Risk Liability and Insurance - Updated Oct 2023

RICS PRACTICE INFORMATION
Risk, liability and

insurance
UK
1st edition, April 2021

i
IP
Risk, liability and insurance

RICS practice information, UK
1st edition, April 2021
Effective from 1 April 2021
Published by the Royal Institution of Chartered Surveyors (RICS)

Parliament Square
London
SW1P 3AD
www.rics.org
No responsibility for loss or damage caused to any person acting or refraining from action as a result
of the material included in this publication can be accepted by the authors or RICS.
This document was originally published in April 2021 as an RICS guidance note and was reissued in
October 2022 as RICS practice information.
Appendix F was added in October 2023.
ISBN 978 1 78321 416 7
© Royal Institution of Chartered Surveyors (RICS) April 2021. Copyright in all or part of this
publication rests with RICS. Save where and to the extent expressly permitted within this document,
no part of this work may be reproduced or used in any form or by any means including graphic,
electronic, or mechanical, including photocopying, recording, taping or web distribution, without the
written permission of RICS or in line with the rules of an existing licence.
This document applies to the UK and Crown Dependencies. If any of the requirements contained
in this document conflict with regional legal requirements, those regional legal requirements take
precedence and must be applied.
ii
IP
Acknowledgements
Working group
Alexandra Anderson (RPC LLP)
Joe Arnold (Arnold and Baldwin Chartered Surveyors)
John Baguley (Countrywide)
Martin Conlon
Hugh Garnett (RICS)
Andrew Gooding FRICS (Knight Frank LLP)
Greg Harrison (Howdens)
Michael Holden (Michael Holden Chartered Surveyors)
Robert Jones (CMS)
Chris Lee (Savills)
Anthony Major (Barclays)
Charles Phayer (eSurv)
David Reynolds (David Reynolds Building Preservation)
Paul Tonkin (Hogan Lovells LLP)
Appendix F author
Roland Finch FRICS
RICS Standards leads
Christine O’Rourke
Hugh Garnett
Anna Sawbridge
Steven Thompson
Project manager
Sarah Crouch
Editors
Jo FitzLeverton and Megan Reed

iii
IP
Contents
Acknowledgements �� ii
RICS standards framework �� 1
Document definitions �� 2
Glossary �� 3
1 Introduction �� 7
1.1 Scope and purpose �� 7
1.2 English law/Scots law �� 8
1.3 Effective date �� 8
2 The court's approach to professionals’ liabilities �� 9
2.1 Breach of contract �� 9
2.2 Negligence �� 9
2.3 The differences between contract claims and negligence claims �� 9
2.4 Damages �� 10
2.5 The purpose of the work �� 11
2.6 The legal entity that provides the professional services/personal liability �� 11
2.7 How long after the services a claim can be brought �� 12
3 Liability caps �� 15
4 Third-party reliance �� 19
5 Contractual terms �� 22
5.1 Engagement letter �� 22
5.2 Contracting entity/exclusion of personal liability �� 23
5.3 Proportionate liability �� 23
5.4 Liability caps �� 24
5.5 Fees �� 24
5.6 Scope of work �� 24
5.7 Dispute resolution �� 25
5.8 Third-party reliance �� 25
5.9 Governing law and jurisdiction �� 25
6 Professional indemnity insurance (PII) �� 27
7 Conclusion �� 30
Appendix A: Valuations �� 31

iv
IP
A1 The court’s approach to professionals’ liabilities �� 31

A2 Liability caps �� 33
A3 Third-party reliance on valuations �� 33
A4 Terms of engagement �� 35
Appendix B: Residential valuations and building surveys �� 38
B1 Issues specific to valuations in the residential sector �� 38
B2 Nature of building surveyors' liabilities �� 39
B3 Liability caps �� 42
Appendix C: Valuations for commercial lending �� 43
C1 Bilateral loans �� 44
C2 Assignment of your valuation engagement contract �� 44
C3 Syndicated loans �� 45
C4 Valuations for mezzanine financing �� 46
C5 CMBS (Securitisation) �� 47
C6 Crowdfunding and peer to peer lending �� 48
C7 Restricting third-party reliance �� 48
C8 Invoicing parties other than the client �� 50
C9 Vacant possession valuations �� 50
C10 Reinstatement cost �� 51
C11 Summary: key questions �� 51
Appendix D: Valuations for investment funds and public offerings �� 53
D1 Public offerings including IPOs �� 53
Appendix E: Dispute resolution �� 54
E1 Court proceedings/litigation �� 54
E2 Arbitration �� 55
E3 Expert determination �� 55
E4 Mediation �� 55
E5 Ombudsman �� 56
Appendix F: Construction �� 57
F1 Introduction �� 57
F2 Arrangement �� 57
F3 Additions to the glossary �� 58
F4 Legislation �� 60
F5 Project types �� 62
F6 Appointments and services �� 64
F7 Rights and obligations �� 65

v
IP
F8 Liability and insurance �� 68

F9 Dispute resolution �� 71
F10 Summary �� 71

1
IP
RICS standards framework

RICS’ standards setting is governed and overseen by the Standards and Regulation Board
(SRB). The SRB’s aims are to operate in the public interest, and to develop the technical
and ethical competence of the profession and its ability to deliver ethical practice to high
standards globally.
The RICS Rules of Conduct set high-level professional requirements for the global chartered
surveying profession. These are supported by more detailed standards and information
relating to professional conduct and technical competency.
The SRB focuses on the conduct and competence of RICS members, to set standards that are
proportionate, in the public interest and based on risk. Its approach is to foster a supportive
atmosphere that encourages a strong, diverse, inclusive, effective and sustainable surveying
profession.
As well as developing its own standards, RICS works collaboratively with other bodies at
a national and international level to develop documents relevant to professional practice,
such as cross-sector guidance, codes and standards. The application of these collaborative
documents by RICS members will be defined either within the document itself or in
associated RICS-published documents.

2
IP
Document definitions
Document type Definition
RICS Set requirements or expectations for RICS members and regulated
professional firms about how they provide services or the outcomes of their
standards actions.
RICS professional standards are principles-based and focused on

outcomes and good practice. Any requirements included set a baseline
expectation for competent delivery or ethical behaviour.
They include practices and behaviours intended to protect clients and

other stakeholders, as well as ensuring their reasonable expectations of
ethics, integrity, technical competence and diligence are met. Members
must comply with an RICS professional standard. They may include:
• mandatory requirements, which use the word ‘must’ and must be

complied with, and/or
• recommended best practice, which uses the word ‘should’. It is
recognised that there may be acceptable alternatives to best practice
that achieve the same or a better outcome.
In regulatory or disciplinary proceedings, RICS will take into account
relevant professional standards when deciding whether an RICS member
or regulated firm acted appropriately and with reasonable competence.
It is also likely that during any legal proceedings a judge, adjudicator or
equivalent will take RICS professional standards into account.
RICS practice Information to support the practice, knowledge and performance of
information RICS members and regulated firms, and the demand for professional
services.
Practice information includes definitions, processes, toolkits, checklists,

insights, research and technical information or advice. It also includes
documents that aim to provide common benchmarks or approaches
across a sector to help build efficient and consistent practice.
This information is not mandatory and does not set requirements for
RICS members or make explicit recommendations.

3
IP
Glossary
Term Definition
Alternative dispute The process of resolving disputes, including negligence

resolution (ADR) disputes, other than by litigation. See Appendix E.
Arbitration A private dispute resolution process. See Appendix E.
Assignment The process whereby the benefit of all or part of a contract, is

transferred by one of the original parties to a 'third party'. If
a contract is assigned by the client, the assignee is effectively
treated as the member's client. Assignment can be prevented
by express words in the contract. See Appendix C.
Bilateral loan A simple type of commercial loan. See Appendix C.
Bracket The bracket of hypothetical reasonable valuations used to

assess whether the valuation actually given was negligent. See
Appendix A.
Claims made The basis on which most professionals’ (and all members’)
professional indemnity insurance is provided. It means that
the relevant policy for any claim is the policy in place when the
claim is made (not when the work is provided to the client, or
any other time). See section 6.
Commercial mortgage- A type of finance transaction. See Appendix C5.

backed security (CMBS)
Delict Used in Scots law instead of ‘tort’.
Desk-top valuations Valuations conducted without a site visit.
Disclosure Permitting advice to be seen by or disclosed to a third party (i.e.

a person or entity who is not party to the member’s contract of
engagement) without assumption of a duty of care.
In the context of litigation, this can also refer to the parties’

obligations to preserve and provide relevant documents.
Duty of care The duty in ‘tort’ assumed by a professional to observe the skill
and care of a ‘reasonable’ professional in providing professional
services. Such a duty may in certain circumstances be assumed
to a ‘third party’ as well as to the professional’s contracted
client.

4
IP
Term Definition
Engagement letter A letter issued by a member that records the contract with
the member's client. It may be accompanied by terms and
conditions. See section 5.
Expert witnesses Members giving independent expert evidence to courts and

tribunals.
Indemnity A contractual agreement sometimes given by a party providing

professional services to ‘hold harmless’ or ‘make whole’ the
client in respect of the client’s losses arising from the matter.
See paragraph 2.6.4.
Joint and several liability The liability partners have to claimants for claims against the
partnership, co-defendants and ‘joint tortfeasors’ have to
claimants. See paragraph 6.3.
Joint tortfeasors Parties (usually professional firms) who take on responsibilities

‘jointly and severally’ to a particular client or claimant, when
they work alongside each other. See joint and several liability
and paragraph 5.3.
Liability cap (or A contractual agreement that a client can only make a claim up
limitation of liability) to the amount agreed, even if the law would otherwise award a
greater sum in damages. See section 3 and Appendices B and C.
Limitation periods The periods specified by statute and the common law for a
claimant to commence legal proceedings. The periods vary
depending on the type of claim and the type of services
provided. When the period is over, the claim becomes ‘statute
barred’ and, while the claimant can still pursue the claim, they
will not be entitled to recover any damages. See paragraph 2.7.
Limited Liability A type of legal entity for carrying on business, governed in

Partnership (LLP) the UK by the Limited Liability Partnerships Act 2000. Unlike
a partnership, an LLP does have a legal existence as an entity
separate from its partners (called ‘members’ in an LLP), and
it is that entity which enters contracts and provides services.
Practicing through an LLP is an effective and recognised way for
partners in professional firms to manage the risks associated
with personal liabilities.
Mediation A principal form of ADR. See Appendix E.

5
IP
Term Definition
Members (LLP) See Limited Liability Partnership. Although many firms that
operate as LLPs still refer to their principals as ‘partners’,
the technically correct term for the principals of an LLP is
‘members’.
Mezzanine loan A high risk/high reward form of lending. See Appendix C4.
Negligence Negligence is a ‘tort’. In the case of a professional, negligence

is a failure to provide services with the standard of skill and
care that would be expected from a reasonable body of the
professional’s peers.
Professional indemnity Insurance to cover the cost of compensating clients for loss or
insurance (PII) damage resulting from negligent services or advice provided by
a business or an individual.
PII limit A firm's PII limit is the maximum amount the firm's PII insurer
will pay in the event of a claim. It is sometimes wrongly
confused with a liability cap. See section 3.
Pre-Action Protocols The regime applicable to legal disputes in England and Wales
whereby parties exchange correspondence and documents
before commencing formal legal proceedings, with a view
to avoiding altogether the need for formal legal proceedings
if possible. There is a specific Pre-Action Protocol applied to
professional negligence claims. See Appendix C.
Proportionate liability Liability that is limited to the damage actually caused by the
particular defendant. A 'proportionate liability clause' is a
contractual mechanism whereby the liability of a member can
be limited to the member's proportionate liability. See section
5.3.
Residential mortgage- A type of finance transaction. See Appendix B.

backed security (RMBS)
Run-off insurance A form of insurance that can be bought to provide cover for
claims arising after a firm or individual has ceased trading.
Members have a particular need for it because a member’s PII
is provided on a ‘claims made’ basis, meaning that there will
only be insurance cover for a claim if there is a policy in place
when the claim is made – even if the claim is made after the
member (or firm) has ceased practice. See section 7.

6
IP
Term Definition
SAAMCO Cap An important principle in the common law of damages, which

ensures that surveyors can only be liable for the losses they can
properly be said to have caused. See A1.2.
Securitisation A type of commercial finance transaction whereby a primary

lending bank bundles loans, and sells them to investors. See
Appendices B1 and B2.
Security agent (also In a syndicated lending situation, the party that holds the
known as ‘collateral collateral on behalf of the lenders.
agent’)
Sub-limits Specific limits within a PII policy for certain specified types of
claims, such as loss of documents.
Syndicated loan A commercial loan that is shared by a group of lenders. See

Appendix B2.
Third party/third parties Anybody who is not a party to the contract. Usually this means
anyone who is not the member’s client. Examples include the
borrower, in a situation where the member’s client is a lender.
See section 5 and Appendices A, B1 and B2.
Third party reliance Third party reliance happens when a 'third party' relies on
advice that has been prepared for a member's client. See
section 5.
Tort The umbrella term for all civil wrongs recognised by law other
than breach of contract. The most commonly referred to tort is
the tort of negligence. See section 2.
Unlimited round the The name given to a type of Indemnity Limit whereby layers
clock reinstatements of insurance are provided by different insurers and each Layer
steps down as its underlying limit of indemnity is exhausted.
When the final Layer of the total Indemnity Limit has been
exhausted, the Indemnity Limit shall start from the beginning
and back around to the original Primary Layer of Insurance.

7
IP
1 Introduction
1.1 Scope and purpose
1.1.1 RICS has a responsibility, under its Royal Charter, to maintain standards in surveying
services in the public interest. It is important to maintain the usefulness of the surveying
programme for the public, to ensure the profession is diverse and sustainable, and the
risk associated with providing professional advice and services is properly identified, fairly
apportioned and properly managed.
1.1.2 This practice information is intended to assist both RICS-regulated firms and their
clients to understand the main risks and liabilities associated with professional services
provided by RICS members. It guides firms in the negotiation of equitable contracts with
clients and the avoidance of major risks and pitfalls.
1.1.3 RICS recommends that RICS-regulated firms take a fresh look at the way in which they
conclude contracts with their clients. RICS-regulated firms are encouraged to revisit their
own standard terms and conditions, and the basis on which they engage with their clients, in
light of this practice information.
1.1.4 After considering this guidance and the appendices to it, RICS-regulated firms may
decide to take advice on specific aspects of their practice from their insurance brokers and/
or legal advisers.
1.1.5 The document does not extend to providing guidance on quality assurance issues; that
is the role of sector specific standards, for example, RICS Valuation – Global Standards (Red
Book Global Standards).
1.1.6 Members’ attention is also drawn specifically to RICS standards on professional

behaviour, in particular the RICS Rules of Conduct and the current edition of RICS’ Conflicts of
interest.
All RICS-regulated firms need to ensure they have adequate and appropriate professional
indemnity insurance in place that complies with the requirements of the RICS Rules of
Conduct and the RICS minimum terms and requirements. See also the current edition of
RICS’ Professional indemnity insurance requirements.
1.1.7 This practice information supersedes Risk, liability and insurance in valuation work, 2nd
edition, RICS guidance note.

8
IP
1.2 English law/Scots law

This guidance is based primarily on English law. Some key differences in Scots law are
identified but RICS-regulated firms are recommended to take specialist advice on issues of
Scots law. Similarly, although Northern Irish law is very alike to English law, firms in Northern
Ireland are recommended to take specialist advice on issues of Northern Ireland law.
1.3 Effective date

This practice information is effective from 1 April 2021.

