Michael Duffy

Picture the scenario: a prospective purchaser has instructed a surveyor to prepare a report. The report shows that the property is structurally sound and the purchaser purchases the property on the strength of the survey. After moving in, the purchaser discovers defects or other adverse issues that were not revealed by the survey.

What can the purchaser do? The first step is often to assess the level of defects and whether or not bringing a claim against the surveyor is cost-effective, ie the potential level of damages awarded needs to outweigh the costs of bringing the claim such as legal fees and other disbursements. Sometimes the legal costs may be covered by legal expenses insurance, under a house contents insurance policy for example.

If the first hurdle of funding a potential claim can be overcome, liability needs to be established and then the issue of damages needs to be agreed.

The very recent English case of Moore and another v National Westminster Bank UK Plc may be a good indicator as to how disputes of this nature are determined.

The plaintiffs applied for a mortgage to purchase a buy-to-let flat in Devon. They had specifically instructed Natwest to carry out a survey of the property. The bank however did not do so but approved their loan application. The plaintiffs incorrectly assumed the survey had been completed and there were no issues revealed by the survey, ie the property was good to buy.

Once they purchased the property however they found out to their horror that the property required substantial repairs to the tune of £115,000. This was around the same price they purchased the house for. At court, the judge found the bank liable for breach of contract and damages were to be assessed to the full cost of the repairs required, as opposed to the diminution in value of the property (which would have resulted in lesser damages being awarded to the purchasers).

The bank appealed on the basis that a survey had not been prepared and this was different than a negligent survey having been produced. The judge accepted this argument to a degree because the purchaser would not be entitled to any additional compensation if the purchasers were able to demonstrate they would never have bought the property, but for the surveyor’s negligence.

However, the appeal was ultimately dismissed on the basis that the judge was entitled to calculate damages on the alternative basis of cost of cure as opposed to diminution in value.

Commentary on this decision so far suggests that the default measure of diminution in value as established in an earlier case of ‘Philips v Ward’, nevertheless still stands as good law. Secondly it appears that the court is entitled to assess such diminution in value in the same sum as the cost of repair. The cost of repair however may be more, or less than the diminution in value.

Ultimately if a purchaser buys a defective property upon reliance of a negligent survey, they are unlikely to recover more than the difference between what they paid and its value in defective condition.

However, given the outcome of the above decision, surveyors and lenders in similar circumstances will need to provide convincing assessments of diminution in value or otherwise satisfy the court that the loss to the purchasers is substantially less than the cost of repair. Failure to do so may result in the negligent party paying out more than was intended.

• Michael Duffy is a solicitor in the commercial property department at Worthingtons Solicitors in Belfast. View his profile here.