K/S Lincoln & Ors v CB Richard Ellis Hotels Ltd

A valuer may owe a duty to take reasonable care when making material statements in a valuation report, in addition to the duty concerning the valuation figure itself. A negligent statement is actionable only if relied upon and causative of loss.

In a negligent valuation claim, the primary question is whether the final valuation falls outside the reasonable bracket within which competent valuers may differ. A methodological error does not establish liability where the resulting figure remains within that bracket. The appropriate margin depends on the property and circumstances. For one-off hotel valuations, a margin of at least 10 per cent, and potentially 15 per cent where exceptional features exist, may be appropriate.

The claimants owned four budget hotels acquired through Danish limited partnership entities. They claimed more than £4 million in damages from CB Richard Ellis Hotels Ltd, alleging professional negligence in April 2005 valuation reports.

The claims concerned two matters. First, the reports allegedly misstated the prospect of rental growth by failing to reflect a shortfall clawback provision in the leases. Secondly, the valuations were said to be excessive because the net initial yields were too low. The central issues were duty, breach, reliance, causation, the proper approach to negligent valuation, the appropriate valuation bracket and whether the figures fell outside it.

1. Negligent misstatement. The defendants owed a separate duty of care in tort concerning material statements about rental growth and the shortfall clawback provision, beyond their admitted duty concerning the valuation figures. The instruction concerning rent review provisions did not extend or confirm that duty because there were no rent review provisions.
2. For Lincoln, Chesterfield and Bradford, the forecasts of when surplus rent would arise failed to account for the clawback provision and were negligent misstatements. There was no equivalent breach for Wellingborough, where the report made clear that surplus rent was not expected to arise.
3. The misstatements did not cause loss. Scanplan, the sole partner in the claimant entities when the hotels were purchased, had received and understood clear advice from ESL, its advisers and solicitors about the clawback provision. It relied on the defendants’ bottom-line valuation figures, but not on the rental-growth forecasts. The separate misstatement claim therefore failed for want of reliance. The court also considered that the alleged loss was not established.
4. Negligent valuation. The court followed the approach in Merivale Moore PLC v Strutt & Parker and Goldstein v Levy Gee. The court must first determine whether the final valuation figure falls outside the permissible bracket. A discrete error in methodology does not create liability if the final figure remains within that bracket.
5. The appropriate basic yield was 5.6 per cent. A further 1 per cent was justified by the tenant-friendly lease terms and clawback provision, producing a correct yield of approximately 6.6 per cent. The appropriate margin was at least 10 per cent and potentially as high as 15 per cent, given the limited comparables, the immature hotel investment market and the judgment required.
6. The defendants’ valuations were within 10 per cent of the court’s calculated values and well within the permissible margin. Although aspects of the valuation exercise were carried out without the expected skill and care, liability in negligence was not established. The claim was dismissed.

First-instance judgment in the High Court (Technology and Construction Court). No prior or appellate decision is stated in the judgment.