9
IP
2 The court's approach to

professionals’ liabilities
2.1 Breach of contract

2.1.1 The primary basis for a claim against a professional is for breach of contract. If the
professional enters into a contractual obligation to do something, and fails to meet that
obligation, either properly or at all, the other party (or parties) to the contract will be entitled
to bring a claim for breach. Usually, this is a claim open exclusively to the professional’s
clients: only clients are party to the professional’s contract and, therefore, only they may take
action against the professional for breach of any obligations arising under that contract.
2.1.2 Whether its terms say it or not, a contract for professional services is usually
considered to be subject to an ‘implied term’ that the services to be provided by the
professional will not fall below the standards of skill and care expected from a reasonable
body of the professional’s peers. In effect, this means that the professional undertakes not
to act negligently.
2.2 Negligence
2.2.1 In addition to claims for breach of contract, professionals may also be sued in ‘tort’.
A ‘tort’ (the term ‘delict’ is used in Scots law instead of ‘tort’) is an umbrella term for all civil
wrongs recognised by the law, other than breach of contract. When referring to claims
against professionals in tort, it usually means claims for the tort of negligence. In practice, a
tort claim holds a professional to the same standard of care as the implied contractual term
not to act negligently, as referred to above. The test the courts will apply when considering
whether a professional person is in breach of their tortious duty is whether no reasonably
competent professional would have acted in the same way, or provided the same advice, that
the defendant professional did.
2.3 The differences between contract claims and negligence

claims
2.3.1 As already noted, a claim for breach of contract can usually only be brought by a party
to the contract, i.e. the client. A professional person can be sued in negligence by any third
party (i.e. those who are not party to the contract) to whom they have expressly accepted a
duty of care, or to whom the court says they have assumed a duty of care.
2.3.2 In English law, it can be a difficult legal question to know whether a duty of care is owed
to any particular third party, particularly where a claimant argues that the court ought to

10
IP
impose such a duty on the professional person. When asked to consider whether a duty of
care arises, the courts will see if a similar duty has been imposed in previous cases and, if
not, they will consider whether:
a the damage suffered by the claimant was reasonably foreseeable as a result of the
defendant's actions
b the parties were in a relationship of sufficient proximity, so the defendant could have
anticipated their actions would cause loss to the claimant and
c it is fair, just and reasonable to impose a duty on the defendant.
2.3.3 The one situation in which members need to be particularly careful is where they are
asked to permit third parties to rely on their advice. If the member does consent to reliance
by a particular third party, they will probably be considered to owe that third party a duty of
care, therefore, enabling that party to sue the member for negligence, if the member has not
exercised reasonable skill and care in carrying out their work.
2.3.4 There are some technical legal differences between claims for breach of contract and
claims for the tort of negligence, but the claims are similar, and it is therefore, very important
that a member does not lightly accept a duty of care to a third party, because in large part of
the practical consequence is to enable that party to have the same rights as a client. A third
party who attains that status may also not be bound by the terms of the member’s contract
or terms of engagement, including any liability cap; and may have an extended period in
which to bring a claim. See Section 4 for more information on third-party reliance.
2.4 Damages
2.4.1 The remedy for breach of contract and for the tort of negligence is basically the same.
If the claimant proves their case, damages will be awarded against the member to the extent
necessary to put the claimant in the position they would have been in had the contract been
performed fully and not been breached, or if the negligent act had not been committed.
More information about the case law that applies to the calculation of damages is provided
in Appendix A1.2, and for building surveying in Appendix B2.2.
2.4.2 In order to be recoverable under a claim for breach of contract, the loss suffered
must have been in the reasonable contemplation of the parties at the time the contract
was agreed. For example, if a surveyor fails to report a defect that has to be put right,
the existence of which has an impact on the value of the property, both parties will have
anticipated at the point the contract was agreed that the client would suffered a loss when
purchasing the property with the defect. But if the client seeks to claim damages for the fact
they were unable to let the property while the defect was being repaired, then only if the
surveyor was aware at the time the contact was agreed that the client was planning to let the
property will the client be able to recover any loss of rent.

11
IP
2.4.3 For a claim in tort, the test is whether the nature of the loss suffered could reasonably
have been foreseen by both the surveyor and the claimant at the time the professional acted
in breach of duty.
2.4.4 Any losses that fall outside the relevant test will not be recoverable. Generally, claims
will be for financial loss. There are circumstances in which other losses (i.e. loss of amenity)
can be compensated but these are more unusual.
2.4.5 Indemnities: occasionally, clients ask members to include an indemnity in the terms
of engagement, which ‘holds harmless’ or ‘fully indemnifies’ the client in respect of all
losses flowing from negligence in the member’s work or otherwise ask for indemnity relief
for breach of contract. Members should be aware that clients may seek to argue that an
indemnity of this type extends the member’s liability beyond the scope of the conventional
liability for common law damages. Members should bear this in mind when deciding whether
to agree to such an express indemnity. RICS recommends that the giving of such indemnities
should be avoided. Where a member agrees with a client to give an indemnity, RICS suggests
that members seek to impose duties on the indemnified party to mitigate its losses and
also limit the indemnity to direct loss recovery (so making the indemnity relief more akin to
contractual damage awards).
Members should also note that liquidated damages or express contractual penalties,
where included in a contract, are excluded in terms of cover under professional indemnity
insurance policies.
2.5 The purpose of the work

2.5.1 Although a member may not have full visibility of what a client hopes or intends to
use their work for, they should record what they consent to it being used for. They should
consider including wording along the following lines:
‘Where you have explained to us the purpose for which you require our advice,
we consent to its use solely for that purpose. If you rely on our advice for any
other purpose, we shall not have any liability to you for any losses caused by
you using our advice for that other purpose’.
2.6 The legal entity that provides the professional services/

personal liability
2.6.1 In general, a claimant will bring any negligence claim concerning professional work
against the entity that provided the services. If the client is bringing the claim, this will mean
the claim will be brought against the entity that entered into the contract with the client.
Usually, this will be the member’s firm.
2.6.2 If a firm carries on practice as a partnership, and it is the partnership that enters into
the engagement with the clients, the partners are individually responsible for the firm’s
liabilities, including claims. This means that, if a claim succeeds against a partnership for, say,

12
IP
£500,000 in damages, the claimant can choose to enforce that award of damages against as
few or as many of the partners as it wishes, until the full amount is paid. The partners are
able to insist on sharing partnership liabilities according to their partnership agreement and
partnership law, but vis-a-vis the claimant, they each have 100% liability. In Scotland, the
position is different because, unlike in England and Wales, a partnership is a separate legal
entity from the partners in the partnership. Scottish firms should take specialist advice about
the implications of this.
2.6.3 By contrast, if the firm’s business is conducted through a Limited Liability Partnership
(LLP) or a Limited Liability Company (LLC), that should mean that the partners in the firm
(strictly speaking, they are called ‘members’ in an LLP, but they are usually still referred to
as partners) and the directors of the company, are not personally liable for the firm’s debts.
This should also mean that they are not personally liable for any liabilities the firm has for
professional negligence claims. Therefore, from a risk perspective, the use of an LLP or an
LLC confers a significant advantage.
2.6.4 Occasionally, claimants try to bring claims against individual partners, or individual
employees, even if the services are provided by an LLP. This means that it is prudent to
include a clause in the terms of engagement excluding all personal liability; see section 5 for
more information on addressing contractual terms.
2.6.5 In the majority of cases, the member/firm will of course look to its professional
indemnity insurance to respond to any claim and this is addressed further in section 6.
2.7 How long after the services a claim can be brought

2.7.1 Statutory limitation periods control the time allowed for a claimant to commence court
proceedings. Commencing court proceedings is what is meant by ‘bringing a claim’ – merely
issuing a letter of claim will not suffice.
2.7.2 The limitation period for bringing a claim against a member for breach of contract will
expire six years from the date on which the member performed the service required under
the contract, for example by providing the survey or valuation report. Members in Scotland
should refer to paragraphs 2.7.10–12.
2.7.3 Where the claim is brought as one for the tort of negligence, rather than for breach of
contract, the period will often be longer, because the right to bring a claim will not arise until
the claimant actually suffers a loss as a result of relying on the advice of the member. This
requirement for a loss to arise almost always leads to a delay in the commencement of the
six-year period.
2.7.4 By way of example, in respect of professional negligence cases relating to loan

valuations the courts have held that a basic comparison be made between:
a the amount of money lent by the lender that it would still have had in the absence of the
loan transaction and

13
IP
b the value of the rights acquired, namely the borrower’s covenant and the true value of
the overvalued property.
The cause of action in tort arises (and the six-year period starts running) at the point at
which the lender can be said to have suffered a loss due to the negligent valuation, because
the amount owed (including any accrued interest) exceeds the value of the property and the
borrower's covenant. By contrast, in contract the six-year period would start running earlier,
at the point at which the valuation is undertaken.
2.7.5 In addition, in 1986, an important change was made to the Limitation Act 1980 to allow
an extra period for a claim to be brought, because it was seen to be unfair that the six-year
period could run out before the claimant realised they were legally entitled to bring a claim.
Since then, a claimant who brings a claim in negligence has the opportunity to bring that
claim up to three years after the date on which the claimant learned (or could reasonably
have found out) about their entitlement to bring the claim. This three-year period applies
even if it results in a period longer than the conventional six-year period referred previously,
but it is subject to a ‘long-stop’ period of 15 years from the date of the negligent act. This
is the position in claims for financial loss or property damage; a different statutory regime
applies to personal injury claims. This also does not reflect the position in Scotland: members
there should seek their own advice on the applicable limitation period for claims in tort.
2.7.6 These two points can lead to complex factual and legal issues, particularly in
determining when the claimant actually suffered loss and when the claimant acquired the
knowledge necessary to bring a claim. Those issues are beyond the scope of this guidance,
but the important point to emphasise is that, in some situations, a claim relating to
professional services can be brought more than six years after the member provided their
advice to the client. Once the defendant has raised an argument about limitation, the burden
then rests on the claimant to establish that the cause of action accrued on a date within the
limitation period
2.7.7 Additionally, where a professional is retained to provide services under a deed (which is
a special type of contract), the limitation period would be 12 years from the date of breach.
2.7.8 There are two important consequences arising from the limitation periods referred to
above. The first relates to insurance. Section 6 is devoted to PII, but the fundamental point
that must be made is that PII is provided to firms and members on a ‘claims made’ basis.
This means that, in order for there to be insurance for a claim, there must be an insurance
policy in place when the claim is made, regardless of when the services were provided. For
example, for services provided in 2021, the firm should continue buying insurance every year
until at least 2027. There is still a risk of a firm or its partners being sued if it ceases practice
during that intervening period, which is why RICS requires firms to buy ‘run-off’ PII to cover
the period after ceasing practice. RICS’ regulatory requirement for run-off cover is contained
in the current edition of RICS’ Professional indemnity insurance requirements. A firm should
undertake a risk assessment about whether run-off cover is required for a longer period of
time to cover the ‘long-stop’ period of 15 years.

14
IP
2.7.9 The second consequence concerns document retention. Given the ‘long stop’ date of
15 years, RICS recommends that members retain their files for 15 years after providing any
professional services, to ensure that they have the records necessary to respond to a claim.
Any updated advice provided in connection with earlier services should also be retained for
15 years from the date of that advice, as a new limitation period will apply to each new piece
of advice provided to a client.
2.7.10 In relation to claims in Scotland, the applicable period for claims in contract or for the
tort of negligence is five years. As in England and Wales, this period does not begin until the
claimant has incurred a loss, which may not be the point at which professional services were
provided. However, the Scottish courts have taken a stricter approach to what is considered
to be a ‘loss’ and there is no requirement for the claimant to recognise that something is a
loss at the time so long as they are aware the loss has been incurred. For example, in the
context of an overvaluation claim, the loss can occur (and so this time period begin to run)
when the property is purchased for an excessive value even if the claimant is not aware it
has been overvalued, because the claimant is aware of the purchase price having been paid.
There is, therefore, less scope for Scottish claimants to extend the period in which a claim
can be brought as described in paragraph 2.7.5. The loss must, however, be something more
than just the fee paid to a professional for their services.
2.7.11 It has been recognised that this approach can produce an unfair result for claimants.
This area is due for reform following the passing of the Prescription (Scotland) Act 2018,
however, this has not yet come into force and, at the time of writing, it is not clear what the
timescale for this is.
2.7.12 In Scotland, all claims for financial loss or property damage are subject to an overall
‘long-stop’ period of 20 years.

15
IP
3 Liability caps
3.1 A liability cap is a contractual agreement that a client can only make a claim up to the
amount agreed, even if the law would otherwise award a greater sum in damages.
3.2 As a profession, surveyors have been slower than some to embrace the use of liability
caps, but liability caps are now used more and more frequently by members. One of the
most important purposes of this practice information is to explain what liability caps are and
how they work, and to encourage RICS-regulated firms to use them.
3.3 RICS recommends to RICS-regulated firms the use of liability caps, where legally
permissible and following the principles of good practice set out in this practice information,
as a way to manage the risk in professional work, and to ensure that there is a fair allocation
of risk and reward between members and their clients.
3.4 This practice information contains some additional, more specific guidance about
capping liability in valuations in both the residential and commercial context in Appendices B
and C.
3.5 Capping liability is a common way to regulate risk in a client relationship. Legally, liability
caps are enforceable as long as they are properly incorporated into the contract, and they
are at a ‘reasonable’ level. Extra care is required when dealing with a consumer, particularly
as any contract between a business and a consumer will fall within the jurisdiction of the
Competition and Markets Authority, which has wide powers to challenge the conduct of any
business that is seeking to impose terms that cause unfair detriment to consumers. Detailed
advice on whether a liability cap will be acceptable when contracting with a consumer client
is given in Appendix B3. RICS-regulated firms and members must also ensure that any
liability cap does not contravene the rules about acting with integrity and having proper
regard to standards of service in the RICS Rules of Conduct.
3.6 If it is drafted properly, a liability cap specifically applies even where an RICS-regulated
firm or member has conducted their work negligently. RICS recommends using a liability cap
along the following lines:
‘RICS recommends the use of liability caps to RICS-regulated firms as a way in

which to manage the risk in professional work. Our aggregate liability arising
out of, or in connection with, these services, whether arising from negligence,
breach of contract, or any other cause whatsoever, shall in no event exceed £[x].
This clause shall not exclude or limit our liability for actual fraud and shall not
limit our liability for death or personal injury caused by our negligence.’
3.7 It is important to distinguish between a liability cap and a firm’s professional indemnity
insurance limit:

16
IP
• The insurance limit is set out in the firm’s insurance policy and is fixed on the annual PII
renewal; it is the maximum amount insurers will pay in any particular claim.
• A liability cap is an agreement between a member and their client, fixed when they enter
into an engagement for professional services.
3.8 The two are not really related, and there is no legal or regulatory reason why a liability
cap needs to be anywhere near as high as the insurance policy limit. It would be unwise to
agree a liability cap greater than the insurance policy limit, but it would still be better from a
risk perspective than not agreeing one at all.
3.9 If a claim arises for an amount greater than the agreed liability cap, and the client tries to
challenge the liability cap, the court will need to ask:
a whether the liability cap was properly incorporated into the contract and
b whether the level of the cap was at a ‘reasonable’ level when it was agreed.
3.10 Some of the factors the court will consider in determining reasonableness are set out
in 3.11, but essentially, in a contract that has been freely negotiated between two commercial
parties, the court will usually find liability caps to be enforceable.
3.11 The level of a liability cap is a matter for each member to negotiate with their client.
In doing so, some assistance can be derived from the key factors the court will look at in
deciding whether a cap is ‘reasonable’, some of which are set out below. All of these are to be
judged as at the time the engagement was entered into between the member and client:
• The level of risk in the engagement. This includes the purpose of the instruction, the
time available to complete the work, the scope and complexity of the instruction and the
parties who may rely on the work.
• The level of fees. Seeking to cap liability to an amount less than the anticipated fee
will generally not be reasonable. However, there is no reason for the liability risk to be
disproportionate to the reward.
• The limit on the professional indemnity insurance policy, and the cost to the firm of
buying the insurance. The limit of PII cover is a factor the court may take into account
when considering the reasonableness of a cap but, as stated previously, there is no need
for the cap to be the same level as the insurance limit, or even necessarily near it. For
obvious reasons, it would be unwise to agree to a cap in excess of the insurance limit.
• The potential liability that might be incurred without a cap. This factor should cause
firms to consider what loss their client may incur if their work is negligent, but again,
there is no need for the cap to be at or necessarily near that figure. The guiding principle
is reasonableness, and parties are free to negotiate any figure that together they consider
to be reasonable.
• The degree of sophistication and the relative bargaining position of the parties to the
contract. If the court forms the view that the provider of services has imposed a liability
cap on a customer who had limited or no bargaining power, that will increase the chance
of the cap being held to be unreasonable. This may require particular consideration if the

