It’s an increasing trend in the law today to say that you must be reasonable... so check your small print.’


his clients sued the builder for diminution of value). The fact that a relatively simple seeming


piece of legislation can be so tricky to interpret shows just how much agents need legal advice.


VALUATIONS


But it’s where valuations are concerned that the plot really thickens. Here, it’s case law (past decisions in the courts) rather than statute that is important. There was a raft of litigation after the last property slump in the late 80s, as clients tried to make good their property losses by suing agents – and this could well happen again. Agents could be responsible for heavy


damages. Giles Insurance reports settling one case for £200,000, where a house was undersold on an agent’s advice, and resold for twice the price within a few months – the vendor claimed the difference between the valuation and the resale price. Another case where the insurer had to pay up involved a client who had relied on an agent’s advice in purchasing two new properties in the expectation of a quick sale, but the agent had overvalued the house that was for sale and the client lost the bridging finance. Roger Smith says agents need to


consider how their terms and conditions


are drafted to limit their liability. But, he warns, they also need to take into account the Unfair Contracts Act, “and the views the courts take about professionals trying to contract out of their own negligence.” He suggests agents might offer a lower commission to valuation clients willing to sign up to lower liability limits – but only if the difference is drawn to the client’s attention, and the client is offered the choice, would the disclaimer be legally effective. “It’s an increasing trend in the law today to say that you must be reasonable,” he says – relying on the small print won’t stand up in court if it appears unreasonable. Individual employees also need to


consider the implications of Merrett v Babb (2001), in which a surveyor was held personally liable for a negligent valuation, after his former employer had become bankrupt, and the trustees cancelled the indemnity insurance. (Insurers won’t cover Merrett v Babb style liabilities; in the end, RICS set up a membership levy to create a support fund, since it couldn’t source insurance in the market.) Agents also need to ensure that clients


are kept completely up to date. John D Wood failed to tell their client, Michael- John Knatchbull, who was selling his house for £1.5m, that another house in his street


had sold for £1.8m. The courts found that the agents had not been negligent in valuing the house – but that they were still in breach of contract for not passing on the information. The agent had to pay £25,290 in damages, and over £100,000 in costs.


LETTINGS LEGISLATION


Lettings agents have even more extensive legal requirements, says Nick Perkins. “Letting is much more technical and what tends to happen with estate agents who move into lettings is they’re still focused on getting the deal, and not really getting the back office under control,” he says. Marveen Smith says proceedings for


rent arrears are the most common case she sees; she has noticed a sharp upturn in such cases as the economic climate has worsened. Also quite common are proceedings brought against landlords for lack of repair, often as a counterclaim against an arrears notice, “whether it’s justified or not”. Most of PainSmith’s cases get possession


at the first hearing, which she believes is partly down to the fact that she anticipates objections and ensures the right evidence is in place. But, she says, unprepared agents and landlords will find that when complications occur – often due to incorrectly prepared paperwork – cases


PROPERTYdrum NOVEMBER 2011 25


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