2019 has been a quiet year as far as claims against surveyors are concerned. There have been no landmark decisions in the courts relating to surveyors' liability, which reflects the fact that there have been fewer claims against surveyors than in previous years.
Insurance market trends in 2019
The aftermath of the Grenfell disaster continues to have a significant impact on the insurance market for surveyors and other property professionals. Insurance premiums and excess payments have increased dramatically for these professions in the last two years.
Professional indemnity insurers are frequently excluding claims arising from defective cladding from their professional indemnity policies. There is a fear that this will affect refurbishment and construction projects including government plans to increase house building. This is likely to have a knock-on impact on surveyors in terms of future work streams.
Surveyors have also been experiencing the general impact of a hardening insurance market on premiums, driven in part by the development of a series of high value claims in the construction sector, including from Grenfell and also arising from the collapse of Carillion.
The hardening market has prompted the formation of a construction working group by the International Underwriting Association for underwriters providing professional indemnity insurance to the construction industry, including surveyors.
The aim of the group is to promote engagement between insurers, the construction industry, government and regulators and to provide a more joined up approach across the industry.
What is on the horizon for 2020?
Potential for claims - cladding uncertainty and nil valuations
Looking ahead, there are concerns that Grenfell may well lead to future claims against surveyors.
The disaster resulted in the government ordering the removal of cladding made of aluminium composite materials. Some 18 months later, Buildings Guidance Advice Note 14 was issued which informed owners of apartment blocks above 18 metres high that they should ensure that other types of wall materials were safe. The Guidance Note did not, however, specify which materials needed to be removed.
Fears over non-aluminium composite materials grew following a fire at a timber clad development in Barking in the summer of 2019 which resulted in the government ordering the removal of some types of high pressure laminate cladding.
The lack of clarity over which cladding materials are of concern has seen a rise in surveyors issuing nil valuations on surveys and valuations of residential apartments where they are unable to identify the type of cladding used. Some surveyors are also demanding additional information from sellers, including insurance details, planning approvals or even experts' reports.
Effect on property market and subsequent claims
This has led to some residential sales collapsing and we envisage that this could give rise to some complaints and claims being made by aggrieved parties against surveyors for alleged losses arising, especially where there is potential for arguing that the nil valuation was unjustified.
Claims brought by an aggrieved vendor against a purchaser's surveyor will fail in England and Wales because no duty of care is owed to the vendor but the position is different in Scotland where the vendor obtains the home report for prospective buyers. Even in England and Wales however there is the potential for complaints or vexatious claims, especially by litigants in person.
Whilst some surveyors may be taking the above approach and issuing nil valuations, it is also possible that there will be others who are less cautious and who will be valuing properties without properly recognising, investigating or factoring in the existence of cladding. This could lead to future claims by purchasers or lenders alleging potentially significant over-valuations.
Given the exclusion of claims from professional indemnity polices arising from defective cladding referred to above, such claims could have a potentially devastating impact on surveyors' practices. Proper training and guidance to individual surveyors will therefore be critically important.
The RICS Home Survey Standard
It is worth highlighting the new RICS Home Survey Standard (HSS) which was launched in November 2019. The introduction of the HSS followed an industry and consumer consultation held earlier in the year and is aimed at protecting buyers and sellers with an emphasis on consumers fully understanding the benefits of a survey prior to purchase.
The HSS will form the sole standard for home surveys and replaces all previous guidance notes and statements for all levels of condition survey (although there are exceptions and variations for the Home Report Scotland).
The HSS introduces three levels of survey report, broadly akin to the old mortgage valuation, homebuyer and building survey reports:
- Survey level one report – A survey level one report is designed for clients seeking a professional and objective report on the condition of a property at an economic price. No advice on repairs or ongoing maintenance will be given and the report involves a less extensive inspection than that undertaken for the other two levels of service. The report is aimed at conventionally built modern dwellings in satisfactory condition.
- Survey level two report – A survey level two report is also aimed at clients seeking a professional opinion at an economic price. Its focus is on assessing the general condition of the main elements of a property.
- - A more extensive inspection is carried out and the condition of the different elements is objectively described with an assessment of the relative importance of defects. Concise advice on repairs and ongoing maintenance will be given.
- - The report is aimed at a broader range of conventionally built properties although the age and type of property appropriate for the service will depend on the knowledge and experience of the surveyor.
- - The service is unlikely to suit complex buildings which have been extensively altered, most older historic properties or properties in a neglected condition.
- Survey level three report – A survey level three report is based on a detailed assessment of the property and involves a detailed visual inspection.
- - The form of construction, materials used and condition will be described with an assessment of the relative importance of defects. Additionally the report should describe the risk of potential or hidden defects in areas not inspected and the most probable cause of defects should be identified.
- - The likely scope of repairs should be outlined together with the consequence of non-repair and recommendations should be made about the priority and timescale for necessary work. An indication as to the likely cost of work may be given; where costings are included this must be reflected in the terms and conditions of engagement.
- - Further investigations can be recommended where the surveyor feels unable to reach a conclusion with confidence but referrals should be the exception and not the rule. The report is aimed at any domestic residential property in any condition, depending on the competence and experience of the surveyor.
The HSS provides explanations and guidance in three areas: 1. setting up the service, 2. carrying out the service and 3. the report itself, as summarised below:
1. Setting up the service – The HSS emphasises that in setting up the service, there is a need for surveyors to understand clients' needs, to have the appropriate level of skill to provide the service and to explain the different levels of service available to clients.
Full details of the terms of engagement must be agreed before the service is delivered. Surveyors must be familiar with the locality and nature of the subject property and there is a detailed list of issues to be considered in that regard.
Surveyors providing a level two service report on older or complex properties and all surveyors providing a level three service report will require a deeper and broader technical knowledge. A surveyor must decline an instruction if the property is beyond his/her knowledge and skill level.
Further detailed guidance is provided in the HSS in relation to conflicts of interest, qualifications and experience, knowledge of locality and nature of property, client liaison, levels of service, terms of engagement and leasehold properties.
2. Carrying out the service – In providing the service, the HSS indicates that the surveyor must undertake appropriate pre-inspection research and be familiar with the type of property to be inspected and the area in which it is situated.
The property must be inspected in accordance with the level of service being provided and an accurate and comprehensive record of the property must be prepared during inspection. An accurate summary or overall opinion must be provided and only justifiable further investigations can be recommended.
The scope of inspection must be made clear and a property-specific and clear report must be delivered. The surveyor must offer to discuss the report with the client after delivery. Any software or technology used to deliver the report must be compliant with the HSS and the service must be documented and a complete record kept and stored in accordance with data protection legislation.
Further detailed guidance is provided in relation to locality, information required from property owners/agents, equipment used to complete the service, inspection methodology and the scope of inspection.
3. The report – In relation to the surveyor's report itself, the HSS provides detailed guidance on general principles, the content of the report, level-specific requirements, the need for a summary/overall opinion, the requirement to describe safety risks to occupants, covering legal and energy matters, providing cost advice, further investigations, the findings of the report, service completion, software and products and documentation storage and retention.
The HSS comes into force on 1 June 2020 and is mandatory for all RICS members. The RICS is currently running a series of roadshows for members to ensure they are ready for the new regime.