17
IP
client is a domestic consumer, but it is less likely to be an issue if the client is a commercial
organisation that has a similar bargaining position to the RICS-regulated firm, or a
stronger one.
• How effectively the cap is brought to the client’s attention. Best practice is to draw
a client’s attention to a liability cap, particularly the first time it is incorporated into a
contract; it should not be ‘buried away’ in fine print.
3.12 The level of the liability cap can be negotiated on different bases, including, for
example, as a multiple of the proposed fee, a percentage of the anticipated level of value to
be reported, or a percentage of the amount intended to be loaned (in the case of valuations
for loan security purposes). In construction projects the level of the cap may be related
to the value of the construction contract. Some further guidance is given in Appendix
B (residential) and Appendix C (commercial). In Appendix B3 it is noted that particular
caution must be exercised when setting liability caps with 'consumers' (i.e. those who are
not acting in the course of a trade or profession, which may include buy-to-let clients).
RICS recommends that RICS-regulated firms obtain legal advice when seeking to impose a
liability cap in a contract with a consumer, particularly given the potential involvement of the
Competition and Markets Authority.
3.13 The terms of master contracts that seek to set a liability cap at the same level across
differing instructions from a particular client should be considered very carefully, because
the question of what level of liability cap is reasonable may vary from one instruction to
another.
3.14 If a liability cap, or the basis for calculating the liability cap, is included in a firm's
standard terms and conditions, rather than being included in an engagement letter that is
specific to a particular instruction, it should be in a prominent position. RICS recommends
that RICS-regulated firms refer to any liability cap in the engagement letter, to ensure it is
given sufficient prominence to satisfy the rules on enforceability. It may improve a firm’s
position further to refer to the existence of the liability cap in the body of any report or
written advice.
3.15 There are some circumstances in which the use of a liability cap is limited or prevented
by law. For example, valuation reports prepared for inclusion within prospectuses under the
Financial Conduct Authority (FCA) Listing Rules may not exclude liability to parties other than
the addressee of the report (see UK VPGA 2 of the RICS Valuation – Global Standards 2017: UK
national supplement). Specialist legal advice may be required in such situations. See above
and Appendix B1 in relation to 'consumers'.
3.16 In law, any clause that attempts to exclude liability for personal injury or death or fraud
will be unenforceable and members should make clear that caps do not extend to these
liabilities.
3.17 Where RICS-regulated firms are asked to provide multiple pieces of work (for example,
valuations or surveys) under one instruction, the engagement letter should set out whether
the agreed liability cap applies to each piece of work, or to the whole engagement 'in the

18
IP
aggregate'. A cap expressed to be 'in the aggregate' provides more certainty to the member
as to the maximum liability for the whole instruction or retainer with a client, where as an
each and every basis would be in respect of each piece of work provided.
3.18 In some situations, the law permits a professional to go beyond capping or limiting
liability by excluding legal liability altogether. The most common situation in which members
do so is if they provide advice without charging a fee. RICS-regulated firms who are no longer
able to obtain insurance for risks relating to fire or where they are providing a valuation in
reliance on an EWS1 form may also seek to exclude liability for any claims that would be
caught by such exclusions. It may also be reasonable to exclude liability altogether in other
client contracts, but this would usually be possible only where your client is a business user,
not a consumer. To maximise the chances of such a complete exclusion being enforceable,
RICS recommends that members should ensure the exclusion of liability is in writing and is
specifically drawn to the attention of the recipient of the advice. (Where a member provides
advice free of charge, they should still ensure that the advice given falls within the scope of
their business services, as defined by their policy, or they may have no insurance in the event
that the person who received and relied on their advice makes a claim.)

19
IP
4 Third-party reliance
4.1 As explained in section 2, a third party is any party who is not party to the member’s
contractual engagement, i.e. parties other than the firm’s client. By way of example, if the
firm’s client is a lender, third parties may include the borrower, or another lender or investor
who is investing in the lender’s loan. If the client is a purchaser or property owner they may
wish for successors in title to be able to rely on the professional’s advice.
4.2 Members are regularly asked by their clients to agree to permit third parties to rely
on their advice. RICS-regulated firms should appreciate the risks in permitting third-party
reliance and make a decision to permit third-party reliance only on an informed basis. In
particular, members should be aware that third-party reliance can come in different guises.
For example, it could be incorporated within the original terms of engagement for an
instruction (including by way of obligations to provide reliance letters or collateral warranties
to third parties in future) or could arise subsequently where members agree (expressly or
impliedly) that a third party may rely on their advice.
4.3 This practice information contains some additional, more specific guidance about third-
party reliance in valuation generally and in the residential and commercial contexts in
Appendix A.
4.4 Permitting third-party reliance is different from merely permitting a third party to ‘see’
or to have ‘disclosed’ to them the advice, as it does not automatically give rise to a legal duty
to the third party. However, RICS-regulated firms should still take care even in allowing this,
because there is a risk this might be construed as the same thing as permitting reliance,
particularly if it is obvious that the third party will in fact be relying on the advice. If firms do
agree that advice may be ‘shown to’ or ‘disclosed’ to a third party, they would improve their
position by making it clear ( in writing), not only to their client but also to the third party,
that this is being permitted without assumption of any legal liability to that third party. It is
recognised this may not be possible in all circumstances, but it is important that regulated
firms understand the risks entailed. Firms should also make clear in their contracts/
engagement terms that their advice may only be relied on by the named client so as to
ensure that they are aware of and have control over future requests for third party reliance.
4.5 Client relationships should be based on mutual trust. Permitting third-party reliance
can expose members to third parties whom the firm does not know, who might look on the
advice very differently, and who might have a different attitude to bringing claims against a
firm.
4.6 Permitting third parties to rely on advice has the effect of permitting them to be treated
as the member’s client. There are the following risks:
• Some of the third parties with whom advice is shared might be based in different
jurisdictions, and may try to bring claims before the courts of those jurisdictions, with

20
IP
very different laws from the laws that govern the relationship between members and
their clients. It is also possible that such claims may not be covered by the member’s PII
if they are brought in jurisdictions that do not fall within the geographical limits of the PII
policy.
• Members’ contractual terms of engagement (including the terms set out in this guidance,
such as a liability cap) may not be binding on the third parties. In addition, some of the
legal defences members might be able to raise if faced with a claim from a client may be
more difficult to raise in response to a claim from a third party.
• Regulated firms should think carefully about whether they had communications with the
client at the time of providing the advice that might affect the way in which the advice
should be used. It may be necessary for those communications to be passed to the third
party so that the advice is placed in the proper context. If so, firms should try to influence
the way in which the advice is passed to the third party, to ensure that, where possible,
the advice is passed on together with those other communications only.
• Permitting reliance by third parties who are in a different position from the client (such as
the property owner, where the client was the lender) may expose members to claims of a
different type.
• RICS-regulated firms’ PII may impose specific conditions concerning third party reliance
and may exclude indemnity in relation to certain third-party claims – see paragraph 4.10.
4.7 If firms do agree to permit third-party reliance, they should be as specific as possible
about who the permitted third parties are, by clearly stating the named individuals or
entities that will be entitled to rely on their advice, so far as is possible – permitting an entire
‘class’ of third parties to rely on the advice will add greater risk and should, therefore, be
avoided, where possible. Appendix C8 comments on what RICS-regulated firms should do if
asked to issue a fee invoice to a third party.
4.8 Where RICS-regulated firms do permit third party reliance, this should be done in a way
that is recorded and ensures:
• the third party is bound by the terms and conditions of the firm’s contract with its client
(including the liability cap) and any liability cap is in aggregate in respect of claims by the
original client and third parties
• the third party understands and acknowledges (if it is the case) that the firm has not
provided fresh advice and the effective date has not changed simply by the act of
permitting third party reliance
• the purpose for which the advice has been provided has not altered simply by permitting
third-party reliance
• the member will not have a liability to the third party greater than that it would otherwise
have had to its client and
• that if there have been any changes to the advice given these are communicated clearly
to the third party as well as the original client.

21
IP
• Where possible, the member should ask the third party to sign a letter stating the basis
on which they will be entitled to rely on the advice, to confirm their acceptance of each of
the points above.
4.9 In considering whether to permit third-party reliance, it is important for RICS-regulated
firms to bear in mind the scope of their PII. The RICS minimum terms and requirements
permit PII insurers to limit the cover available for claims brought by third parties to whom
the contract has been assigned; the RICS minimum terms and requirements require cover
for assignments only where given to a financier or funding party and for only two successive
assignments. Firms should take specialist advice from insurance brokers or solicitors if
they decide to permit third-party reliance in the course of their practice, as they may need
broader insurance cover.
4.10 This is particularly important if RICS-regulated firms permit reliance on valuations for
the purposes of the securitisation of loans, loan syndication, stock exchange listing and other
investment memoranda. Depending on their structure, those processes may entail transfer
of loans, and assignment to the buyer of the loans of the ability to bring negligence claims
against the original valuer. If a firm has only the 'two assignments' cover of the Minimum
Terms, that may not be enough. Firms should, therefore, review their individual insurance
arrangements to verify whether they are suitable for their practice.
4.11 If a fee is being paid by a third party, it is important that members consider whether
their client requires that third party to be entitled to rely on the advice. If not, the
engagement letter and advice should make that clear, because otherwise the third party may
seek to argue that they are entitled to rely on the advice by reason of having paid the fee.
4.12 Like all decisions involving risk, members should consider whether permitting third-
party reliance should, where practical or possible, command an additional fee to cover the
relevant insurance cost and any additional risk.

22
IP
5 Contractual terms
5.1 Engagement letter

5.1.1 An engagement letter is the contract between the member and the client and sets out
the scope of the appointment (i.e. what it is that the member/firm has agreed to do) and the
terms governing the appointment.
5.1.2 It is also an important opportunity for the member to regulate the risks that attend the
engagement, and that opportunity should not be passed up.
5.1.3 Before turning to the terms of engagement, it should be noted that ultimately there
is no compulsion on the part of RICS-regulated firms to accept a professional instruction.
Where, in the member’s opinion, the risks and rewards are not balanced, the member should
consider whether it is appropriate to accept the instruction.
5.1.4 In this section, there are the clauses of an engagement letter that are the most
important from a risk perspective. Where appropriate, an example clause is given after
the explanations. These clauses are generic examples only and will not suit all situations;
RICS-regulated firms should consider taking legal advice on their requirements for specific
situations.
5.1.5 Although the words ‘clause’ and ‘contract’ are used, the engagement letter can have
the appearance of any other business letter. There is no particular form in which the clauses
need to be set out, though it is important that clauses which exclude or limit a member’s
liability are reasonably prominent.
5.1.6 Many firms choose to prepare standard terms and conditions for all retainers. This
enables engagement letters for individual matters to be prepared easily, by reference to
those standard terms and conditions, and it will usually mean that negotiation with the client
at the outset of each new matter can be confined to the key points specific to that matter.
5.1.7 Frequently, a client will ask a member to agree to provide services on the basis of the
client’s own standard terms and conditions, which might include a service level agreement
or master services agreement, the terms of which will bind both parties for the duration of
the specific agreement. The question of whose terms and conditions prevail is a subject for
commercial negotiation with the client (and members should ensure that it is made clear
which terms will prevail), but if the client’s terms and conditions prevail, members should
read them and bear in mind that, like every contract, their terms should be capable of
negotiation. Where the client wishes to have a standard service level agreement in place, this
will help facilitate instructions for the period of its duration, but the member should still read
its terms carefully prior to signature and, where appropriate, seek to negotiate those terms,
to ensure that they fairly apportion risk and reward between the parties and are legally

23
IP
complaint (for example for building control activities, which must adhere to The Building
(Approved Inspectors etc.) Regulations 2010 and the Building Control Performance Standards).
5.1.8 Even where a firm or member does have standard terms and conditions, there are
at least three key terms that should be considered from a risk perspective in the context
of every instruction, as set out below. These terms should be regarded as related, and,
therefore, considered alongside one another in the context of each instruction.
1 The scope of the work.
2 The basis on which the fee will be calculated.
3 The liability cap (see section 3).
5.1.9 When negotiating terms of engagement, a firm or member should ensure that the
terms are clearly established and understood by the respective parties.
5.2 Contracting entity/exclusion of personal liability

5.2.1 The engagement letter should state the entity that is entering into the contract to
provide the services.
5.2.2 The firm’s name shown on the front/back of any written report should be consistent
with the engagement letter. This is important for the reasons given in section 2.7.
5.2.3 The engagement letter can include a clause that expressly prevents any of the firm’s
individual partners or employees being named as a defendant in any claim brought relating
to the services. This requires wording along the following lines:
‘None of our employees, partners or consultants individually has a contract

with you or owes you a duty of care or personal responsibility. You agree
that you will not bring any claim against any such individuals personally in
connection with our services.’
5.3 Proportionate liability

5.3.1 Sometimes the services of a member are provided in a particular matter alongside
those of other professionals, such as other surveyors, solicitors, architects, engineers, etc.
If the client sues more than one of these professionals, all of the defendants can in some
cases be categorised as ‘joint tortfeasors’, or all be held liable for the same damage. If that
happens, and the claimant succeeds in a claim against more than one of them, the claimant
can choose to enforce 100% of its judgement against as few or as many of the defendants as
the claimant wishes to. If one of the defendants is unable to pay a fair share of the claimant’s
loss (for example, if that party has no insurance and/or is insolvent), the others are required
to step in and meet the judgement in full. This may mean, for example, that even though an
engineer was also responsible, the member has to pay all of the loss because the engineer
has gone insolvent and does not have run-off insurance.

24
IP
5.3.2 It is possible to contract out of this effect, by including a clause in the engagement
letter which says that, even if the member is negligent, the extent of the member’s liability
is restricted to the loss which can properly be said to have been caused by that negligence.
Note that such a clause is different from a ‘liability cap’ (see section 5.4). A proportionate
liability clause would be along the following lines:
‘If you suffer loss as a result of our breach of contract or negligence, our
liability shall be limited to a just and equitable proportion of your loss having
regard to the extent of responsibility of any other party. Our liability shall not
increase by reason of a shortfall in recovery from any other party, whether that
shortfall arises from an agreement between you and them, your difficulty in
enforcement, or any other cause.’
5.4 Liability caps

5.4.1 Section 3 is devoted to liability capping clauses, and the subject is also addressed
in Appendix B and Appendix C. However, these clauses are also included in this section,
because, together with the fee clause and the scoping clause, liability caps are one of
the three clauses of engagement that RICS-regulated firms should consider from a risk
perspective in accepting every instruction, rather than being left for inclusion in standard
terms and conditions.
5.5 Fees
5.5.1 The fee to be charged should be considered in the context of every instruction, and not
left for inclusion in standard terms and conditions, even with regular clients.
5.5.2 The size of the liability risks attendant on professional services can be disproportionate
to the fee charged. Accordingly, those members who are responsible for pricing professional
work within a firm should ensure that they are aware of the cost to their firm of buying and
maintaining professional indemnity insurance, as well as all other costs of the business.
5.5.3 See Appendix C8 if asked to issue a fee invoice to a third party.
5.6 Scope of work

5.6.1 The firm should consider the scope of work that it is intended will be provided for the
fee, and then ensure the client’s expectations in that regard are the same as the firm’s. For
example:
• What is the nature of any inspections or investigations to be conducted?

• Will the work include any measuring services?
• Will the member need to call on other specialist input (for example, from other surveyors)
from within the firm?

