K/S Lincoln and others v CB Richard Ellis Hotels Ltd [2010] EWHC 1156 (TCC) confirms that a judge must analyse a valuer’s liability by reference to the final valuation figure and not by his methodology. K/S Lincoln is interesting because it confirms that a valuer will not be negligent if he values a property within a permissible margin of error, even if he fell below the standard of a reasonable valuer in the methodology he used in reaching the valuation.
In K/S Lincoln the valuer overvalued 4 hotels that were subject to leases containing unusual turnover rent clauses. The buyers, who were Danish investors purchasing through a tax-efficient structure, brought their claim on two grounds:
First, that the valuer had made negligent mis-statements about the rental growth of the investment property, because he failed to highlight issues with the rental yield (this claim failed);
Second, that the valuer issued a negligent valuation because his methodology was overcomplicated and because he had failed to consider the impact of a claw-back provision in the turnover rent clause. This claim also failed, because the valuation itself fell within the margin of error of plus or minus 10% of the correct valuation figure.
K/S Lincoln usefully restated that the margin of error for a standard residential property may be as low as plus or minus 5% of the correct valuation figure, increasing to plus or minus 10% for an unusual property, increasing to plus or minus 15% for a property with exceptional features.
