Overvaluation of dilapidated properties: what should damages amount to?
Mr Moore and Ms Heguland wished to buy a flat in the port town of Bideford in North Devon, which they intended to let out. They were purchasing with the benefit of a mortgage from Nat West. They asked the bank to produce a home buyer’s report. In error the bank failed to do this but proceeded to make a mortgage offer without it. The absence of the report was not communicated to thepurchasers, who proceeded on the assumption that one had been commissioned and it was favourable.
Unfortunately for the purchasers the property turned out to be in anything but in good condition and needed significant works of repair to be carried out. Being Grade II listed, the cost of the works were estimated to be £115,000, which was only £20,000 less than they had paid. They sued the bank.
The bank’s case on quantum was that the correct measure of damages was the difference in value between what a reasonable person would pay for the property in ignorance of the condition, and what that same reasonable person would pay for the property in actual condition (diminution in value). The bank’s expert valuer contended that on this basis the claim was worth £15,000.
In the County Court the trial judge decided that the cost of works represented the right measure of damages and awarded £115,000. The bank appealed the basis of assessment. The result of the appeal was both good news and bad news for the bank.
The good news was that on appeal the judge confirmed the correct method to assess loss in these cases was diminution in value. The bad news for the bank was that the judge confirmed that diminution in value can be assessed with reference to the cost of works (i.e. that a prospective purchaser would reduce their bid by the cost of the works) and that having reviewed the transcript of the lower court’s decision it was apparent that the trial judge carried out a proper assessment of the competing valuation experts and preferred that of the purchasers. There was nothing to say that the trial judge viewed diminution in value as less than £115,000. As cost of works could form the basis of a diminution in value assessment there was no evidence on which to conclude that the judge’s assessment was incorrect. The effect of this decision is that the value of the flat in actual condition was £20,000.
It is important to stress that does not follow that in each and every case where a dilapidated property is overvalued in breach of contract or by negligence, the cost of putting the property into repair will be the right measure. It is merely one of the ways in which the court can assess damages in an overvaluation case.