25
IP
5.6.2 Frequently, claims arise because of a mismatch between the work the member
intended to do to provide the services, and the work the client anticipated the member
would do. The engagement letter is the member’s opportunity to ensure that the client’s
expectations match those of the member as to what the member is going to do and, just as
importantly, what the member is not going to do.
5.6.3 The ‘scoping’ process should be aligned with the process of calculating an appropriate
fee and liability cap (see section 3).
5.6.4 The scoping process is also a good opportunity for the member to state those areas
of specialist work the member is not going to deliver in this instruction. The member may
believe the client knows that these specialist works are being provided by other specialists,
but it is preferable to state this in express terms.
5.7 Dispute resolution

5.7.1 If no other provision is made, the default position in England, Wales and Scotland is that
disputes between members and their clients are to be referred to the courts, for litigation. It
is possible for a contract to provide for the use of alternative dispute resolution which can be
a quicker and cheaper option. Appendix E addresses this subject.
5.8 Third-party reliance

5.8.1 Section 4 is dedicated to the subject of third-party reliance. RICS-regulated firms should
include a clause in their engagement letters that prevents third-party reliance. This can be
included in a firm’s standard terms and conditions. For completeness, this clause should be
replicated in a prominent position in the body of any report as well. The clause can be along
the following lines:
‘Our advice is provided for your benefit alone and solely for the purposes of the
instruction to which it relates. Our advice may not, without our written consent,
be used or relied on by any third party, even if that third party pays all or part
of our fees, or is permitted to see a copy of our advice. If we do provide written
consent to a third party relying on our advice, any such third party is deemed to
have accepted the terms of our engagement.’
References to advice should be amended as appropriate – for example, for valuation work
they should reference ‘our valuation’.
5.9 Governing law and jurisdiction

5.9.1 Some clients (or third parties who bring claims against a an RICS-regulated firm) may
try to bring claims in their ‘home’ jurisdiction. If successful, members might find themselves
being judged under a different system of law from that with which they are familiar or had
in mind when they accepted the relevant instruction. It is also possible that the member’s PII
will not cover the claim, if the policy contains geographical limitations on cover.

26
IP
5.9.2 Members can prevent this happening in the majority of cases by including a simple
clause stating that the contract, and any claims arising from the professional services, are
subject to the exclusive jurisdiction of the courts of England and Wales, and English law. This
is even necessary within the United Kingdom: for example, if valuing a Scottish property,
or sending a valuation to a client in Northern Ireland, this may create uncertainty as to
governing law and jurisdiction, so it is recommended to include an express choice. The clause
can be along the following lines:
‘Our contract with you for the provision of these services is subject to English
law. Any dispute in relation to this contract, or any aspect of the services, shall
be subject to the exclusive jurisdiction of the Courts of England and Wales, and
shall be determined by the application of English law, regardless of who initiates
proceedings in relation to the services.’
5.9.3 This clause can be adapted for Scottish use by replacing ‘English law’ (in both places)
with ‘Scots Law’ and ‘the Courts of England and Wales’ with ‘the Courts of Scotland’, though
in Scots law, there are differences as to what makes up the contract with a member and how
the contract is concluded; specialist Scots law advice should be sought.

27
IP
6 Professional indemnity
insurance (PII)
6.1 All RICS-regulated firms need to ensure they have adequate and appropriate professional
indemnity insurance in place that complies with the requirements of the RICS Rules of
Conduct and the RICS Professional Indemnity Insurance requirements.
6.2 Insurance is a key part of managing risk. That firms maintain insurance is also in the
interest of a firms’ clients and, therefore, the reputation and standing of the profession. This
is one of the main reasons RICS takes a role in ensuring that firms are adequately insured.
6.3 All RICS-regulated firms should be aware of the following points about PII:
• In arranging PII, RICS-regulated firms should ensure the amount of cover purchased is
consistent with the nature of the firm’s practice and proportionate to the risks taken by
the firm and consistent with RICS Professional Indemnity Insurance requirements.
• Limits of indemnity may be on an any one claim basis or an aggregate plus unlimited
‘round the clock’ reinstatements basis. These have very similar effects, but the latter
refers to the reinstatement of an aggregate limit following a loss or claim. If a firm obtains
cover on an aggregate ‘round the clock’ reinstatement basis they need to ensure that they
receive clear guidance as to how reinstatement of the limit will be applied and satisfy
themselves that it complies with the terms set out under the RICS minimum terms and
requirements, and provides appropriate cover for their professional business. Firms also
need to ensure that each excess layer follows the terms and conditions of the primary
policy.
• When choosing the level of insurance that is required, it is important to consider the
effect of the aggregation clause in the policy. This clause will typically provide that where
a number of claims arise from the same originating source or cause, such as a repeated
error or omission, then all claims will be treated as one, attracting only one limit of
indemnity, which may be insufficient.
• RICS-regulated firms’ risk management must not begin and end with putting in place
professional indemnity insurance, because insurance is a contract that contains limits,
conditions, and exclusions: it is not a guarantee, and it will not cover everything. Careful
attention to the terms of engagements (including the use of liability caps), and ensuring
consistent quality in surveying practice and reporting, continue to be fundamental to
effective risk management.
• When signing contractual documents, firms should bear in mind the policy coverage in
respect of contractual liabilities, specifically the contractual liability exclusions of the
policy such as express guarantees, fitness for purpose obligations and the exclusion
of liability where there has been reliance on an EWS1 form (or as revised) and the

28
IP
valuation report does not exclude liability to the lender or any person deriving title to the
mortgage.
• At the time of this publication, there have been a significant number of claims notified
to the PII market involving cladding and fire safety, which involve a number of different
professional services firms. Under RICS minimum policy wording, insurers are allowed
to insert fire safety exclusions on policies, however, such exclusions should not apply to
professional business on buildings of four storeys or fewer. In the event insurers impose
specific terms in respect of fire safety or if a complete exclusion is imposed on a firm’s PII
policy, it is recommended that firms consider carefully the impact this will have on their
business. A firm’s PII broker should be able to advice on safeguarding measures to put in
place to mitigate risk in this area.
• Claims on a firm's PII directly affect the cost and terms of insurance in the future.
In practice, that means it is in the interests of the firm’s partners and senior staff to
maintain an active involvement in risk management, so as to minimise claims under the
policy.
• RICS-regulated firms’ PII policies typically are provided on a ‘claims made’ basis, almost
invariably on an annual basis. This means the policy that responds to a claim is the annual
policy in force when the claim is made, regardless of when the relevant work was done.
This offers great simplicity, but it does entail some pitfalls; in particular, if a firm were
to allow its insurance to lapse from a certain date, it would have no insurance cover for
claims made after that date.
• RICS-regulated firms should ensure at all times that in the event of the firm’s practice
ceasing, there will be ‘run-off insurance’ in place to protect the firm’s partners and its
customers. There will remain a risk of claims against the firm and its partners for at least
six years after a cessation, and those claims may not be covered if the firm does not
have run-off insurance for the duration of that period. This is a subject that should be
considered by all firms at all times, not only those for whom a practice cessation is an
obvious or imminent threat. Six years should be looked on as a minimum, because it is
possible that claims may be brought more than six years after the date which services
were provided (see section 2.7).
6.4 RICS requires RICS-regulated firms to put in place run-off cover. In addition to the
consequences detailed in paragraph 6.3, a failure to comply with this obligation may be a
disciplinary matter. Insurers should provide a £1,000,000 aggregate limit in all policies for a
period of six years for consumer claims from the expiry date of the policy in force at the time
of cessation, which should be included automatically in the RICS minimum policy wording.
However, firms must continue to obtain and purchase run-off cover for longer periods than
six years, or with higher cover levels, if they deem that adequate and appropriate. Firms are
also required to purchase appropriate cover for commercial claims, which insurers are not
currently expected to provider automatically under RICS minimum policy wording
6.5 All insurance policies will have an uninsured excess (or deductible) that is payable by the
firm, a limit on the maximum amount the insurers will pay on any single claim, and may have

29
IP
an overall maximum amount the insurers will pay in a single policy year. Sometimes policies
are also subject to ‘sub-limits’ relating to certain types of claims, such as loss of documents.
The policy excess may now apply to defence costs for each claim made, even where a claim is
successfully defended. Therefore, firms need to consider what financial impact this may have
given they may now be liable to pay more excesses in one policy year.
6.6 Although larger firms sometimes have designated partners or employees who manage
the firm’s insurance arrangements, it is important that all partners and senior members
are involved to an appropriate extent and have at least a working knowledge of the firm’s
professional indemnity insurance, including the cost of arranging it, and the points set out
above. This is to ensure that:
• they comply with the requirements of the policy, including giving appropriate disclosure
to the insurers and giving prompt notification of claims, and circumstances that may give
rise to claims
• they are able to have informed engagement with clients about allocation of risk in their
firm’s engagements and
• they more readily appreciate the importance of prudent risk management and the use of
appropriate terms of engagement including liability caps.
6.7 Firms should always consider consulting with an insurance broker with a demonstrable
understanding of the sector in which the member operates. An insurance broker should be
able to explain how to ensure the member’s risk profile is presented to insurers in the best
way to give an accurate representation of how the business manages risk with a view to
ensuring appropriate cover and value for money.

30
IP
7 Conclusion
7.1 Effective risk management is a dynamic process. It is intended that this practice
information, and the other materials referred to in this document, will equip RICS-regulated
firms and their clients to understand the issues they address, but they cannot be a substitute
for RICS-regulated firms and individual members constantly seeking to identify the risks
that confront their practice, and to take steps to control and manage those risks. For further
guidance on dealing effectively with complaints and claims, RICS-regulated firms and
members are referred to the current edition of RICS’ Complaints handling.
7.2 This is the responsibility of all members: a responsibility they owe to their profession, to
their clients, and to all participants in property markets.
7.3 By necessity, the coverage of some subjects in this guidance is brief. As well as taking
steps generally, RICS-regulated firms should take a fresh look at the terms and conditions on
which they engage with their clients. In doing so, members are encouraged to take specific
legal advice on the particular points to which their practice gives rise.

31
IP
Appendix A: Valuations
Members’ attention is drawn to the extensive guidance in RICS Valuation – Global Standards
(Red Book Global Standards) on engaging with clients and writing valuation reports.
Members’ attention is drawn specifically to the following:
• VPS 1: Terms of engagement (scope of work)

• VPS 3: Valuation reports
All RICS-regulated firms and members are required to comply with Red Book Global
Standards when undertaking valuations. RICS advises members to resist any requests from
clients to diverge from Red Book Global Standards requirements. There is further guidance
on this issue for residential valuers in section A1.
Members who undertake valuations to which the requirements of Red Book Global
Standards apply must join RICS Valuer Registration (VR).
A1 The court’s approach to professionals’ liabilities
A1.1 The standard of care of a valuer: the ‘bracket’

The courts expect valuers to achieve the standard of skill and care expected from a
reasonable body of the valuer’s peers. Whether a claim against a valuer is brought for breach
of contract or in tort, the question the courts ask is whether the valuation given was one that
no reasonable valuer in the actual valuer’s position could have given. The courts invite expert
evidence from other, independent valuers (‘expert witnesses’) to assist their decision-making
in each case.
In reaching a decision on this issue, the courts recognise there is subjectivity in valuation:
two valuers may reach different valuations of the same property at the same time without
either of them being negligent. The usual question the courts ask is what are the maximum
and minimum valuations that could be given by a reasonable valuer in the defendant valuer’s
position. To be found negligent, the defendant's valuation must generally have fallen outside
that range, or ‘bracket’, of hypothetical reasonable valuations.
As well as deciding what the ‘bracket’ is for a particular valuation, and whether the valuer’s
valuation falls within the bracket, the courts may sometimes also consider whether there
were any specific errors made by the valuer in the course of the valuation. If there were, that
could increase the chances of the valuation being held to be outside the bracket. This means
that a valuer cannot focus purely on the end figure; the process followed by the valuer and
the text of a valuation report are also important. For example, while it is not automatically
negligent for the valuer to have adopted an alternative methodology to the norm, when good
robust evidence to support a conventional methodology is available, the case of Barclay

32
IP
Bank Plc v Christie Owen & Davies Ltd (t/a Christie & Co) [2016] EWHC 2351 found the only
acceptable reasons for not using the conventional methods are:
a if there is evidence that other methodologies are used in the market or
b if there is better available evidence that might support a more robust valuation on some
other basis.
A1.2 Damages
The SAAMCO Cap: the most important principle in the law of damages as it presently applies
to property valuers. The SAAMCO Cap (the name comes from the House of Lords decision
in South Australia Asset Management Corp v York Montague Ltd [1996] 3 All ER 365), in
which the method for calculating damages in claims against valuers was established). This
usually restricts the damages for which a property valuer can be held liable to the difference
between the valuer’s valuation figure and the figure the court decides was the actual value of
the property at the date of the valuation.
For example, if a valuer values a property at £140,000 but the court decides the valuation
was negligent and the actual value was £100,000, the maximum damages for which the
valuer can be liable is £40,000 (plus interest), even if the client’s losses are higher than that
amount. Importantly, this means that valuers are not generally liable for additional losses
suffered by their clients by market depreciation in the property between the date of the
valuation and the date of the claim. It should be noted that the application of the SAAMCO
Cap provides no scope for any damages awarded against the defendant to be reduced to
reflect any contributory negligence on the part of the claimant.
It is important to note that the SAAMCO Cap is based on the principle that providing a
valuation is only, in legal terms, providing 'information'. The cap does not apply if a valuer
goes beyond the provision of information and advises a client whether to proceed with a
transaction. The case of BPE v Hughes-Holland [2017] UKSC 21 indicates that, where a valuer
provides only part of the material on which a claimant relies when deciding how to proceed,
that will be treated as giving information. Only in cases where the valuer advises the claimant
on the whole transaction and how the claimant should proceed will the valuer be treated as
giving advice. Valuers should therefore be careful to ensure that they do not cross this line.
A1.3 The purpose of the valuation

A valuation report and engagement letter must state the purpose for which a member has
provided a valuation (Red Book Global Standards VPS 1, paragraph 3.1). RICS recommends
that, where possible, members should be more specific than saying only that a valuation is
provided, for example, ‘for secured lending purposes’ (see section 4 – Third-party reliance
and section 5 – Contractual terms). Although a member may not have full visibility of what
a client hopes or intends to use the valuation for, they should record what they consent
to it being used for. This provides protection, for example, against a valuation ‘for secured
lending’ being used for a potential subsequent decision for the same purpose, where there

33
IP
may have been a change in circumstance that might be material to the valuation date. They
should consider including wording along the following lines (again, secured lending is used as
an example):
‘Where you have explained to us that the valuation is required for your use in
a particular secured lending transaction, we consent to its use solely for that
purpose. Where you have not instructed us as to the purpose for which the
valuation is required, we consent to its use only in a single secured lending
decision.’
A2 Liability caps
Red Book Global Standards requires valuers to include a statement in their terms of
engagement and within the valuation report, setting out any limitations on liability that
have been agreed. VPS3, paragraph 1.2 of Red Book Global Standards provides guidance
where, due to the client’s standard reporting form or format, it is not possible to provide this
statement within the valuation report.
There are some circumstances in which the use of a liability cap is limited or prevented
by law. For example, valuation reports prepared for inclusion within prospectuses under
the FCA Listing Rules may not exclude liability to parties other than the addressee of the
report (see UK VPGA 2 of RICS Valuation – Global Standards 2017: UK national supplement).
Specialist legal advice may be required in such situations. See above and Appendix B1 in
relation to 'consumers'.
A3 Third-party reliance on valuations

This practice information contains some additional, more specific guidance about third-
party reliance in the residential and commercial contexts in Appendix B and Appendix C
respectively. One of the points made in the residential context is that RICS recognises there
is a practice of permitting valuations of residential properties provided to lenders to be
disclosed to the borrower/purchaser. In certain circumstances, this may extend the duty of
care to that borrower/purchaser.
Other than where the practice identified in A2 is adopted by agreement between firms and
their lender clients, valuers should not permit third party reliance and terms and conditions
should exclude third-party reliance, with any exceptions made clear, taking into account the
points highlighted below and in section 5.
Permitting third parties to rely on a valuation has the effect of permitting them to be treated
as the member’s client. There are the following specific risks in this practice in relation to
valuations:
• Permitting disclosure in the regulated investment context may entail regulatory risk (i.e.
exposure to the risk of regulatory investigations) as well as more conventional liability
risk.

