valuer.

The court concluded that, therefore, it was for the valuer to analyse objectively the circumstances of the property, and the business within it. Whilst TBS used a nationwide database of care home property market information, there were a very limited number of potential comparable properties and none in the area local to the property. This meant they provided only a very broad guide. Accordingly, in deciding on the appropriate multiplier, the court found the floor space; the length of the lease and its provision of security for the investment; that the property was Council owned and Grade II listed with a seafront location; and the market and demographic factors to all have the effect of increasing the applicable multiplier.

The decision reinforces the recent trend for the court to determine its own view as to the true value of a property, based on all the available evidence and not simply preferring one expert over the other. Indeed, the judge was “wholly unprepared to reject either of the expert witness’ contributions” and took into account all of the expert evidence received when determining the correct valuation to be £330,000.

Margin of Error

The court, therefore, had to apply its determination of the correct value of the property to what it deemed to be the appropriate margin of error for the property.

In applying K/S Lincoln v CB Richard Ellis Hotels Ltd (No 2) (2010), the court concluded that the applicable margin of error was 15% (which is reserved for the most exceptional properties) given that the valuation exercise was “difficult and challenging” as there were a very limited number of comparables, the property had idiosyncratic elements and that a leasehold interest for 40 years in a care home is rare. Despite being a challenging valuation exercise, the court concluded it did not justify a higher margin of error of 20% either side of the notionally “true” value. Nevertheless, TBS’s valuation of £350,000 fell within the permitted 15% margin of error from the correct value determined by the court, consequently the valuation was not negligent.

The bank was heavily critical of TBS’s report, arguing that it was not explicit in the multiplier used and that a proper EBITDA/multiplier valuation had not been undertaken. Whilst the court agreed TBS’s report could have been clearer, the absence of reasoning did not affect the legitimacy of their judgment in determining the value of the property when it fell within the margin of error.

Further Points

Due to the valuation falling within the permissive margin of error, the court did not need to address the causation defence raised in respect of a restructuring of the loan.
In 2008 the loan had been restructured, and TBS argued that this divorced any loss from the 2007 loan which had relied on the 2007 valuation. The court expressed the view that this argument should be rejected as it was distinguished from Preferred Mortgages v Bradford & Bingley (2002), because effectively, as the mortgage had not been redeemed and the original charge remained in place (which was not the case in Preferred Mortgages), the scope of duty owed by TBS remained extant.


Following Barclays Bank v Christie Owen & Davies Limited (2016) the decision confirms the prevailing preference of the courts to embrace conventional valuation methodologies and not to prefer one expert over another. Instead the courts are likely to form their own view when determining a property’s true value. This should be taken into account when assessing the merits of a valuation claim and, particularly, the expert evidence in play in any claim.

Further, when faced with a claim concerning an unusual property the judgment is a reminder that ordinarily the court may apply a 15% margin of error (noting that, whilst unlikely, the court found that a margin of error greater than 15% was not impossible).

Finally, the obiter comments regarding the causation defence in relation to the bank’s restructuring are in a similar vein to those in Tiuta International Ltd v De Villiers Surveyors Ltd (2015) (see Surveyors’ PI: application of the ‘but for’ test) and the continued reluctance of the courts to embrace such arguments and allow a lender’s claim to fall into a ‘black hole’. The re-structuring of any such loans will, therefore, require close scrutiny to see if the arguments in Preferred Mortgages can still be run.

Further Reading

Barclays Bank Plc v TBS & V Ltd [2016] EWHC 2948 (QB)
Merivale Moore Plc v Strutt & Parker [1999] All ER (D) 403
K/S Lincoln v CB Richard Ellis Hotels Ltd (No 2) [2010] PNLR 645
Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd [2002] EWCA Civ 336
Tiuta International Ltd v De Villiers Surveyors Ltd [2015] EWHC 773 (Ch)
Barclays Bank v Christie Owen & Davies Limited [2016] EWHC 2351 (Ch)