Liability for reporting on system built properties

Liability for reporting on system built properties

Liability for reporting on system built properties

Paul Murrells

There have been very few reported Court cases involving liability for inspecting and reporting on system built properties. In Peach v. Iain G. Chalmers & Co[1], a surveyor failed to recognise that a property in Scotland was of a "Dorran" type construction. The walls had been constructed on a series of thin concrete panels bolted together. Should these corrode, extensive and expensive repairs would be necessary. By valuing the property as if it was of traditional construction, the valuation surveyor was guilty of negligence.

Izzard and Izzard v. Field Palmer and Others[2]

On 20 February 1998, Mr Justice Scott Baker gave Judgment in the above case. Although a High Court matter, it was tried at Winchester. This gives helpful guidance as to a surveyor's responsibilities when inspecting and reporting on a system built property, even though such inspection was for mortgage valuation purposes.

37 Samson Close, Gosport, HampshireIn 1988, Mr and Mrs Izzard were first time buyers. The Rowner Estate in Gosport, was ideal for such buyers as it contained numerous small properties in blocks. Mr and Mrs Izzard decided to purchase 37 Samson Close, subject to obtaining a satisfactory mortgage advance for most of the purchase price of £42,000, the balance being covered by means of a bank loan. A valuation surveyor instructed on behalf of Allied Dunbar, valued the property at the asking price. Although offered the option of a more expensive and detailed survey, Mr and Mrs Izzard chose to rely on the much cheaper mortgage valuation report. They were told that it would detect any major faults in the property.

The Rowner Estate had been built in the 1960s by the Ministry of Defence as married quarters for sailors in the Royal Navy. It comprised a number of two-, four- and five-storey blocks. The two-storey blocks are terraced houses, while the four-storey blocks have two tiers of maisonettes with an access balcony to the upper tier. The Judgment did not concern any of the five-storey buildings. Mr and Mrs Izzard completed their purchase in December 1988, acquiring the remainder of a 999-year lease, which was granted in 1986. The property is a two-floor maisonette, in a four-storey block of similar properties.

Mortgage Valuation Report, dated 14 November 1988This described the construction of the property as:

Concrete span walls, timber-framed curtain walls to front and rear, clad with timber and concrete panels. Flat roof covered with concrete. Concrete floors.

Sections 10 and 11 of the report headed, respectively, "Essential works to be carried out" and "Matters that might affect value" were both left blank. The report did confirm that the property was readily saleable at, or about, the valuation figure for the purpose of owner occupation.

The report acknowledged in the "General Remarks" section (14) that the flats were built to the Jesperson system. Having been occupied initially as married quarters they were sold to a developer who carried out renovations and sold them as individual units. They had proved popular with first-time buyers, offering spacious accommodation.

Special features relating to properties on the Rowner EstateAll the buildings were built to the Jesperson 12 M system. This is in the form of large panel-built dwellings, with a combination of concrete panels and timber cladding. The estate comprises 807 dwellings, the council holding leases on just over half of these and the balance being leased to private owners. The buildings are in need of appraisal by a structural engineer every five years.

The buildings are expensive to maintain. Any purchaser needed to know the extent of liability to meet repair costs.

Subsequent eventsMr and Mrs Izzard moved into the property in December 1988. Early in 1989, they noticed that the front door was warped. Later that year, water started coming through the window of one of the bedrooms. These were described as no more than irritations.

In September 1991, the support of an access balcony on one block of the estate failed, making the balcony unsafe. Subsequent investigation by the Building Research Establishment revealed that the balconies were supported by a series of "C"-shaped brackets fixed to the structure of the building. The balcony collapse was due to rust failure of one of these brackets. There was a general problem in that brackets to all the blocks were liable to failure due to rust. A permanent system of support to all balconies was provided with grant assistance.

By this time, the property was rented as Mr Izzard's employment had moved him elsewhere. Even still, mortgage arrears rose to the extent that the property was repossessed and sold for £6,000 in April 1993.

Other inspections on the estateEvidence revealed that three days after the defendants had prepared their mortgage valuation report on the property, a report was prepared on a nearby property, 23 Samson Close, by Mr Christopher Ennis, a surveyor with many years' experience. Mr Ennis' instructions were to carry out a Home Buyers Standard Valuation and Survey Report. It was comprehensive, admittedly costing more. Mr Ennis described the property as follows:

The property is constructed around concrete framework, with timber infilled panels. The whole building is weathered, with a flat solid and asphalt-clad roof.

The property is of a type which may not be considered suitable security by some building societies and, as a consequence, resale of flats of this type may prove difficult.