34
IP
• Some of the third parties with whom valuations are shared might be based in different
jurisdictions, and may try to bring claims before the courts of those jurisdictions, with
very different laws from the laws that govern the relationship between members and
their clients. It is also possible that such claims may not be covered by the member’s PII,
if they are brought in jurisdictions that do not fall within the geographical limits of the PII
policy.
• Members’ contractual terms of engagement (including the terms set out in this practice
information, such as the liability cap) may not be binding on the third parties. In addition,
some of the legal defences members might be able to raise if faced with a claim from a
client may be more difficult to raise in response to a claim from a third party.
• Members should be particularly careful if they are asked to give consent to third-party
reliance at a date later than the effective date of their valuation. Valuers will improve their
position in that situation if they tell both the client and the third party, in writing, that they
have not re-valued the property, and the valuation may already be out of date, because
the effective date of the valuation has not changed. If any changes have been made to the
report these should be clearly communicated in writing to the third party as well as the
client.
• Members should think carefully about whether they had communications with the
client at the time of submitting the valuation that affect the way in which the valuation
should be used. It may be necessary for those communications to be passed to the third
party so that the valuation report is placed in the proper context. If so, members should
try to influence the way in which the valuation report is passed to the third party, to
ensure where possible the valuation report is passed on only together with those other
communications.
• Permitting reliance by third parties who are in a different position from the client (such as
the property owner, where the client was the lender) may expose members to claims of a
different type.
• Members’ PII may impose specific conditions concerning third party reliance on
valuations, and may exclude indemnity in relation to certain third party claims – see
paragraph 4.10.
If members do agree to permit third-party reliance, they should be as specific as possible
about who the permitted third parties are – permitting an entire ‘class’ of third parties to rely
on the valuation will add greater risk. Appendix C8 comments on what members should do if
asked to issue a fee invoice to a third party.
RICS recommends that where members do permit third-party reliance, this is done only in a
way that ensures:
• the third party is bound by the terms and conditions of the firm’s contract with its client
(including the liability cap)

35
IP
• the third party understands and acknowledges (if it is the case) that the firm has not
conducted a fresh valuation and the effective date has not changed simply by the act of
permitting third-party reliance and
• the purpose for which the valuation has been provided has not altered simply by
permitting third-party reliance.
In considering whether to permit third-party reliance, it is important for members to bear in
mind the scope of their PII. This is particularly important if members permit reliance for the
purposes of the securitisation of loans, loan syndication, stock exchange listing and other
investment memoranda. Depending on their structure, those processes may entail transfer
of loans, and assignment to the buyer of the loans of the ability to bring negligence claims
against the original valuer. If a firm has only the 'two assignments' cover of the minimum
terms, that may not be enough. Members should, therefore, review their individual insurance
arrangements to verify whether they are suitable for their practice.
If a valuation fee is being paid by a third party, it is important that members consider
whether their client requires a third party to be entitled to rely on the report. If not, the
engagement letter and valuation report should make that clear, because otherwise, the third
party may seek to argue that they are entitled to rely on the report by reason of having paid
the fee.
A4 Terms of engagement
The focal document in the contract between the valuer and the client is known as the ‘letter
of engagement’. Recording the terms of contract in an engagement letter is required by RICS
Valuation – Global Standards (Red Book Global Standards). Red Book Global Standards PS2
section 7.1 states:
‘It is fundamental that by the time any written valuation is concluded, but prior
to the issue of the report, all the matters material to the report have been fully
brought to the client’s attention and appropriately documented’.
Even where a firm does have standard terms and conditions, there are at least three key
terms that should be considered by the firm from a risk perspective in the context of every
instruction, as set out below. These terms should be regarded as related, and therefore
considered alongside one another in the context of each instruction.
1 The scope of the work: the requirements for a valuation engagement letter in scoping
each instruction are set out in full in Red Book Global Standards.
2 The fee: Red Book Global Standards also requires that the engagement letter specify the
basis on which the valuation fee will be calculated. Fees are also addressed later in this
section.
3 The liability cap: liability caps are discussed in section 3.

36
IP
The firm should consider the scope of work that it is intended will be provided for the fee,
and then ensure the client’s expectations in that regard are the same as the firm’s. See
section 5.6, by way of specific examples:
• What is the nature of the inspection to be conducted?

• Will the valuation include any measuring services?
• Will the valuer need to call on other specialist input (for example, from quantity
surveyors) from within the firm?
See Appendix C8 if asked to issue a fee invoice to a third party.
The scoping process is also a good opportunity for the valuer to state those areas of
specialist work the valuer is not going to deliver in this instruction. The valuer may believe
the client knows that these specialist works are being provided by other specialists, but it is
preferable to state this in express terms. For example, if the valuer is not going to carry out
the following services, the valuer should consider saying so in terms:
• Inspect the property in person (i.e. the valuer is to carry out a desk-top valuation only).
• Measure the property.
• Inquire into the accuracy of planning information provided to the valuer.
• Comment on condition.
• Examine the structural soundness of the property.
• Comment on the strength of a tenant’s covenant in valuing a property that has been let.
• Inquire into the accuracy of passing rental figures provided to the valuer.
• Read leases or other legal documents other than where the valuer has expressly
undertaken to do so.
Members’ attention in this regard is also drawn to VPS1 Terms of engagement (scope of
work) of Red Book Global Standards.
A4.1 Third-party reliance

Valuers should include a clause in their engagement letters that prevents third-party
reliance. This can be included in a firm’s standard terms and conditions. For completeness,
this clause should be replicated in a prominent position in the body of the valuation report
as well. Stating the position clearly, and in all documents to which the third party might refer,
is the best policy, for example making clear via a number of express statements within the
report that the purpose of a report is to enable a bank to consider the loan application only.
The clause can be along the following lines:
‘Our valuation is provided for your benefit alone and solely for the purposes of
the instruction to which it relates. Our valuation may not, without our written
consent, be used or relied on by any third party, even if that third party pays all
or part of our fees, or is permitted to see a copy of our valuation report. If we

37
IP
do provide written consent to a third party relying on our valuation, any such
third party is deemed to have accepted the terms of our engagement.’

38
IP
Appendix B: Residential
valuations and building surveys
This appendix is intended to provide guidance to valuers advising in residential mortgage
valuation and 'consumer' work (as opposed to commercial lending situations and other
commercial valuation situations, addressed in Appendix C). RICS recognises that there is not
a hard and fast distinction between 'commercial' and 'residential', and it may be helpful for
valuers to read both appendices.
B1 Issues specific to valuations in the residential sector
B1.1 Buy-to-let properties

Valuations of buy-to-let properties carried out for lenders in connection with the mortgage
loan process have been a source of many claims against valuers. This includes claims by
borrowers who have received a copy of the valuation provided to their mortgage lender, and
have then sought to argue that they relied on the valuation.
The current legal position is that a valuer appointed by a lender in a buy-to-let transaction
will not owe a duty of care to the borrower. The valuer's only duty is to the lender, unless the
valuer is appointed directly by the borrower or expressly permits the borrower to rely on the
valuation.
It is important for members who provide valuations for buy-to-let transactions to consider
whether their insurance provides cover for valuations for commercial lending. While buy-
to-let properties are residential properties, insurers may take the view that the valuation is
for the purpose of commercial lending, if the borrower is seeking to purchase a portfolio
of properties for the purposes of running them as a commercial venture. If a member is
instructed to carry out such a valuation, they should check whether their policy provides
cover for such valuations, and if they are under any doubt, raise this point with their
insurance broker to ensure they are not left without cover in the event of a claim.
B1.2 Houses in multiple occupation (HMO)

The number of HMOs continues to rise and valuations of these properties present unique
risks for valuers. In recent years, some professional indemnity insurers have begun to treat
HMOs as valuations for commercial lending on the basis that the value of the property,
at least in part, relies on its ability to generate income. In light of this, members whose
professional indemnity cover is limited solely to valuations for residential lending should
consult with their brokers and/or professional indemnity insurers regarding coverage of any
claim before agreeing to value an HMO.

39
IP
B1.3 Securitisation
Securitisation involves banks selling bundles or 'books' of loans to investors. It has been used
extensively since the mid-2000s, particularly by banks operating in the sub-prime market.
Banks continue to produce packaged products comprised of residential mortgage loans,
often referred to as residential mortgage-backed securities (RMBSs), which are sold on to
third-party investors.
To facilitate securitisation, lenders often request that valuers permit third parties to rely on
their valuations. This presents a clear risk for valuers who may then face claims by parties
who were not clients of the valuer. The issues and risks presented by third-party reliance are
discussed in section 4; in summary valuers should not permit third-party reliance.
The typical form and structure of securitised loans is set out in some detail in Appendix
C. Where packages of loans, whether commercial or residential, are sold repeatedly, these
transactions will usually also entail repeated assignments of the right to sue the valuer who
provided the original valuation. There are three practical points coming out of this:
1 Some professional indemnity insurance policies provide cover for a restricted number
of assignments (the RICS minimum terms and requirements requires cover for two).
Members should check what their policies provide.
2 Members should consider including in their engagement contracts an express prohibition

on the assignment of their contract without their consent. See paragraphs 4.9 and 4.10
and the sample wording included under section C2.
3 Where possible, members should include any terms and conditions limiting or excluding
liability in the valuation report itself, to ensure that any third party that comes to rely on
the report is aware of the limits or exclusions.
B2 Nature of building surveyors' liabilities

This part explains the key principles that apply to claims against members relating to
residential building surveys and what action members should be taking to limit their risks in
this regard.
B2.1 The standard of care

In cases where a claimant alleges that a surveyor failed to identify a specific defect at
a property, the claimant has to show – by using expert evidence – that no reasonably
competent surveyor would have failed to identify and report on that defect.
The type of report the surveyor is instructed to produce will affect the extent of the
inspection required. For mortgage valuations and inspections, a brief and reasonable visual
inspection, which enables the surveyor to provide a valuation and general guide as to the
property’s condition, is sufficient. By contrast, a surveyor carrying out a building survey is

40
IP
expected to inspect all visible parts of the property, although not unexposed parts. The
surveyor is not expected to test the services at a property as part of a building survey.
For HomeBuyer Reports, the surveyor is required to exercise the same standard of care that
would apply to a building survey, within the agreed confines of the inspection.
Building surveyors should ensure that clients are aware of the different types of survey
available, and consider the type of property (in particular whether it is unusual on the
grounds of age, value, type of construction, whether it is a listed building etc) and RICS
guidance when recommending the appropriate level of survey. Members should recommend
a full building survey where necessary, and record that they have done so.
Members should also recommend that the prospective purchaser obtain any relevant
warranties or professional consultant’s certificate where it is appropriate to do so, for
example, when dealing with a new build, or a recently extended/refurbished property
(particularly if the works were significant in scale or structural significance). This could
ultimately protect both the purchaser and the member.
A surveyor will be at risk of a finding of negligence if they fail to identify defects that would
have been observable, had the inspection of the property been in accordance with the
standards identified above or if, having identified a potential concern, the surveyor does not
carry out further investigations or advise that further investigations ought to be undertaken.
To ensure that the extent of the inspection is clear, the engagement letter and report to the
client should clearly record any limits to the inspection, including any areas of the property
that will not be inspected and any issues that will not be dealt with in the report. The report
should also include appropriate disclaimers in relation to hidden defects and recommend
that any potential risks are investigated further by a specialist.
B2.2 Damages
For claims arising from the failure to identify and report on specific defects at a property, the
case of Watts v Morrow [1991] 1 WLR 1421 provides that the measure of loss is the diminution
in the property’s value caused by the defect on which the surveyor failed to advise. In other
words, the value of the claim will be the difference between the value of the property as
described in the surveyor’s report (without accounting for the defect) and the value of the
property in its actual condition (subject to the defect the surveyor ought to have reported),
as at the date of the report.
The issue of the quantification of damages for claims relating to a negligent survey has
recently been reviewed by the Court of Appeal in the case of Large v Hart & Anor [2021]
EWCA Civ 24. In that case, the judge at first instance found that the surveyor had failed
to follow a trail of suspicion that would have led him to warn the claimant purchasers
that the property might have problems with damp. More importantly, the judge held that
the surveyor had been negligent in failing to warn the claimants to obtain a Professional
Consultant's Certificate (PCC) before proceeding with the purchase, to protect their position
in the event there were any defects with the subject property, which had recently been

41
IP
refurbished. The judge noted the usual measure of damages, established the in the case
of Watts v Morrow, but found that the surveyor's failure to provide this advice meant that,
when calculating the claimant's loss, it would be appropriate to take into account not just the
defects that the surveyor ought to have reported, but all defects with the property.
The rationale for this decision was that, had the surveyor provided that advice, the claimants
would either have been able to seek recourse against the architect for any latent defects
under the PCC, or the transaction would not have proceeded in the first place. This logic was
upheld by the Court of Appeal, taking into consideration the case of South Australian Asset
Management Corp v York Montague Ltd (see paragraph in A1.2). The Court of Appeal found
that, in failing to advise the claimants to obtain a PCC, the surveyor had given advice, rather
than information, so that he should be liable for all the consequences of that advice being
wrong. It is therefore important to keep in mind the distinction between 'advice' cases –
where are surveyor advises the client on a course of action – and 'information' cases – where
they simply provide comments on the condition of the property, as that may have an impact
on the level of damages payable in the event of a claim.
Claimants will often seek to recover the cost of remedial works needed to repair or remove
the defect (known as rectification costs). Those costs are rarely awarded and will only be
considered by a court in cases where diminution in value would be an inappropriate measure
of loss.
B2.3 Limitation
Limitation periods for negligence claims on building surveys are the same as for valuation
claims: see section 2.7. In brief, the limitation period for advancing a claim in contract against
a surveyor is six years from the date of the surveyor’s report, and for claims in tort, the
period is six years from the date when the claimant first suffered a loss. For claims brought
by the owner of a residential property, this will usually be the date on which the property
was purchased.
The period for a negligence claim can be extended if there was a delay in the claimant
spotting the defect and finding out about their claim: they will have three years from the date
when they found out or should have found out. This extended period is subject to a ‘long
stop’ period of 15 years from the date of the negligent act regardless of when the claimant
found out about their claim. This will usually mean 15 years from the date of the survey
report.
Given the ‘long stop’ date of 15 years, members should retain their files for 15 years after
carrying out a survey, to ensure that they have the records necessary to respond to a claim.
Any updated advice provided in connection with an earlier survey should also be retained for
15 years from the date of that advice as a new limitation period will apply to each new piece
of advice provided to a client.

42
IP
B2.4 Third-party reliance

The issue of third-party reliance and the risks to valuers is discussed in section 4.
RICS recognises that there is a practice of permitting valuations of residential properties

provided to lenders to be disclosed to the borrower/purchaser, and that sometimes this is
done on a basis that permits the borrower to rely on the valuation, i.e. extending the duty
of care to that borrower. Members should ensure, wherever they can, that if they do permit
borrowers to see their lender valuation reports, they make it clear to the borrower (whether
in the report itself, or a letter to the borrower, or both) whether the borrower is entitled to
rely on it or not.
The same third-party reliance issues affect surveyors when providing surveys of residential
properties to lenders. Members should ensure the engagement letter and report clearly
records that the survey is provided for the use of the addressee only and that no third party
may rely on it.
B3 Liability caps
When providing valuations and surveys of residential properties, members will often
be dealing with clients who are 'consumers' (i.e. those not acting in a business, trade or
professional capacity). Buy-to-let investors may be regarded as consumers in this context.
The use of terms in consumer contracts that exclude or cap liability is controlled strictly by
law. All contractual terms in consumer contracts must meet a test of fairness. Contractual
terms that exclude or restrict liability where one of the contracting parties deals as a
consumer or on the other's written standard terms of business must be fair and reasonable,
having regard to all the circumstances known to the parties, or within their contemplation, at
the time the contract was made. The party seeking to rely on a particular term has to be able
to prove that it is reasonable.
Contract terms that have not been individually negotiated – for example, terms that have
been drafted in advance and that a consumer has not been able to influence – will be
deemed unfair if they cause a significant imbalance in the parties' contractual rights and
obligations, to the detriment of the consumer. If deemed unfair, the terms will cease to bind a
consumer.
Members should not attempt to limit liability by reference to a multiple of the fees for
a residential survey or valuation, particularly where the fee for the job is modest. Such
clauses are likely to fail the test for reasonableness and fairness, particularly in a consumer
context. Limits by reference to the value of the property, or agreeing a reasonable share of
responsibility for the cost of repairs in any survey claim, are more likely to be regarded as
fair and reasonable, but again this will depend on the level agreed. Further, any clause would
have to be drawn specifically to the client's attention, not buried in small print, and even then
it would always be subject to a reasonableness and fairness test.

