The Property Misdescriptions Act 1991 - Essay Example

? Introduction In the practice of real e there is bound to be a conflict, but really the conflict is a matter of ethics. On the one hand, theremight be a duty for a surveyor or a valuer towards the client who is paying the surveyor or valuer, and this client often is the real estate agent or broker who is seeking to maximize his or her profit in selling the house. Therefore, the client would seek an appraisal that maximizes the profit, which would often mean an inflated appraisal. Nevertheless, the valuer or surveyor has a duty, and this duty has been established through case law, not just to the client who hired him but to anybody else on down the line who would be affected by this appraisal. Therefore, the valuer or surveyor’s only real obligation is to the truth, in that the appraisal must be accurate and not inflated. There are a number of factors that goes into this, as discussed below. Moreover, real estate agents and brokers also have a duty to the truth. This means that they, like the surveyors and valuers, must do extensive research before selling a house, and if they make a material omission or false statement of fact, they will be liable, and this liability is strict. This means that there is liability, regardless of whether the statement is innocent, negligent, reckless or intentional. Therefore, anybody in real estate has a duty to anybody who might be affected by their statements or appraisals, which means that anybody in real estate has the duty to do a thorough and diligent search before committing themselves to selling a house, in the case of real estate agents, or valuing a house, in the case of surveyors or valuers. Two Types of Liability The Property Misdescriptions Act 1991 is an Act that governs many different types of ethical breaches a surveyor might encounter or commit. It states that, when a real estate professional makes a false or misleading statement during the course of a business transaction, the person who made the statement is guilty of an offence under this Act (Property Misrepresentations Act 1991 § 1(1)). The same goes for an employee – if an employee makes a false or misleading statement during the course of a business transaction, that employee can be guilty under the Act, whether or not the employer is involved with the breach (Property Misrepresentations Act 1991 § 1(2)). The misleading statement must also be material, not trivial, and this is judged by the perspective of the reasonable person (Property Misrepresentations Act 1991). Whether or not the statement is misleading is also judged from the perspective of a reasonable person (Property Misrepresentations Act 1991). Moreover, the Act is one of strict liability, which means that any statement can be actionable, not just statements that are negligent, reckless or intentional (Property Misrepresentations Act 1991). Therefore, under the Property Misrepresentations Act, a real estate professional, any real estate professional, must be very careful with what they tell prospective buyers. Because the Act is one of strict liability, which means that a real estate professional can still be found guilty under this Act, even if that professional is not aware that the statement that he or she is making is false, that means that one of the major responsibilities that a real estate professional has is the duty to ensure that their statements are true and that there are no material omissions. This would mean that extensive research must be done during any transaction, including title searches, surveys, accurate property appraisals and the like. That said, surveyors may be at risk of negligence. According Murdoch (2005) surveyors may be guilty of negligence when they do not use skill in preparing their reports and the homeowner relied upon the surveyor’s report (Murdoch, 2005, p. 1). Historically, however, the homeowner would not be able to recover damages from the surveyor, as there was no privity of contract between the homeowner and the surveyor. The privity of contract was between the lender and the surveyor. This was changed by the case of Hedley Byrne v. Heller [1964] AC 465. In Hedley, the appellants were advertisers who had a client by the name of Easipower. After getting contracts for Easipower to advertise on certain television and radio programmes, Easipower defaulted and the appellants became personally liable. The appellants, however, had relied upon reports prepared by the defendant bank in which the defendant bank, Heller and Partners, which stated that Easipower was creditworthy. In fact, Easipower was not credit worthy. The lower court ruled that the bank did not owe a duty of care to the Appellants. However, the decision in the House of Lords was that proximity was not necessary to establish when attempting to show whether there was a duty of care owed (Hedley Byrne v. Heller [1964] AC 465). Therefore, privity of contract is not necessary, and an individual may sue a surveyor for negligent misstatements or omissions. This principle was carried through in the case of Yianni v. Edwin