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Surveyors – worth closer inspection?
The surveying profession traditionally gets most attention from property lawyers. Now may be the time for litigators to take an interest too. Tony Scott explains why.
Once upon a time, professionals of all disciplines could sleep easy. They had only to answer to their guilds – the Institute of Chartered Accountants, the Law Society, the BMA and the like. Bankers and insurers were beyond reproach. The courts got involved only to extend the protection, as they did in the Caparo decision that limited the duties (and the exposure) of auditors.
Not any more, however.
Accountancy firms as large as PwC have been stripped of tens of millions of pounds in out-of-court settlements; Arthur Andersen has collapsed. Class-action experts have pounced on doctors, individually and through the NHS. Worldcom’s professional advisers are in the firing line for claims. Even banks the size of Merrill Lynch have been taken to the cleaners by regulators for ramping shares in return for fees.
So who’s next? My money is on surveyors. Why? Because the housing market seems irrationally exuberant.
Consider some down-home economics. When you take a diamond ring to a jeweller for an insurance valuation, all parties collude in a gentle deception. The insurance firm wants a high number because higher value equals larger premium. The jeweller is happy to give you a high number because he can’t then be accused of encouraging you to under-insure – and because his fee is usually a percentage of the valuation. You’re happy with a high number because it makes you feel important and rich.
By the same token, all the players in any rising market share an interest in talking the market up. As long as it keeps going up – whether we’re talking of rings or equities or property – everyone stays happy. Interests start diverging only when the market starts falling. And the divergences turn rapidly into expensive courtroom rows. Talk to anyone who had dealings with Enron. Or to any long-suffering investor with Equitable Life – or its directors.
Now apply all this to the property market, particularly housing. As long as prices keep rising, who cares about conveyancing fees? Or survey fees? Or what the survey report says, if anything? Any cost will seem inconsequential, any valuation will seem conservative, a year after it’s made.
But if prices tip over – and especially if they topple by anything like the 30 per cent figure being bandied about in the Press – interests will diverge, suddenly and violently. When that happens, you can expect buyers and lenders to cast around for someone to blame for their losses.
Who can the buyer go after? Not the lender, because buyers themselves demanded ever larger loans. Not the estate agent, because the agent owes a duty of professional care only to the seller who pays his fee. Not the lawyer, because she or he merely handles the administrative formalities.
The lender has similar problems. Buyers can’t pay. Agents and lawyers won’t.
A surveyor, on the other hand, has in some form or other declared the value of the property to be fair. If he or she can be shown to have been careless in arriving at that judgment, some sympathetic judge is likely to entertain a claim for damages for negligence – either from a buyer trapped in negative equity, or from a mortgage firm wounded by an unpaid loan.
Surveyors may be riding into trouble. Which means opportunities for litigators.
Three new habits – all of which have grown rapidly in the past ten years and none of which have mattered in the rising market – have left the surveying profession exposed and potentially vulnerable to claims from aggrieved buyers and embarrassed lenders:
1 Surveyors have come to rely in their reports on elaborate legal disclaimers to protect them from actions for negligence. But it’s not at all clear that the disclaimers will work if and when they come to be tested in a court.
No professional who holds him or herself out to give advice for a fee can escape responsibility for the core activity of forming an opinion. He or she may safely come to a wrong opinion, but only if the opinion has been honestly, reasonably and thoughtfully arrived at. The duty of care which lies at the heart of the professional relationship can’t be wished away by any form of words.
2 Surveyors have come to rely on automated reports to improve their efficiency. Thanks to sophisticated software, they can gush for pages about a home’s proportions and history on the basis of a floor plan and a glance at its frontage.
But it’s hard to see how such casual delegation to a machine will impress a judge, when the trend of all consumer legislation since the Sale of Goods Act 1893 has been to protect the public, and when court decisions since the snail-in-the-ginger-beer case of Donoghue v Stevenson in 1932 have emphasised the importance of the end user. It’s also hard to see any politician or newspaper springing to the defence of a habit which generates so much in fees for so little effort.
3 Most dangerous of all, many surveyors have come to rely on drive-by assessments – especially for simple valuation surveys – with the knowledge and approval of mortgage lenders. The surveyor doesn’t even enter the property to arrive at a view.
As a senior director of one of the largest mortgage lenders put it to me airily: ‘We know from the number of bedrooms how much a given house in a given area is worth. And we often know the house better than that because we’ve surveyed it before.’ But what the drive-by surveyor won’t and can’t know is whether poor maintenance or clumsy building work has undermined the previous value or rendered the property unsafe. A drive-by exercise doesn’t even allow the surveyor to test the accuracy of an earlier visit.
Evidence of cursoriness piled upon imprecision hardly seems a promising foundation for a defence case – even if everyone else in the profession is doing the same.
What is curious but perhaps not surprising about these widespread habits is that surveyors don’t yet seem to be concerned about the risks. After all, the three habits have been wonderful for the profession. They’ve hugely accelerated the production of surveys and thus – together with valuation-based fees – multiplied how much each surveyor can earn in a day.
As a result, survey firms’ profits are up. And, thanks to the indifference of smugly successful property investors, legal challenges are down. On the back of the same valuations and low interest rates, lenders have been happily stretching earnings multiples, especially in the South East. And buyers have happily taken on more debt to go on riding the boom, via home improvements or buy-to-let investments. Everyone is enjoying the ride.
Just don’t expect them all to hang together in a downturn.
Litigation lawyers with an appetite for growth and new clients might like to take an interest in one or both sides of this argument-in-waiting. Those with a taste for class actions could snuggle up to the Consumers Association. And those who prefer to defend the rich should take a clutch of surveyors or lenders out to lunch – and frighten the daylights out of them.
Tony Scott, a director of Oliver Scott Consulting Ltd, specialises in business communication issues. He’s edited four best-selling law books, written a fifth, and works with surveyors and lawyers. For details, visit http://www.oliverscottconsulting.com .
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