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Potential new area of risk for estate agents

A recent Financial Times article has highlighted a potential risk area for estate agents. The article highlights the fact that residential values, particularly for prime central London properties, are increasingly being calculated by reference to the size of the property, so that any discrepancy in the measurement of the property could lead to an under- or over-valuation.

If the property is over-valued, the risks of a professional indemnity (PI) claim against the estate agent are small. This is because their client will be better off as a result of the over-measurement and the purchaser is unlikely to be able to bring a claim against the vendor's estate agent, as they should have checked the measurements themselves. However, the estate agent could face a claim under the Property Misdescriptions Act if the error is particularly significant, which would fall to be considered under the firm's insurance policy in the event that the defence of the proceedings might avert a potential PI claim. The purchaser might also complain to the Property Ombudsman, in which case the estate agent should be entitled to an indemnity for both its defence costs and any subsequent award.

If, on the other hand, the property is under-measured, and therefore undervalued, the vendor will be entitled to bring a negligence claim against the estate agent, as their agent, so long as the error is not within a reasonable margin – usually 1% of the 'true' size of the property.

If the FT's comment about the scope of the measurement problem is correct (in their study, they found more than 100 floor plans with discrepancies of 'significantly' more than 1%), then there may be a substantial number of potential claims or complaints that could be brought against estate agents and which may fall to be considered under the PI insurance.

This article first appeared in RPC’s Professional and Financial Risks Blog and has been reproduced with their permission. To view RPCs blog, click here.

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