Evans & Sons [1982] QB 438. In that case, the surveyors made a representation that a house was suitable for a loan of ?12,000. However, this was a negligent appraisal, in that the house had many structural and foundational flaws that made the house worth very little. The appellants relied upon the representations that the house was suitable for a ?12,000 loan. Although the appellants were guilty of some contributory negligence, in that they did not employ an independent surveyor and did not engage in reading the society’s literature about this particular structure, the court still found in favor of the appellants. The court reasoned that the house was a lower end house, and that the buyers of the house were of modest means. They were therefore liable to rely strictly upon the words of the surveyor, without doing independent research or employing an independent surveyor (Yianni v. Edwin Evans & Sons [1982] QB 438). Thus, Yianni established that not only does there not need to be privity of contract to sue, but that, if the individual who relies upon the report is of modest means, there are no grounds for contributory negligence. That said, a surveyor may not be liable if he is within 10% to 15% of the valuation (Singer & Friedlander Ltd. v. John D. Wood & Co [1977] 2 EGLR 84). Therefore, if the surveyor states that a piece of property is worth $100,000, and the property is only worth $90,000 or even $85,000, then that surveyor is within the margin of error and would not be liable. This principle was established because of the fact that two different, reasonable surveyors may come up with two different, reasonable, estimations of the worth of a property and there is no clear cut wrong answer given by either of the surveyors. The case of Singer & Friedlander is further instructive in assessing the duty of care owed by surveyors, beyond simply establishing the margin of error principle. This case further established that the complexity of a task dictates how much care a surveyor must use in carrying out this task. For instance, according to Singer & Friedlander, if the task is not complex, then the surveyor is only expected to undertake the task of surveying on a modest scale. However, with more complex cases, the surveyor has a greater duty to inquire - “In some instances, the necessary inquiries and investigations preceding a valuation need only be on a modest scale. In others, a study of the problem needs to be in greater depth, involving much details and painstaking inquiries at many source of information” (Singer & Friedlander Ltd. V. John D. Wood & Co. [1977] 2 EGLR 84). That said, all surveyors and valuers must acquit themselves professionally. They must take a look at market trends, evaluate the houses that surround the house in question, as well as examine the real estate trends throughout the entire country. Moreover, the valuer must prepare the same report, no matter who is asking, be it a loan company, buyer or other party (Singer & Friedlander Ltd. V. John D. Wood & Co. [1977] 2 EGLR 84). This would preclude making a valuation for the purposes of making a loan, and making another, different, valuation for the purposes of buying a house. The Singer & Friedlander court also proposed a number of factors that the valuer must use in valuing the house. Among these factors are a) the kind of development; b) the existence of planning permission; c) the history of the land, as far as the land’s use, ownership changes, recent prices and planning applications; d) how the land is situated with regards to countrysides, villages, towns and places of employment; e) how easily services, such as gas, electric, sewer and water will be to obtain; f) the existence of any unusual difficulties that would increase the cost of ownership; g) how much demand the locality has for new houses to be built; h) the result of consultations with the local planning authority; i) whether there have been previous valuations of the land, and what the results were of those valuations; j) if the surveyor or valuer is not a member of the locality, then extra care must be taken in gathering information about the house and k) how much labour force would be available to carry out the development (Singer & Friedlander Ltd. V. John D. Wood & Co. [1977] 2 EGLR 84). Therefore, the Singer court established a number of sound principles by which surveyors and valuers should abide. Number one, since valuation is an art and not a science, there is bound to be some discrepancy between what the surveyor or valuer states is the value of a piece of property and what the actual value is. As long as the valuer or surveyor is within 10-15% of that number, he is within the margin of error. Number two, the more complex the task, the more research must be done, but all surveyors and valuers are under an obligation to take at least a rudimentary look at the evidence surrounding the piece of property. Number three, and perhaps most helpful, there are a number of factors that surveyors and valuers must look into when doing their valuations. Thus, Singer provides a guideline for the