43
IP
Appendix C: Valuations for

commercial lending
This appendix is intended to offer guidance to valuers providing advice in commercial lending
situations and other commercial valuation situations (as opposed to residential mortgage
valuation and 'consumer' work, which is addressed in Appendix B). RICS recognises there is
not a hard and fast distinction between 'commercial' and 'residential', and it may be helpful
for valuers to read both appendices. This appendix provides guidance for professionals
acting in the UK but may have broader applicability across jurisdictions.
Generally, valuations for loan security purposes constitute the highest risk category of
valuations undertaken by Registered Valuers.
Within that category, the liability risk for the valuer increases as:
• more parties are permitted to rely on the valuation

• the level of debt increases (particularly when the loan-to-value ratio increases) and

44
IP
• investment instruments such as bonds are issued and secured on the debt, particularly if
those instruments are issued in public markets.
A valuer’s risk can also be significantly increased by third parties (i.e. individuals and
companies who are not party to a valuer's engagement contract) being permitted to rely on
the valuation. This opens up the possibility of the valuer's liability to those third parties for
the tort of negligence – see sections 2.4 and 4.
Members should adopt as a default position in their terms of engagement that the valuation
is to be relied on only by the lender client who directly instructs the RICS-regulated firm.
Members should understand the risks of broadening the permitted reliance, and only
consent when they have understood those risks.
The core concepts and lending structures members would need to understand are described
in this section. However, members should appreciate that lender clients will have taken legal
advice on these structures, and it is important that members do the same before permitting
reliance on a broader level. It is beyond the scope of this practice information to give
members anything more than a general understanding of the risks and basic terminology.
In more sophisticated and higher value loan structures, members’ liability caps become
increasingly important. The other clause of the engagement contract that is very important is
what it says about assignment (see C2).
C1 Bilateral loans
A bilateral loan is the simple situation where one lender lends 100% of a loan amount to
one borrower. From a structural perspective, these are the least high risk secured lending
valuation engagements for valuers. As there is only intended to be one lender client and
the engagement is a relatively simple one, the instruction will in many cases be covered
by an umbrella service agreement or other standardised documentation. If this is the
type of loan that a lender client is making, members should ensure that their engagement
contract reflects this, and does not include consent to the use of the valuation in other, more
sophisticated, lending transactions.
One specific point that is relevant even in the bilateral loan context, and is equally relevant in
all of the more complex situations addressed below, is whether the lender client can use the
valuation report for additional lending decisions made after the initial loan, without further
reference to the valuer. It would be risky for a lender to try to do this without consulting
the valuer further, but members should ensure that wherever possible their engagement
letter and report record the lending decision for which the valuation is to be used, for the
avoidance of any doubt. See section 2.5.
C2 Assignment of your valuation engagement contract

The engagement between members and their clients for the preparation of a valuation is a
contract. See section 2 for the basic principles concerning the contract.

45
IP
In general, as a matter of English law, the benefit to a client of the contract can be assigned
by the client to a 'third party' (i.e. someone who is not already party to the contract), unless
the contract expressly prohibits assignment.
When a lender client sells a book of loans, one of the assets it will typically wish to sell with
that book of loans is the benefit of the engagement contracts with the relevant valuers. In
such a transaction, the assignment of the contract with the valuer would typically be part
of the loan sale agreement. In general, if the valuer’s contract does not prohibit assignment
without the valuer’s consent, the client would not have to seek consent to that assignment,
or involve the valuer in that process in any way. The valuer should receive notice of the
assignment, but in practice, may not even be notified until long after the loan sale, and
usually, will not be able to object.
This means that members may effectively end up in a contract with a party they do not
know, without knowing it has happened.
However, this will not be possible if members include a clause in their terms of engagement
by which they prohibit assignment of their engagement contract without their consent.
Typical wording to use for this purpose would be as follows:
‘[Client's name/you] may not assign this valuation engagement, or any of its rights or
obligations under this valuation engagement, without the prior written consent of [valuation
firm/us].’
If members do not prohibit assignment, they should at least give thought to including a
mechanism to ensure that any assignees are expressly bound by the original instruction
terms (including the liability cap). This should happen as a matter of law, but the safest
course is to deal with it expressly in the engagement contract.
Note that the concept of assignment is a different legal concept from 'third-party reliance',
which is the process whereby a valuer can acquire non-contractual legal liability to a third
party who is permitted to rely on the valuation, or to whom the valuer assumes a 'duty of
care'. That subject is addressed below.
C3 Syndicated loans
Syndicated loans are loans where there is a group or syndicate of lenders. This structure is
usually used for higher value loans than bilateral loans. It may be one of two broad types:
1 a 'pre-syndicated loan' (also known as 'club deals'), where the syndicate is formed before
the loan is made or
2 a 'post-syndicated loan', where the syndicate is formed after the loan has been made,
and the lender 'sells down' or 'novates' a part of the loan to each member of the
syndicate.
In the case of a pre-syndicated loan, the valuer will typically enter into an engagement
contract with all of the syndicate members (or with the syndicate lead as agent for all of the

46
IP
members). In a post-syndicated loan, the valuer will not necessarily even know about the
proposed syndication when the valuation instruction is received. However, the syndicate
members will wish to ensure that they are legally entitled to rely on the valuation and
typically they will seek confirmation of this directly from the valuer.
Valuations for syndicated loans may be commissioned under bespoke engagement contracts
with the valuer, an umbrella service agreement, or an existing service agreement may be
supplemented with clauses specific to the engagement. Whenever members enter into an
engagement contract, they should look on it as an opportunity to ensure that their liability
cap and fee are proportionate to the risks to the firm.
If providing a valuation for a syndicated loan, members should think about how to make
sure all of the lenders are bound in to the terms of their engagement contract (and if some
of those other lenders are also clients of the firm, members should ensure that the terms for
this contract prevail over the general terms in any service agreements with those clients). If
liaising only with the lead lender as agent for all the lenders, members should ensure that
the lead lender has confirmed that all lenders who wish to rely on the valuation are bound
by the member’s terms of engagement, including the liability cap. If this is not possible,
members should consider a direct agreement with each party confirming those terms,
and their report should state clearly that no party may rely on their valuation without their
express permission and without being bound by their terms of engagement, including their
liability cap.
See section 3 about liability caps.
C4 Valuations for mezzanine financing

Mezzanine finance is used in situations where a higher loan-to-value (LTV) is required by the
borrower or, for example, where the value of the project is expected to grow quickly such
as development and refurbishment situations. It gets its name because it is the middle layer
of debt, falling between the secured 'senior' debt of a conventional lender, and the equity
of the project owner. A mezzanine lender will usually have the right to convert the debt to
an ownership or equity interest in the project if the loan is not paid back in time and in full.
Mezzanine finance is usually 'subordinated' to the lending provided by the senior lender, and
secured by a second ranking mortgage.
Mezzanine finance is often provided quickly, with relatively little due diligence on the part
of the lender. This, and the fact that it is subordinated to the senior debt, means that it is
usually higher risk lending, and therefore relatively expensive finance for a borrower.
For a valuer, it is important to understand that:
• a mezzanine lender is usually the first lender to be exposed in the event that a project
fails or a borrower defaults and
• a mezzanine lender lends against the security of the highest tranche of equity in the
property that forms the security.

47
IP
These factors mean that the liability risk for a valuer in advising mezzanine lenders about
the value of a property is high. Members should ensure that their fee and liability cap reflect
this level of risk. A default in the mezzanine debt tranche could increase the risk to the senior
tranche for the valuer as there can be a greater potential for distress throughout the debt
stack once one tranche is in default.
C5 CMBS (Securitisation)
Securitisation (or commercial mortgage-backed security (CMBS)) is the process in which
multiple loans are pooled by the originating lender so that they can be repackaged into
interest-bearing securities.
Lenders use securitisation to transfer the credit risk of the assets they originate from their
own balance sheets to those of other financial institutions, such as other banks, insurance
companies, investment funds, and hedge funds. The interest and principal payments from
the assets are passed through to the purchasers of the securities.
CMBS essentially takes two forms, of which the most common is 'conduit CMBS', addressed
here. The other is 'agented CMBS', which is similar but is not specifically addressed here.
There is also a practical distinction between CMBS in which the securities are sold on a
restricted, private basis, and those where the securities are sold publicly, in the capital
markets.
Typically, a bank will make a number of loans over a period of time, then sell those loans to
a 'special purpose vehicle' (SPV) issuing entity. The SPV will raise money to buy the loans by
issuing tradable, interest-bearing securities (usually bonds) that are sold to investors. The
security issue is supported by the security for the original loans (i.e. the mortgages given
by the borrowers). The transfer of the loans typically takes place by way of 'novation' from
the original lender to the issuing SPV. The SPV then becomes the lender under the loan
agreement.
As the SPV has no employees and no real existence other than acting as a flow-through
vehicle, it has to delegate all of its functions to third-party service providers. It, therefore,
typically appoints a servicer to manage the loan on its behalf (although sometimes the
original lender will also retain the servicing role). The investors receive fixed or floating rate
payments from a trustee account funded by the cashflows generated by the underlying
loans.
The property valuation will typically be referred to in the 'offering circular' for the
CMBS, which is the document sent to prospective buyers of the bonds to advertise the
investment. The arranging bank may also seek to make the valuation available on a data
website for investors.
In English law, a valuation cannot be referred to in an offering circular without the permission
of the valuer. This means that the initiating lender will need to obtain the valuer's permission
before carrying out the CMBS transaction. That may present the valuer with an opportunity

48
IP
to ensure that the firm's fee – and, where appropriate, the liability cap – are commensurate
with the risk to the firm.
The risks for valuers in a public CMBS are greater than they are in a private CMBS. This is
essentially for two reasons:
1 In a private offering, the valuer will have a better awareness of which investors are
involved and will probably have an opportunity of agreeing contractual terms with all of
them (including, where it can be negotiated, a liability cap).
2 In a public offering, the valuer will not have knowledge of who the investors may be, will
not be able to agree contractual terms with all of them, and there may be regulatory
restrictions on the terms that can be included in the engagement (including as to liability
cap).
Please see the guidance in section C6 concerning liability caps in the context of public
offerings generally, that apply equally in the specific context of CMBS transactions.
Unless members have competent in-house expertise and capability, members should not
provide valuations for CMBS transactions without taking specialist legal advice.
C6 Crowdfunding and peer to peer lending

As of the date of publication of this practice information, the use of valuations in
crowdfunding and peer-to-peer lending is undeveloped. However, the preliminary view of
RICS is that the risks can be similar to the risks entailed in public offerings, because the
valuer may not know who the investors are who wish to rely on the valuation, and is unlikely
to be able to agree contractual terms with each of them. The arranger of the crowdfunding
or peer-to-peer lending may be content for the valuation report to be provided to potential
investors for their information only, on a 'non-reliance' basis, which will reduce the risk for
the valuer.
If so, members should ensure that both their engagement letters and valuation reports make
this basis clear, and should ask the arranger also to include a note on any website to which
the valuation report is uploaded, expressly recording this basis for the valuation. Until the
principles affecting the use of valuations in these situations become clear, members should
take specialist legal advice if asked to provide a valuation for use in crowdfunding or peer-to-
peer lending.
C7 Restricting third-party reliance

Section 2.1 explains that a claim for breach of contract can only be brought by a party to
the contract, i.e. the client, but that a valuer can be sued in negligence by those who are not
party to the valuation contract (i.e. third parties) to whom the valuer expressly accepts a
‘duty of care’, or those to whom the court says the valuer has assumed a ‘duty of care’. That
will usually include any third parties who the valuer has permitted to rely on the valuation.

49
IP
Valuers, therefore, need to ensure there is appropriate language in both the instructions they
accept and also their reports that suitably restricts the ability of third parties to rely on the
report and valuation. In practical terms, the reader of the report should be put on notice by
its terms or by the correspondence under which it is distributed as to who may rely on the
report and who may not.
In general terms, the addressees of the report (sometime called the beneficiaries) will be able
to rely on the report. Members’ engagement letters and reports should state that any party
entitled to rely on the report will be deemed to accept the whole terms of the instruction
including the cap on liability.
As mentioned above, valuers should also prohibit assignment of their engagement contracts
to third parties, unless they understand the risks of permitting assignment, and decide it is
appropriate to take those risks in the context of any particular engagement.
If consenting to a report being seen by a third party, it is important to specify in the

engagement letter and in the report itself whether the third party is also permitted to rely on
it, or it is provided for information only on a 'non-reliance' basis. A reliance letter or a non-
reliance letter is a useful tool in this respect.
Parties who often ask to be permitted to rely on loan security valuations include:
• arranger
• agent for lenders or investors (if dealing with agents for lenders, including a lead lender
acting as agent, a member should seek confirmation that they are authorised on behalf of
other lenders)
• lenders under the original loan documentation (other finance parties).
Parties who it may be appropriate to exclude from reliance on loan security valuations
include:
• borrower or sponsor
• loan servicer
• receiver
• transferees, successors or assignees of the loan
• other potential lenders, if the original lender decides to syndicate the loan
• lenders' other advisers
• bond holders (where the bonds are a private issuance – see section C5)
• hedging and swap counterparties
• lenders for other loans on the property (e.g. mezzanine lenders when valuing for the
senior lender) and
• trustees.

50
IP
C8 Invoicing parties other than the client

Care needs to be taken if the commercial valuer is asked to invoice a party who is not the
client. The following issues could arise:
• By issuing an invoice to a non-client, members could inadvertently permit the party to

whom the invoice has been issued to rely on the valuation. Therefore, members should
issue a clear statement alongside the invoice to the effect that by invoicing the requested
party, they are not permitting reliance on the valuation.
• Without a direct contract or fee agreement, it may not be possible to pursue the invoiced
party for non-payment. Members should consider raising this risk with the client.
• Members should ensure that they are not inadvertently becoming involved in VAT or
other tax evasion, and if unsure of the position, take specialist tax advice.
RICS recognises that lenders sometimes ask their borrower customers to pay the costs of
valuations provided to the lender. Although not always possible, the safest way for a valuer
to deal with this in order to avoid the risks described is to issue the invoice to the lender
client and ask the lender client to reclaim the cost from the borrower. If doing this, members
need to ensure that they are not inadvertently becoming involved in VAT evasion, and if
unsure of the position, should take specialist tax advice.
C9 Vacant possession valuations

It is common for clients, especially lenders, to instruct valuers to provide a vacant possession
value (VPV) for investment properties. This should be instructed as a special assumption
valuation, see Red Book Global Standards VPS 1, paragraph 3.1 (i), VPS 3(i) VPS4 (3) for
guidance.
As there is no specific definition or guidance on the basis of VPVs in Red Book Global
Standards, there is, therefore, a heightened risk of misunderstanding. For investment
properties, it is recommended that the valuer is either instructed on the following points by
the client, or that the valuer clearly states their approach, for example:
Assumed physical state:
• Is it assumed that the property is in the same state as it currently exists or that the
occupier has complied with their repairing and reinstatement obligations?
• Has vacant possession been achieved by a managed exit or by way of a default?
• Is any dilapidations money assumed available that can be applied to any refurbishment or
repair costs?
Property use:
• Is the VPV considered only for the current use or are alternative uses to be reflected
included redevelopment?
• What assumptions and investigations are to be made into planning?

51
IP
Market context:
• Is it assumed that the present occupier is/is not 'in the market' in the event of the
hypothetical vacancy, either to buy or lease the property?
The list above is not exhaustive and may vary depending on the circumstances.
C10 Reinstatement cost

It is common for clients, especially lenders, to instruct valuers to provide a reinstatement
cost (RC). It is important to understand if this will be used as the basis for insuring the
property or as a guide that the current/proposed insurance is broadly appropriate.
If the client wishes to be entitled to place reliance on the RC for making commercial
decisions, it should be undertaken by an appropriate and experienced qualified person, such
as a building surveyor. More commonly, lenders only require RC for guidance and formal
reliance is not required. In these circumstances, and subject to appropriate guidance, the RC
can be undertaken by valuers. In this case the following must be made clear in the letter of
engagement and the report:
• The RC is provided as a guide only and without liability, and any decisions taken on the
basis of it are entirely at the user's risk.
• The RC has been undertaken by a valuer and is provided in the context of a valuation
instruction.
• A clear statement of what has been reflected in the RC, which may include: demolition
costs; fees (including project management); external works (e.g. car parking and
landscaping). The treatment VAT, which is generally not included, should be clear.
• Assumptions on planning and building regulations, particularly for older buildings.
• If the property is in a conservation area, is a listed building or an unusual construction,
the valuer may wish to either decline to provide an RC, or state that there is a risk of much
higher variation on the cost.
Note: If the valuer is adjusting floor areas to a different basis for the reinstatement cost
calculation, e.g. from NIA to GIA or from IPMS 3 to IPMS 2, the adjustment factors should be
stated.
C11 Summary: key questions

When agreeing a commercial lending valuation instruction, address the following questions:
• Who can rely on the valuation, and for what purpose? For example, senior debt provider
or mezzanine lender, etc.
• Should the engagement contract with the client include a clause preventing the client
from assigning the benefit of the contract to third parties?