Included in the summary and recommendations section of Mr Ennis' report was the following:

Your solicitor should arrange to have sight of the management accounts, covering the various moneys collected and expended on it on behalf of the residents over the last two or three years. You should very carefully identify your liability in respect of communal charges, including the maintenance of garden areas, and of elevated paths and stairways.

Within days of the valuation report being carried out on Mr and Mrs Izzard's property, question marks were being raised about the soundness of investment in property on the estate. The fact that Mr Ennis carried out more than a mortgage valuation did not reduce potential liability on the part of the defendant valuation surveyors.

Expert evidenceMr Ronald Wilde, a very experienced building surveyor from High Wycombe, Bucking-hamshire, gave evidence on behalf of Mr and Mrs Izzard. He was involved in a considerable number of other cases concerning properties on the Rowner Estate. Mr Wilde's evidence carried very considerable weight with the judge.

Mr Wilde said that not only would purchasers need to know about the condition of the property they were proposing to lease, but also would need information on the condition of all buildings for which they would be required to contribute to the cost of maintenance and repair. Prospective lessees would need to be advised of the perceived risks associated with taking a lease in such a building. It should have been known that these buildings were expensive to maintain and that they were in need of appraisal by a structural engineer every five years. This was not a conventional building. Where a surveyor does not have experience of the building he is being required to value, then he must make necessary investigations. Inspection of public literature would reveal two problems:

1. 1.

   extensive maintenance; and

2. 2.

   potential structural risk.

Published literatureMalcolm Hollis' book entitled Surveying Buildings was first published in July 1983. In the section entitled "Additional considerations for a survey of flats and apartments", commencing on page 23, there is a very detailed section headed "Service charge". One paragraph from this section reads as follows:

The surveyor must set out in detail the liability that the client will face if he proceeds with the acquisition of the flat. He should comment upon the past history of expenditure on the buildings.

In July 1987, the Building Research Establishment published a report on the structural adequacy and durability of large panel system buildings. This contained the following:

Buildings required to have more than 25 years of life from the date of construction should be subject to full appraisal for structural safety and durability and this appraisal should be followed by a visual inspection at one, two and five years, following the initial appraisal, and subsequently at a minimum interval of five years.

An article in RICS Weekly, published on 25 June 1987, covered the valuation of system built housing. It said the following:

Societies will expect their panel valuers to be familiar with the main types of system built construction to be found in their areas and have some idea, as part of their local knowledge, of the record of the particular house types. A useful source of knowledge in this respect may be the local authority, which may well have carried out its own detailed assessments (including assessments made during the course of demolition) of the house types in question for housing management purposes. Valuers should also be familiar with the main findings of any investigations carried out by the Building Research Establishment into systems prevalent locally.

The article continued later as follows:

There was a time when many valuers declined to proceed with a valuation as soon as they realised the property in question was system built. This may have been entirely proper in the light of knowledge of market conditions which prevailed. However, that time has now passed. Societies and their borrowers (including people wanting to sell system built homes as well as those prepared to buy them) would generally prefer valuers to proceed with the recommendation (one way or the other) to the society concerned. The aim is to arrive at a realistic valuation which will allow the society to deal with the application on the same basis as they deal with applications for mortgages on traditionally built houses.

On 18 July 1987, an article entitled "A concrete problem for the surveyor" written by Laurie Grimmett, appeared in Estates Gazette. This included the following:

Here, the importance to mortgage buyers is the fact that if the type of construction is overlooked ­ even if no defects are immediately apparent ­ the only compensation available to a purchaser who relies on that report and proceeds to purchase, lies in an action in negligence against his surveyor.

The article continued as follows:

It is here that the surveyor carrying out a mortgage survey, let alone a House Buyer's Report, should proceed with great caution. Some of the systems can look deceptively "traditional" in the appearance of rendered blockwork, or even of fairfaced brickwork. The concrete loadbearing columns and beams are not always evident. It is true that many of the systems "stand out a mile" as the surveyor approaches the property, but not all.

The judge was satisfied that there was ample material available, and readily accessible for a surveyor who was unfamiliar with this type of building, to have apprised himself of the type of problems that might affect the building's value. These matters ought to have been drawn to the attention of a prospective purchaser. If a particular property is not within a surveyor's expertise, it is necessary to make out the appropriate investigation.

Adequacy of property for mortgage purposesReference has been made already to the perceived risks of expensive maintenance and potential structural risk. A problem with maintenance charges is that many property managers do not build up a sinking fund to deal with sudden heavy maintenance costs. The structural risk to a property needed to be appraised by an engineer before it could be accepted as having an adequate life for the period of the mortgage.

