Lenders' Claims Against Professionals: Limitation Periods - A Timely Reminder

Introduction

A significant amount of sub-prime lending took place around six years ago, meaning that 2012 is set to be an important year for lenders' claims against professionals.

Since the global recession, increased borrower defaults have led to a surge in repossessions. And with property prices still relatively depressed (compared with 2006 levels), lenders often suffer shortfall losses on repossessed properties.

Lenders often review the facts of each mortgage transaction to identify whether they are able to recover losses occasioned by a professional's negligence. Recent years have seen an increase in the number of claims against surveyors and solicitors.

These claims are likely to fall into one of two categories – a claim for negligent overvaluation against the surveyor and/or a claim against the completing solicitors, often arising from a failure to report on matters that would have been material to the decision to lend.

Primary limitation period

Often in professional negligence claims, both contractual and tortious claims are pursued, as the lender relies on a breach of contract and on the professional's negligence in performing its duties under that contract. The basic limitation period in both types of claim is six years. In contract, the limitation period starts to run from the date of the breach, regardless of whether any loss has been suffered by the lender. The date on which the lender becomes aware of the breach is irrelevant for limitation purposes.

In negligence, the lender must show that it has suffered actual, recoverable damage. Determining the date on which damage occurs – and therefore the six year limitation period starts to run – is not always easy.

The 1997 case of Nykredit v Edward Erman Group established that a lender's professional negligence claim calls for a comparison between the amount of money lent and the value of the rights acquired. The lender's cause of action arises when, in applying that comparison, the lender can be said to have suffered a loss due to the professional's negligence.

In practice this is a difficult analysis to undertake and lenders are advised to work from the earliest possible date, which will always be the date of the valuation report or the date of the solicitors' Certificate of Title. Other possible dates should be used as a last resort, as they are inherently uncertain.

Special rules apply to extend the limitation period where, at the time the lender's cause of action accrues, it...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT