Court ruling will impact on buy to let

An Appeal Court ruling means buy to let landlords can no longer rely on property valuations carried out on behalf of mortgage lenders. Emma Dancer looks at the implications.

Many landlords buying new property rely on the valuation carried out by the surveyor acting on behalf of the mortgage lender.

Until now they have been reasonably secure in doing so because the law accepted that these surveyors owed a duty of care to the purchaser. It meant that if the valuation was way out, the purchaser would have a legal comeback against the surveyor.

This principle was established in the case if Smith v Bush in 1990. The reasoning then was that the purchaser was effectively paying for the valuation and so was entitled to rely on it, even though it was being carried out primarily for the lender.

However, the Court of Appeal has now ruled that this principle only applies when the purchaser is an ordinary household buying to live in. It doesn't apply to buy to let landlords who buy to rent out a property.

The issue arose when landlord Emmet Scullion bought a property he wished to let out. The mortgage lender engaged a firm of surveyors who provided a report on the value of the property and the monthly rent that could be achieved.

The landlord relied on these figures but they turned out to be over optimistic. The rental value didn't even meet the cost of the mortgage repayments.

The landlord sold the property four years later at a loss and sought damages from the surveyors claiming they had been negligent.

The case went all the way to the Court of Appeal which ruled against the landlord. It held that people who bought properties to let were likely to be richer and more commercially astute than owner occupiers, and would be able to afford an independent valuation.

They could not therefore bring a negligence claim in the same way as an ordinary householder.

The court also held that a valuer in these circumstances would expect a prudent buy to let purchaser to obtain his own advice about issues such as how easy it would be to rent out the property, the rent that could be achieved and other terms or fees that would need to be agreed.

The ruling may seem a little harsh but means landlords will need to commission their own surveys if they want to be legally protected in the future.

For more information on this please contact Emma Dancer by emailing edancer@andersonssolicitors.co.uk.

Breaking point - landlord retains thousands in rent

A commercial landlord has retained thousands of pounds in rent following a dispute about when do vacant premises become legally vacant. Peter Sutherland explains why other landlords are studying the case so carefully.

The number of legal disputes about break clauses has soared during the recession and with tens of thousands of pounds at stake, it's not hard to see why.

In a recent case, commercial landlord Ibrend Estates BV managed to win an extra six months rent event though its tenant NYK Logistics had emptied the premises and moved out by the due date.

The dispute centred on when do vacant premises actually become vacant in legal terms.

NYK had rented a warehouse from Ibrend that had two break options.

The first date was for April 2009 and the second was for December 2009.

NYK decided to exercise the break clause on the April date. Ibrend drew up a schedule of dilapidation repairs that needed to be carried out in accordance with the lease.

A site inspection was carried out two days before the termination date. The warehouse was then empty and all the tenant's fixtures and fittings had been removed. NYK agreed that a few more minor repairs were needed and arranged for the work to be done.

However, its contractors didn't complete the repairs until six days after the termination date. Ibrend said this meant the break clause had not been properly exercised and demanded rent until the next termination date in December.

NYK disputed this but the court found in favor of the landlord.

NYK appealed on the basis that it was unjust to to say a failure to complete a few minor repairs on time amounted to a failure to give up vacant possession. It also submitted that it had not tried to exclude the landlord from the premises after the break clause termination date.

The Court of Appeal, however, upheld the original decision. It held that the fact that the tenant had not tried to exclude the landlord from the premises was irrelevant. What mattered was that the tenant had failed to satisfy the conditions of the break clause. These demanded that the tenant had to give up possession to the landlord by midnight on the designated date and not a minute later.

Landlord and tenants disputes over technical legal points have increased over the last few years and with the economic climate remaining difficult, that trend is likely to continue over the next few years.

For more information please email Peter Sutherland psutherland@andersonssolicitors.co.uk.