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Liability for market falls may land on the architect's shoulders

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legal matters

Hotels in Torquay gained something of a humorous image courtesy of one B Fawlty, but events at one Torquay hotel owned by a Mr Hancock proved far from funny. The proprietor's architect, Mr Tucker, ran into difficulties obtaining planning consent. The recent High Court judgment explored whether the architect could be liable for the decrease in value of the property while consent was sought.

Hancock wanted to sell the hotel with consent for sheltered accommodation. Tucker was told there were ongoing financial difficulties which made time of the essence. Four successive planning applications were made between December 1988 and November 1989, incorporating changes based on the local authority's suggestions. Conditional consent was given for the fourth scheme although it had no direct access. Finally consent was given in July 1991 for a fifth scheme with direct access submitted by another architect.

A series of difficulties outside Tucker's control contributed to the delay. The local authority's policy was to protect hotels in tourist areas. It also felt the site was unsuitable for sheltered accommodation. A scheme was afoot for improvements to the road by the hotel, and the highways authority wanted a condition that the new development remain unoccupied until those works were complete. Later, the highways authority ran into difficulties with acquiring the land necessary for its works. During 1989 a conservation area incorporating the hotel was created, making demolition consent necessary.

Meanwhile the property market suffered dramatic falls. Valuation evidence was that the notional value of the hotel with consent for the fourth scheme fell from £446,000 in March 1989 to £230,000 in August 1990. Hancock said Tucker had been negligent in failing to get planning consent promptly, and that the loss suffered as a result was the fall in value.

Happily for Tucker, Mr Justice Toulson found on the facts that he had not been negligent. The judge went on to consider the losses which would have been recoverable had negligence been proved. He considered whether the duty owed extended to all the losses, and then whether the losses were caused by the alleged negligence.

On the duty question, in 1997 the House of Lords considered in Banque Bruxelles Lambert v Eagle Star Insurance whether valuers could be liable for losses caused by falls in the property market. Lord Hoffmann said that the valuers' duty was limited to loss caused by negligent valuation rather than the market fall. They had only provided information which the plaintiff used to choose a course of action. In this case, however, Mr Justice Toulson said that the architect had advised on the course of action itself - how to get planning consent - so his duty was not limited. On causation, the judge said that although the architect was not responsible for the fall in the property market, the fall was foreseeable and Hancock was exposed to it because of the delay. So had negligence been found, Tucker could have been liable for the drop in value. As for the market going the other way, the Court of Appeal's 1987 decision in Nye Saunders v Bristow is a useful guide. There is potential liability for increased costs should an architect giving estimates fail to point out the effect of spiralling inflation.

Architects can protect themselves by contract terms limiting losses for which they might be liable. The riba's sfa/99 provides a general limitation clause which seeks to limit liability to the extent of the architect's pii cover. Alternatively, losses arising from any particular cause such as a drop in the market could be specifically excluded. Neither step is fool proof, such clauses being subject to a reasonableness test. However, careful consideration of project-specific risks could help to limit potential exposure for client's losses.

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