Evidence of the defendant valuation surveyorIn giving evidence, the defendant surveyor admitted that the Rowner Estate was his only experience of system built flats. He was not sure if he had inspected any other flats on the same estate. He was quite unaware of how many blocks were covered by the service charge provision in the lease. He agreed his report gave a misleading impression of the charges that might arise on a property of this kind. In the judge's view, it was unfortunate for the defendant firm that their duty of care in carrying out a mortgage valuation extended further than their perception of it.

Defendant's expert evidenceFollowing the evidence given by the defendant valuation surveyor, there was little scope for defence expert evidence to carry much weight with the court. It was acknowledged that any other surveyors carrying out valuations on the Rowner Estate were making similar errors. It had been suggested that hindsight was all very well, but what the valuation surveyor was doing was no different from many others carrying out similar valuations. That was no defence to the claim.

The lawThe fact that only a mortgage valuation had been carried out did not detract from the duty of care that was required. The judge referred to the well-known authority of Roberts v. J Hampson & Co[3].

Although a mortgage valuation was only a limited appraisal, it was undertaken by a skilled professional man. Sometimes, it might be necessary to spend two or three times as long inspecting than would have normally been expected ­ even, a duty to take reasonable care remained at the root of the valuation surveyor's obligation.

Two matters having a potentially significant bearing on value were:

1. 1.

   The need for a structural appraisal.

2. 2.

   The possible extent of maintenance charges.

The valuation surveyor should have researched the available literature or taken other appropriate steps to obtain the necessary information so as to make a skilled professional valuation of the property.

It was not a case about defects, but about assessing risks. It was not right to value the property in isolation. The estate as a whole should have been looked at for matters like a pattern of service charges. The absence of any reserve fund to meet sudden heavy costs could have critical consequences for a first-time buyer ­ already stretched to the limit of his financial resources.

The collapse of the balconies in 1991 was an example of the kind of problem likely to arise. It was incumbent on surveyors to consider Building Research Establishment warnings before they could give any valuation of a property.

The case did not have the benefit of hindsight. The information was available in the literature and there is a duty on all professionals to keep up-to-date with contemporary thinking in their own area of professional expertise. A duty to warn Mr and Mrs Izzard was owed. It was quite wrong to give the property a clean bill of health and not consider the issue of the service charge. The floor in the defendant's expert evidence was that it approached the case on a defects basis. The defendant valuation surveyor failed to meet the appropriate standard required.

RelianceThe judge inferred that a copy of the valuation report would have been sent to Mr and Mrs Izzard with the mortgage offer. Accordingly, the judge was quite satisfied that Mr and Mrs Izzard relied on the report in deciding to purchase the property.

DamagesThe judge made the following awards in favour of Mr and Mrs Izzard:

1. 1.

   £28,000, being the difference between the price actually paid for the property (£42,000) and the true value at the time of purchase (£14,000) ­ based on valuation evidence given on behalf of Mr and Mrs Izzard.

2. 2.

   £250, being the cost of some storage heaters.

3. 3.

   £476.75, being the difference between mortgage payments and rent being received for the property once the plaintiffs had moved out. Until then, mortgage repayments were NOT recoverable as Mr and Mrs Izzard had received benefit for such payments.

4. 4.

   £9,600, being payments to fund a bank loan that made up the balance of borrowing to fund the purchase. This was recoverable, following an unreported Judgment in the Official Referees' Court ­ Patel v. Hooper & Jackson[4].

Interest was to be added to the above awards, in accordance with directions given by the judge. However, the judge made no award for general damages, in respect of any distress and inconvenience suffered by Mr and Mrs Izzard. The judge accepted a defence submission that the well-known Court of Appeal decision in Watts v. Morrow[5] established that general damages were recoverable only for distress and inconvenience caused by physical consequences. Mr and Mrs Izzard's real complaint was upset and frustration at their financial plight and an inability to deal with it.

ConclusionRegardless of a surveyor's instructions as to the type of report required, great care must be exercised when inspecting a property which is not of traditional construction. In most instances, it is hoped that the surveyor's instructions and local knowledge would have given an appropriate advance warning. Ignorance of articles, appropriate sections from books on surveys and Building Research Establishment Reports will be no defence. If in any doubt before completing a report, having inspected a property of non-traditional construction, a surveyor must make appropriate investigation. This is with particular reference to expensive maintenance charges and the potential structural risk to such properties. Such duty will be the same, irrespective of whether instructions are to provide a valuation report for mortgage purposes or a more detailed building survey report.

Notes1 [1992] 2 EGLR 135.

2 Unreported, 20 February 1998.

3 [1990] 1 WLR 94.

4 Unreported, 9 August 1996 (Lexis transcript).

5 [1991] 1 WLR 1422.