Mortgage valuation reports have limitations and surveyors are not expected to identify defects which would be apparent from a structural survey the courts have decided in Hubbard v. Bank of Scotland.

The decision is welcome news for surveyors who could have faced large professional indemnity claims had the case been decided differently.

Mrs Hubbard brought the action against valuation surveyors, Colleys, for failing to identify the risk of subsidence in a house she purchased in 2005. Colleys had been appointed by the Bank of Scotland to value the property in connection with it making a mortgage loan to Mrs Hubbard. The valuation report noted a small crack in the rear bedroom, but said that the property had not suffered any recent movement. Colleys’ report said no further action was required.

When the house suffered serious subsidence, Mrs Hubbard claimed that Colleys should have told her about the risk. She also argued that she should have been told to seek specialist advice and that the valuation should have been substantially reduced.

The trial judge ruled in favour of Colleys. He said that the surveyors report clearly stated that the survey was limited to a visual inspection and that there was no evidence that the property was subject of subsidence at the time of the survey. He also held that the Valuation Report was accurate in what it reported and had recommended independent advice, which Mrs Hubbard had not taken.

Mrs Hubbard appealed on the grounds that the surveyor should have warned her that future subsidence was likely and should have recommended that she have a full structural survey. The Appeal Court also decided in favour of Colleys. It held that the limitations of the valuation report were “amply and clearly spelled out” and that the surveyor’s duty was more limited than a structural surveyor who is expected to look beyond the surface.

The court also found that it would be unrealistic for a valuation surveyor to recommend a structural survey on the basis of seeing a small crack which was showing no signs of movement. “To set the duty at that level would mean that the sale of any property which displayed cracking of almost any kind would be held up pending a full structural survey. Such a conclusion would, I would have thought, not be welcomed by vendors, by lenders or by borrowers.”

The decision sets out a clear distinction between the duties of a valuation surveyor and a structural surveyor, according to James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “This result is good news for surveyors and their insurers, but it also highlights just how important for all professionals to clearly set out the scope of their retainer in the retainer letter or report. This case went Colleys’ way as their retainer was very clear about the work they would undertake. Had it been less well worded we might now be hearing about a different outcome altogether.”

Further details of Hubbard v. Bank of Scotland can be found in reports from law firms Bond Dickinson and Kennedys.