52
IP
• Is the purpose of the report clear and specific? For example, in connection with new
lending, loan monitoring, default, CMBS, etc.?
• In defining the purpose, members should try to be as specific as possible about the
lending transaction for which they are permitting the valuation to be used. Members
should consider making it clear – preferably in both the engagement letter and the
valuation report – that the valuation may not be relied on for different, or subsequent,
lending decisions.
• Are both the engagement letter and the valuation report clear about who the report is to
be addressed to, and whether third-party reliance is permitted?
• Is it necessary/appropriate to deal expressly with reliance by specific third parties such as
receivers, rating agencies, and other advisers?
• What liability cap is agreed?
• Consider the basis of the liability cap. For example, a cap for each party or claim, or a total
cap for the entire instruction (see section 3).
• Particular care should be taken where accepting instructions from a mortgage broker, i.e.
where the valuer may be at ‘arm’s length’ from the lender client, in order to ensure that
the issues raised in this practice information are properly considered.

53
IP
Appendix D: Valuations for

investment funds and public
offerings
D1 Public offerings including IPOs

As well as CMBS, there are other transactions in which finance will be raised in capital
markets against the security of property. The most obvious example is an operating
company whose property assets form a significant part of its balance sheet value, which
either floats on the stock exchange for the first time (an initial public offering (IPO)), or is
already listed and seeks to raise more finance through the stock exchange. In a London Stock
Exchange public offering, and in the case of most comparable jurisdictions, including Ireland
and the United States, the prospectus or equivalent document must refer to a valuation from
an independent valuer. That can only be done with the consent of the valuer.
If asked to consent to a valuation being referred to in this context, members should take
specialist advice, because the risks associated with the valuation being relied on by investors
– including potential investors in other jurisdictions – are significant. For example, it is not
usually legally permissible to agree a liability cap in this context.
Where the valuation is referred to in a public offering document, members should

consider taking specialist legal advice about limiting liability. However, in broad terms, it
is not permitted for a valuer to impose a liability cap on the purchasers of the investment
instruments issued, but:
• it should be possible to limit liability to the lender and other professional parties and
• where there is a private offering to a finite number of investors on a limited number of
loans (such as in a private CMBS), it may be possible to agree with those investors a cap
on the valuer's liability.
It is important to note that the valuer should only approve references to their own valuation,
and not inadvertently approve the whole prospectus or circular, as this significantly increases
the valuer’s responsibility and liability.

54
IP
Appendix E: Dispute resolution

If the contract between a firm of valuers and their client is silent as to how disputes are to be
resolved, the default position will be litigation, i.e. formal proceedings in the court.
The parties can choose not to go to court. The principal alternatives are explained in this
appendix. These alternative choices can be made after a dispute has arisen, but by that
stage, one party may already have resolved to go to court, so if a firm prefers one of these
alternative routes for resolving disputes with clients, it would be better to agree that ‘up
front’ in the engagement letter or standard terms and conditions.
RICS requires all RICS-regulated firms to have a complaints-handling process in place. This
document must also include an ADR provision as a part of RICS’ commitment to promoting
ADR as a means of resolving disputes. In addition to the alternatives to litigation described
in this appendix, RICS' Dispute Resolution Service (DRS) has been providing ADR services for
over 40 years and has developed a new form of ADR designed specifically for the resolution
of claims relating to residential valuations.
E1 Court proceedings/litigation
The court process is usually the most reliable and thorough way to resolve a dispute,
but unfortunately it can also be slow and expensive and is public. Over the past decade,
the English courts have taken steps to address this, first, by requiring more active ‘case
management’ by the courts, and secondly, by implementing the Pre-Action Protocols.
There is a specific Pre-Action Protocol for professional negligence claims, which includes
claims against valuers. The purpose of the Protocol is to require the parties to exchange
correspondence and documents and investigate the dispute fully and to consider ADR before
commencing court proceedings.
A claimant is supposed to start proceedings only if the Protocol has been complied with and
it has not brought the matter to an end.
It is important to understand the costs consequences of court proceedings. The basic rule is
that the loser pays the other side’s costs as well as their own costs (although in fact the other
side’s costs are generally reduced by approximately 10–40% depending on the nature of the
costs order made, or even more in Scotland).
The courts are taking an ever more proactive role in managing legal costs. Since April 2013,
parties to most types of UK litigation have been obliged to prepare detailed costs summaries,
which must either be agreed or approved by the court, and which then set the maximum
limit of recoverable costs. Litigants, therefore, need to manage their legal costs carefully, or
risk facing a substantial exposure to costs even if they win the case. It should also be noted
that the basic 'loser pays' rule can be displaced – or watered down – if the court is informed

55
IP
at the costs stage that the winning party refused unreasonably to participate in a mediation
at an earlier stage.
E2 Arbitration
Arbitration can be similar to litigation, but the parties appoint their own judge (arbitrator)
when the dispute arises. The most important difference from court proceedings is that
the arbitration process is private; the judgement (called the award in an arbitration) is
confidential to the parties. It can be quicker and less expensive than court proceedings,
but that is not always the case. As in court proceedings, the arbitrator will make a decision
about the costs of the process after deciding the substantive dispute, and just as in court
proceedings, the default position is that the loser pays both parties’ costs. An arbitration
award can sometimes be appealed to the courts, but only in limited circumstances.
E3 Expert determination
Expert determination is similar to arbitration, but it is less formal. Arbitration is an
‘adversarial’ process, like litigation, where each party presents its case and the judge/
arbitrator makes a decision. By contrast, expert determination is essentially an ‘inquisitorial’
process, whereby the expert conducts inquiries with the parties’ assistance before making
a decision, but the process can include elements of the adversarial process. Expert
determination is usually less expensive and quicker than court proceedings, but because
the process for expert determination and arbitration is more flexible, it is not possible to say
which will be quicker and less expensive in any given case as between expert determination
and arbitration. The process is best suited to resolving disputes over specific technical issues.
It is often used in valuation disputes, but it must be understood that it can also be less
thorough than court proceedings or arbitration. The expert is usually not bound to apply
legal principles, and the decision can only be challenged in extremely limited circumstances.
E4 Mediation
Mediation is a negotiation, facilitated by a mediator. The mediator does not have to be a
lawyer, and in many valuation disputes, it is a chartered surveyor.
Mediation will only resolve the dispute if both parties agree to the outcome. The mediator
does not make a decision, or even (unless specifically asked to by both parties) express
a view on the merits of the dispute. Because it is consensual, it works best against
the backdrop or pressure of one of the more formal processes outlined above. Often,
contractual parties, including valuers and their clients, agree at the outset of an engagement
that, if a dispute arises, they will at least try mediation before resorting to more formal
processes.

56
IP
E5 Ombudsman
The Financial Services Ombudsman has jurisdiction to hear complaints and to award
financial redress of up to:
• £150,000 for complaints referred before 1 April 2019

• £160,000 for complaints concerning acts/omissions before 1 April 2019
• £350,000 for complaints referred between 1 April 2019 and 31 March 2020 and
concerning acts/omissions after 1 April 2019
• £355,000 for complaints referred after 1 April 2020 and concerning acts/omissions on or
after 1 April 2019
if a firm is carrying on regulated activities, or is providing ancillary services, including
providing valuation advice, in connection with regulated activities. The Ombudsman may
become involved if a valuer’s services are provided as part of a mortgage application.
In addition to the Financial Services Ombudsman, there are currently two government-
approved providers of Ombudsman services for property agents:
• Property Redress Scheme and

• The Property Ombudsman (TPO).
RICS also approves Centre for Dispute Resolution (CEDR) as an alternative dispute resolution
provider for RICS-regulated firms. These providers offer consumer redress for firms involved
in the property sector, including estate agents and valuers, without charging the consumer
for the use of the service.

57
IP
Appendix F: Construction
F1 Introduction
The main text of this document was originally published in 2021 to assist both
RICS-regulated firms and their clients to understand the main risks and liabilities associated
with professional services provided by RICS members.
The document applies to all surveying disciplines. As a result, the language used is
necessarily broad. However, for some areas of practice, such as construction, there are
specific legal, contractual and procedural requirements that need more detailed guidance.
RICS members can be appointed to advise or undertake a variety of roles on a construction

project. They may be employed by a client, contractor or subcontractor. They can also be
employed as a consultant or contractor, or as a subconsultant or subcontractor.
This will affect the terms and conditions of their employment, as well as the type, extent and
level of service required. Members should always make sure that they understand precisely
what they are being asked to do and how they are being asked to do it.
This Appendix F has been prepared to provide additional support for RICS members working
in the construction sector.
F2 Arrangement
The additional guidance in Appendix F has been grouped together under the following
general headings:
• legislation (F4)
• project types (F5)
• appointments and services (F6)
• rights and obligations (F7)
• liability and insurance (F8)
• dispute resolution (F9) and
• summary (F10).
RICS provides specific separate guidance and practice advice for each of these topics.
Therefore, the information in Appendix F deals only with those areas of this document
that may need additional clarification for members working in the construction sector. It
highlights some key points where members may wish to undertake further subject-specific
research.

58
IP
RICS’ Rules of Conduct require that RICS members and regulated firms must maintain their
professional competence and ensure that services are provided by competent individuals
who have the necessary expertise. It is therefore incumbent on those members and
firms to ensure that they take account of the relevant professional standards and practice
information that apply to the work and services they undertake.
F3 Additions to the glossary

The following terms are used in Appendix F.
Term Definition
Building safety Established under the Building Safety Act 2022, the building
regulator safety regulator will have several functions, including:
• overseeing the safety and standards of all buildings

• overseeing the building control profession with mandatory
registration
• helping and encouraging the built environment industry and
building control professionals to improve their competence
and
• leading the implementation of the new regulatory
framework for residential high-rise buildings.
The functions of the building safety regulator will be carried out
in the UK by the Health and Safety Executive (HSE).
Construction work Depending on the legislation there are different definitions of

this term.
The Construction (Design and Management) Regulations 2015

(the CDM regulations) define ‘construction work’ as:
‘The carrying out of any building, civil engineering

or engineering construction work’.
Section 105 of the Housing Grants, Construction and

Regeneration Act 1996 (as amended) (the Construction Act)
contains a list of activities that are deemed to be within the
definition of ‘construction operations’, and another list of those
that are not.
Consumer Defined in the Consumer Rights Act 2015 as:
‘an individual acting for purposes that are wholly

or mainly outside that individual’s trade, business,
craft or profession’.

59
IP
Term Definition
Domestic clients Defined in the CDM regulations as people who have

construction work carried out on their own home or the home
of a family member that is not done as part of a business,
whether for profit or not.
Duty holder There are several legal duties prescribed by various pieces
of legislation that apply to construction. These include, for
example, the roles and duties of the principal designer and
principal contractor under the CDM regulations, and similar but
different roles with the same titles included in the Building Safety
Act 2022.
The obligations of these duty holders can vary depending on

the context. Members should:
• make themselves aware of the differences

• ensure that these differences are properly addressed in any
appointment and
• take care that the scope of these activities is adequately
covered in any professional indemnity insurance that is
arranged.
Golden thread The Building Safety Act 2022 requires information about certain
buildings to be stored. It states that:
‘this information should be accurate, up to date,

accessible and kept digitally’.
Collectively, this is referred to as the ‘golden thread’ of

information.
Residential occupier The Housing Grants, Construction and Regeneration Act 1996
defines a contract with a residential occupier as:
‘one that principally relates to “operations on a

dwelling” that one of the parties to the contract
“occupies, or intends to occupy” as their residence’.
The terms ‘employer’, ‘consultant’ and ‘contractor’ are used throughout Appendix F to
describe the parties to a construction or professional services contract, notwithstanding
that the actual published form used may include different terms such as purchaser, building
owner, supplier, provider, etc.
Note that the term ‘client’ is sometimes also used to identify the person or organisation who
has overall responsibility for a project, notwithstanding that some standard form contracts

60
IP
use the terms ‘employer’ and ‘client' interchangeably, particularly when referring to certain
pieces of legislation.
There will be occasions where the client is not a signatory to the contract itself, for example,
where work is carried out for an organisation, but the contract is signed as 'employer’ by
a specified post-holder with delegated authority as a representative of a department or
agency within that organisation.
It is important, therefore, to recognise and understand the potential differences as they

apply to the work under consideration, and the possible implications for the contractual
relationships between the various parties.
F4 Legislation
In addition to legislation that applies generally to the work of surveyors, there are several
pieces of legislation that apply specifically to construction-related activities. Principal
examples are listed in subsections F4.1 to F4.6.
F4.1 Housing Grants, Construction and Regeneration Act 1996 (as

amended) (the Construction Act)
For ‘construction contracts’ (as defined), this Act provides a right to payment in instalments
for contracts over a certain length, together with information on how those payments are
calculated. It includes a right to suspend performance for non-payment and outlaws ‘pay
when paid’ clauses.
This Act also introduces adjudication as a statutory means of dispute resolution and
prescribes a scheme for how this is to be administered.
Note that there are some exclusions to the Act for contracts with residential occupiers (as
defined) and those that are expected to last less than 45 days.
F4.2 Regulatory Reform (Fire Safety) Order 2005 (the FSO)

The FSO was introduced to consolidate earlier fire safety legislation and applies to non-
domestic premises (including workplaces) and the common parts of multi-occupied
residential buildings in England and Wales. It requires a ‘risk-based’ approach to fire safety
assessment and imposes an obligation for ‘responsible persons’ to carry out assessments as
part of an overarching duty to take ‘general fire precautions’, which are defined in the Order.
The FSO is amended by both the Fire Safety Act 2021 and the Building Safety Act 2022 as part
of the recommendations made by inquiry into the Grenfell Tower fire in June 2017.
The Fire Safety (England) Regulations 2022 were brought into effect under article 24 of the
FSO. They create new duties for responsible persons in England and focus on the need to
provide up-to-date safety information to the fire and rescue service, as well as residents in
multi-occupied residential and high-rise buildings.

61
IP
F4.3 Construction (Design and Management) Regulations 2015 (as

amended) (the CDM regulations)
The CDM regulations set out requirements for the management and control of health and
safety information on projects involving ‘construction work’ (as defined). They prescribe
duties and obligations for various ‘duty holders’, including clients, designers and contractors.
They also introduce the statutory role of ‘principal designer’ and ‘principal contractor’
who have specific duties relating to the provision and coordination of health and safety
information during the pre-construction, construction and post-construction phases of a
project.
Note that some provisions of the CDM regulations apply differently to ‘domestic clients’ (as
defined).
F4.4 Public Contracts Regulations 2015 (as amended) (the PCR) and
Public Contracts (Scotland) Regulations 2015 (as amended)
This legislation governs procurement in the public sector and sets out rules and procedures
surrounding contracts for supplies, works and services between ‘contracting authorities’ and
‘economic operators’ (as defined).
There is separate legislation covering the procurement of utilities and defence and security
works, although the UK government has proposed combining these into a single set of rules.
In addition, the Public Services (Social Value) Act 2012 requires public authorities in England
and Wales to consider:
a ‘how what is proposed to be procured might improve the economic, social and
environmental well-being of the relevant area and
b how, in conducting the process of procurement, it might act with a view to securing that
improvement’.
F4.5 Fire Safety Act 2021 (the FSA)

The FSA amends the Regulatory Reform (Fire Safety) Order 2005 to clarify the scope of fire risk
assessments under that Order.
F4.6 Building Safety Act 2022 (the BSA)

The BSA makes significant changes to the regulatory system – principally in England and
Wales, but it also has an impact in Scotland. It includes requirements for the demonstrable
competence of practitioners, as well as changes to the planning and approval regime for
construction projects. It also introduces the concept of a ‘golden thread’ of information about
buildings.

