Commercial property loan valuations in the UK: implications of current trends in valuation practice and legal liability

Abstract

This paper examines the legal liability implications of changes to the commercial property loan valuation process caused by the recession in the UK property market. It identifies the market background to commercial property lending and discusses the implications of the falls in value for lenders and valuers. These include the outcome of discussions between the various professional institutions representing these two groups and the increasing litigation between lenders and valuers in which professional negligence is alleged. The paper reviews the legal framework and critically examines the valuation process relating to instructions, bases and reporting in order to define a set of research questions. These are addressed via an interview survey of lenders and valuers. The findings of the study are: First, a minority of valuers continue to accept instructions from borrowers and this could lead to a conflict of interest, as lenders may rely on their report. Second, situations occur where lack of formal instructions prior to the delivery of the report casts doubt on the valuer's ability to identify the needs of clients correctly. Third, it was found that valuers are providing valuations on bases which they do not think are appropriate. Valuers may incur liability if they do not inform clients of their reservations and this situation must be urgently addressed. Fourth, valuation reports are considered often to be deficient in contextual information concerning markets, which confirms the findings of earlier research in this area.