ethical obligations by which the surveyors and valuers must abide. The next question that needs to be answered is what is the measure of damages for a negligent survey or valuation? The answer to this may be found in the case of Watts v. Morrow [1991] 4 All ER 937. In this case, the plaintiffs stated that the survey of their house stated that their new house was worth ?177,500, while not mentioning that there would be substantial costs in repairing the structure. The plaintiffs found out, too late, that the cost of repairing this structure was around ?39,000. Since the surveyor indicated that the house would not require repairs, beyond that of regular maintenance, the plaintiffs were seeking, as damages, the costs that they outlayed in repairing the house. However, the Watts court decided that the plaintiffs could only recover the diminution in value, not the cost of repairs, even if the plaintiffs were not planning on re-selling the house. The reason for this, according to the Watts court, is that allowing for the recovery of the cost of repairs would give the plaintiffs more than their loss, because it would imply a breach of a warranty, even if, as in this case, no warranty was actually given (Watts v. Morrow [1991] 4 All ER 937). Discussion and Conclusion The general duty that is expected of real estate professionals is that these professionals will use their skill, knowledge and background in making appraisals or selling homes, and that each professional is also expected to do a fair amount of research into each and every piece of land or house that they sell. Moreover, they have a duty to anybody that they make statements to, not just the people who are in privity of contract with these professionals. That said, there are a number of obligations by which real estate professionals and surveyors and valuers must abide. The duties arise whenever there is a failure to take professional care in valuing or surveying a property, even if there is not a privity of contract, when a person is a surveyor or a valuer. For all other real estate professionals, according to the Property Misdescriptions Act 1991, the duty arises whenever there is, in the ordinary course of business, a statement or an omission of material fact. This Act is a strict liability Act, in that it does not matter of the statement is negligent, intentional, reckless or innocent. Therefore, under the Property Misdescriptions Act 1991, there is a great duty of care that must be taken to ensure that there are no material commissions or omissions by which a person relies. Valuers, in particular, must abide by a number of different principles in making their valuations. They must take into consideration such factors as how housing prices are trending nationally, how housing prices are trending locally and the same report must be prepared for whomever requests it. Therefore, there cannot be any kind of gamesmanship, in which the surveyor or valuer states that a piece of property is worth $200,000 for the purposes of making a loan, then, if an individual wants to come and buy the property outright, state that the property is worth only $150,000. This is part of the reason why the banks got involved with toxic loans, is because of the valuation games that surveyors and valuers played. They might inflate the price of a home for the purposes of making a loan, and somebody else might have gotten a kickback from the inflated valuation, and the homeowner is the one holding the bag at the end of the day when the property is really valued at much less than what the valuer stated the house was worth. Then, the homeowner, being underwater, defaults, and the lender is the one who really gets the short end of the stick in this scenario. In this case, unless the valuer can show that the valuation was made upon sound principles, the valuer will be liable for the difference between the actual price and the price for which the property was valued, and this is how it should be. Therefore, although there is a duty to the client, in that the client wants to maximize his profit on the house, as a surveyor or a valuer, this duty must be balanced with the ethical duty to be honest in appraising homes. This entails making an appraisal that is essentially blind. The definition of blind here is that the valuation must be made without considering who is asking for the appraisal, so that it is objective. The client may not get all that he is wanting or asking for, in that an inflated appraisal would definitely be beneficial to him if he wants to make maximum money on the house, but the surveyor or valuer can rest easy in knowing that the valuation or survey is based upon sound, objective principles. Sources Used Hedley Byrne v. Heller [1964] AC 465. Murdoch, J. (2005) “Riding the Market: 20 Years of Professional Negligence,” Available at: http://direct.bl.uk/bld/PlaceOrder.do? UIN=180815798&ETOC=RN&from=searchengine Property Misdescriptions Act 1991 Singer & Friedlander Ltd. v. John D. Wood & Co [1977] 2 EGLR 84 Watts v. Morrow [1991] 4 All ER 937 Yianni v. Edwin Evans & Sons [1982] QB 438 Read More