The property asset bubble that presaged the financial crisis of 2008 led to many disputes as property values tumbled and the profitability of many businesses did too, leading to loan defaults and many insolvencies.
Where there are loan defaults, the lenders will normally look to see if there is any way of recouping their losses, and one of the possibilities that often raises its head is whether any asset valuations that have been relied on were excessive.
A recent case dealt with a situation in which a building society lent £7.7 million to a developer against a valuation of £17.5 million placed on a plot of development land by a firm of surveyors.
After the crash, it became apparent that the proposed development on which the money was advanced could not be carried out profitably, and when the project was placed in receivership, the land realised only £3.75 million on sale.
The building society claimed £2.5 million from the surveyors, arguing that their valuation was negligent and overstated.
After the usual legal argument, the court ruled that the 'correct' valuation of the development site was £16.2 million. As that was within 15 per cent of the surveyors' valuation, it was close enough for it not to be negligent and the claim for damages was dismissed.
Valuation is never an exact science and the court accepts that. The general rule applied is that a valuation within 15 per cent of what the court decides is the 'true' value will be accepted as accurate enough.
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