62
IP
The BSA also makes changes to the statutory timescales during which claims may be brought
under the Defective Premises Act 1972. These are discussed in more detail in subsection
F8.2.
The BSA creates a new building safety regulator, a role that will be undertaken in the UK by
the Health and Safety Executive (HSE).
Part 4 of the BSA introduces new duty holders, who will be known as ‘accountable persons’
for residential high-rise buildings. HSE describes these as:
‘the organisation or person who owns or has responsibility for the building. It
may also be an organisation or person who is responsible for maintaining the
common parts of a building’ (HSE, New roles and responsibilities).
Section 156 of the BSA clarifies the roles and duties of the ‘responsible person’ and the
‘competent person’ under the Regulatory Reform (Fire Safety) Order 2005. The ‘competent
person’ may be asked to undertake risk assessments on the responsible person’s behalf.
Guidance issued by the UK government references BSI’s Code of practice PAS 9980:2022
Fire risk appraisal of external wall construction and cladding of existing blocks of flats as a
methodology for carrying out some of the assessments.
Key points
• RICS members need to be familiar with the law and its procedures as they apply to
the work being undertaken. A statutory role may be subject to further requirements,
such as demonstrating competence in a particular subject, which may in turn involve
third-party accreditation or certification. Members should ensure that they have the
appropriate skills, knowledge and experience and, most importantly, that they have
appropriate insurance cover before accepting appointments in these subjects.
• Members should note that the legislative requirements may differ between the
devolved UK administrations. It is essential, therefore, to understand the specific
requirements that apply in the jurisdiction where the work is undertaken, which could,
for example, be different to where their own business, or that of their client, is situated.
F5 Project types
There is a wide variety of projects that a surveyor may encounter as part of their professional
activity. While many of these projects will involve the provision of surveying services, RICS
members practising in construction may also be expected to deal with contracts for the
delivery of works and supplies, as described in the PCR.
Projects can consist of relatively simple construction methods or more sophisticated work
including the use of specialist designers and contractors and a variety of consultants.

63
IP
There is a relatively mature market in the UK and beyond for construction work, which relies
on several different procurement and contractual routes. While the general principles will
typically be the same in each case, the practical application may well be different.
There are several well-established procurement routes in use in the construction industry;
the most common are as follows.
• ‘Design-bid-build’ (often referred to as ‘traditional’): the design is carried out by the client
team and construction is undertaken by the contracting team.
• ‘Design and construct’ (often referred to as ‘design and build’): the construction team is
also responsible for providing a design solution as well as its construction, in response to
a brief from the client team.
• ‘Management contracting’ or ‘construction management’: variations on a theme whereby
a separate management contractor or construction manager is appointed to manage and
coordinate the work, which is typically undertaken in a series of packages by individually
appointed ‘package’ contractors.
• ‘Cost plus’ (or prime cost contracting): a contractor is reimbursed for the actual cost for
the work undertaken as measured, plus an amount to cover their overheads and profit.
In addition, there are some more recent methodologies, such as partnering, alliancing
or frameworks that could involve more ‘bespoke’ procedures that members may not be
so familiar with. For example, the UK government has identified ‘cost-led procurement’,
‘integrated project insurance’ and ‘two-stage open book’ as arrangements that meet the aims
of its construction strategy. Further information is contained in Construction 2025.
RICS members should consider the overall contractual processes and the role that they are
being asked to undertake. There are significant differences between the services required;
for example, when working for an ‘employer’ client compared to working for a ‘contractor’
client, or on a traditional route as opposed to a design and build route, although the
language used may sound similar.
Key points
• The terms ‘procurement’ and ‘contracting’ are sometimes confused. In its broadest
sense, ‘procurement’ is a process involving several relationships throughout the supply
chain that may be the subject of formal contractual arrangements.
• Typical contracts are usually bilateral, but in some cases can involve complex multi-
party agreements. During a procurement process there will usually be a network of
contracts, with some parties entering into several of them. It is therefore important to
distinguish contractual relationships from simple managerial links and understand the
differences and implications for each party.

64
IP
F6 Appointments and services

Depending on the project type and the service offered, members may be asked to accept
a specific contractual arrangement. There are a several ‘standard’ forms of consultancy
appointment available for use in the construction industry, including those published by
RICS. Each appointment is normally supported by a schedule of services that sets out the
services that the surveyor will provide and the conditions under which they will be delivered.
The RICS schedules include ‘basic’ services such as quantity surveying or project
management. However, depending on the type of project, members may also be asked to
provide additional services or advice on more specialist topics such as capital allowances,
development appraisal, contract administration, employer’s agent and dispute resolution.
A further complication can arise where a member is employed to provide services in

connection with a design and build (D&B) arrangement. D&B as a concept has been around
for some considerable time – JCT published its Standard form of building contract with
contractor’s design in 1981. However, in recent years it has become conventional to transfer
the employment of consultants from the employer to the D&B contractor using a ‘novation’
or ‘switch’ agreement.
As well as introducing the possibility of conflicts of interest, contractual relationships can

become quite complex. For example, in a D&B context, the contractor may be required to
take responsibility for all the design, even though they may not be undertaking all of it.
When appointing several consultants on a project, it is not uncommon for a client to ask
one to take on the role of ‘lead’ consultant. This can involve extra duties but may also mean
changes to the contractual status of the parties; for example, where the lead consultant is
asked to directly employ the other consultants.
There has been a trend in recent years to use ‘public/private partnerships’, which were
originally introduced as part of the UK government’s (now discontinued) private finance
initiative. This involves the setting up of a consortium of consultants and contractors, often
described as a ‘special purpose vehicle’, to deliver a project on behalf of a public sector client.
The roles, responsibilities, rights and obligations of consortium members can change
substantially from project to project, so it is important to understand the precise
requirements for each one.
Members should ensure that they can identify, analyse and manage the risks involved with
taking on commissions to provide such services, and they must consider the following basic
points.
• Is the role or service requirement adequately covered by the consultancy agreement?

• Where the role has statutory or contractual effect (e.g. principal designer under the CDM
regulations, or contract administrator under a construction contract), does the schedule
of services in the consultancy agreement correctly reflect the contractual or legal
requirement of the role?

65
IP
Key points
As discussed, roles, responsibilities, contractual obligations and managerial links can vary
significantly depending on the procurement route, project team structure and contract. As
a starting point, members should establish in each case who bears the risk for:
• design
• cost
• time
• insurance and
• relevant events (e.g. those causing disruption such as weather, ground conditions,
industrial action, etc.).
F7 Rights and obligations

The potential risks for those involved in contracts for professional services in the
construction industry are generally well understood. However, the extent that they are
allocated to each party and the resulting impact may vary between contracts. Members
should familiarise themselves with the conditions that apply to the agreement they have
entered into, as well as the terms of any contract or agreement that they are asked to advise
on or administer, as part of the services they are engaged to provide.
There are some particular points that members may wish to focus on, as follows.
F7.1 Fitness for purpose or reasonable skill and care

An obligation to use ‘reasonable skill and care’ (RSC) will generally be fulfilled if a service is
provided to a standard that a reasonably competent member of the profession could be
expected to have achieved. By contrast, ‘fitness for purpose’ (FFP) means that the proposed
solution must be capable of being used for its intended purpose.
The Sale of Goods Act 1979 (as amended) states under section 14.3:
‘Where the seller sells goods in the course of a business and the buyer,
expressly or by implication, makes known—
(a) to the seller, or
(b) where the purchase price or part of it is payable by instalments and the
goods were previously sold by a credit-broker to the seller, to that credit-broker,
any particular purpose for which the goods are being bought, there is an
implied term that the goods supplied under the contract are reasonably fit for
that purpose’.

66
IP
Unless expressly excluded in the contract, the FFP obligation will normally apply.
Although in principle this requirement only applies to ‘goods’, as defined, there are situations
where contracts for construction work or professional services seek to extend the obligation
to services, chiefly those involving design. For example, a requirement that a building is to
have a specified working life could be an absolute requirement under FFP, whereas under
RSC, the designer would only need to show that they had made reasonable efforts to achieve
the result.
In MT Højgaard AS v E.On Climate and Renewables UK Robin Rigg East Ltd & Anor [2017]
UKSC 59, the UK Supreme Court held that the contractor had breached an FFP requirement
for foundations to a wind farm to have a working life of 20 years, notwithstanding some
errors on the technical documents provided to them as part of the tender information.
F7.2 Third-party rights/warranties

In contract law, the general principle is that only the parties to a contract may enforce
their rights under that contract. In construction, these would normally be the employer
and contractor, or the contractor and subcontractor/supplier. However, there are other
stakeholders in the process, including, for example, project funders and future owners or
tenants of a finished building. Additionally, there may be circumstances where the employer
under the main contract wishes to enforce rights under the subcontract or consultancy
agreement, such as where a specialist subcontractor or consultant is carrying out design
work.
This can be achieved in one of two ways. In England and Wales, the Contracts (Rights of Third
Parties) Act 1999 allows a person who is not a party to a contract (a ‘third party’) to enforce
a term of the contract. This was originally a common law right in Scotland (referred to as jus
quaesitum tertio) but has now been regularised and aligned with the rest of the UK under
the Contract (Third Party Rights) (Scotland) Act 2017.
In simple terms, the procedure involves the preparation of a schedule that identifies certain
third parties who may be described by class or category – for example, tenants or purchasers
– and the rights that they are entitled to enforce.
An alternative to the statutory procedure is to execute a collateral warranty. This has

broadly the same effect as a third-party rights schedule, but the terms and conditions of the
warranty may vary the circumstances under which it may be activated. There are several
publicly available collateral warranty forms, including those issued by the publishers of
‘standard form’ contracts, specifically for use with their own forms.
Some collateral warranty forms include a provision for ‘step-in’ rights. Essentially, these give
the beneficiaries of a warranty the authority to take over the provision of the services in
certain situations. For example, if a specialist subcontractor becomes insolvent, the client
or funder may wish to undertake the specialist work themselves, to minimise potential
delays and additional costs on the project. This can affect some of the other contractual

67
IP
relationships, as well as presenting issues for the consultant if they are asked to advise on
the procedures and processes to be followed.
Key points
• There has been a proliferation of collateral warranty requests in recent years as users
seek to minimise their own risk profile, so it is not uncommon for consultants to have
greater involvement in the setting up, applicability and operation of such warranties.
Members should determine whether this advice forms part of their scope of services,
and whether this will attract further risks and liabilities, which may not be covered
by their own professional indemnity insurance. In doing so, they should consider the
following.
• Is a warranty required under the contract? Because setting up a warranty will
have a cost, there should be some advance notice of it being requested, together
with an indication of the content and format, to allow the risks to be assessed and
appropriately priced. If not, the contractor/consultant may refuse to comply, or at least
seek to negotiate the terms and price.
• It is also important to ensure that the terms of any warranty are not substantially
different to those in the contract that it is intended to sit alongside. Provisions relating
to levels of liability, insurance cover and, most importantly, standards of service
delivery (see subsection F7.1) required by the ‘headline’ (collateral) contract should
be mirrored in the warranty. For instance, it would be inequitable to have an RSC
obligation in the contract, but an FFP obligation in the warranty.
• What are the critical dates applied to the warranty? There should be a clear time frame
for making claims under the warranty, as well as limitation periods for work carried out
under the warranty.
There may be some issues around intellectual property within the warranty. Often, the
headline contract will contain provisions concerning copyright in design and licensing of
that copyright for work by others. These should be reflected in any warranty provision to
ensure they are compatible. It may be the case, for example, that the licensing provisions
only become active once full payment has been received. This can prove problematic if
circumstances mean the warranty is activated due to poor performance.
Note that there is sometimes confusion between the terms ‘warranty’ and ‘guarantee’. In
general, warranties relate to services, while guarantees are usually requested from the
suppliers or manufacturers of products and materials used in the construction. However, it
is not unusual for contractors who are part of a group of companies to be asked for a ‘parent
company guarantee’ as a means of assuring their performance.
In simple terms, each warranty will represent a contractual arrangement. However, the
application, together with the specific conditions of each one, will usually be different, so
members may need to take or recommend specialist advice.

68
IP
F8 Liability and insurance

Because of the way that the construction industry traditionally operates, especially in some
of the more complex contractual arrangements, there are several differences in the way that
risk, liability and insurance obligations are allocated between the parties. There are some
instances worthy of note in construction, as follows.
F8.1 Professional indemnity insurance and project insurance

RICS’ Rules of Conduct require that:
‘Firms must ensure that all previous and current professional work is covered
by adequate and appropriate professional indemnity cover that meets the
standards approved by RICS.’
This would typically be in respect of liability for professional services, including design, where
necessary. See Professional indemnity for more information. Construction projects will
require other types of ‘project-based’ insurance; for example, to cover loss or damage to the
works, public liability or, in some cases, defects in construction or delays to the work, or as
an alternative to liquidated damages or retention. The relevant construction contract for the
project will usually determine:
• whether the cover is taken out by the employer or contractor (or subcontractor, as
appropriate)
• the amount of cover
• whether the cover is to be in ‘joint names’ and
• the periods for which the cover is to remain in effect.
Insurance is a complex area, and it is important for members to satisfy themselves that they
have the appropriate subject knowledge and expertise, and that it falls within the scope of
services they are appointed to provide.
If there is any doubt, members should recommend that specialist advice be sought.
F8.2 Liability periods

There is some discussion in the main text of this document regarding liability and the
periods during which claims may be made under contracts for professional services. In the
construction industry, where there may be several contracts in existence at the same time,
the position can be more complicated.
Traditionally, contracts for construction work will be subject to a liability period of six years
for a simple contract executed ‘under hand’ or 12 years for a contract signed as a ‘deed’.
However, the Building Safety Act 2022 introduced amendments to the Defective Premises Act
1972, which introduce retrospective liability periods of up to 30 years for some construction
projects. The UK government has issued guidance but it is likely that specialist advice will

69
IP
be needed for practitioners and their insurers alike as they try to come to terms with the
changes.
F8.3 Capped liability

There is further discussion of capped liability in the main text. Mindful of the potential issues
that could arise, some contracts used in construction include clauses that attempt to restrict
liability, either in terms of the issues that give rise to liability, or the financial amount of
liability in the event of a claim. Often an attempt is made to restrict liability to the amount
of fees received, or, in extreme cases, to ‘specific performance’, meaning that no financial
compensation is due. This is likely to be met with resistance from clients, who may prefer to
engage someone else to complete the work.
F8.4 ‘Net contribution’ clauses

The purpose of a net contribution clause is to ensure that, where several parties are involved
in a contractual arrangement and there is a claim for compensation, each party’s liability
would be restricted in proportion to their responsibility for the problem, as determined
by a court. The alternative is that any party can be pursued for the total cost of the claim,
irrespective of their culpability for the cause.
It can be seen, therefore, why net contribution clauses are a common feature of
appointments, construction contracts and collateral warranties, as they will ultimately limit
the financial exposure of each party. However, such clauses are less popular with clients as
it could mean that, if one party becomes insolvent, they may not be able to recover the total
cost of their claim.
The important thing for members to determine when addressing liability and net
contribution is that their rights and obligations under their own appointment are in line with
others – especially regarding liability. At the very least, they need to ensure that any potential
liability is adequately covered by insurance.
F8.5 RICS listed insurers and approved minimum wording

When considering their own professional indemnity insurance, RICS members and regulated
firms should be aware of and make reference to the RICS approved minimum wording and
list of experienced brokers and insurers. Separate approved minimum wording is provided
for use in Ireland.
The approved minimum wording places a duty on members to make a ‘fair representation of
risk’ to their PI insurers, as well as introducing obligations on the notification of claims, and
circumstances that may give rise to claims, and the supporting information to be provided.
It also contains several exclusions to cover, set out in schedule G (schedule F in Ireland).
A ‘fair representation’ includes clearly disclosing all material circumstances that the insured
is aware or ought to be aware following a reasonable search or that are sufficient to put the

70
IP
insurer on notice that they need to make further enquiries for the purpose of revealing those
material circumstances. It also includes presenting information in a manner that is clear and
accessible and ensuring that material representations as to matters of fact are substantially
correct and material representations as to matters of expectation or belief are made in good
faith.
Failure to disclose material information, whether in answers given in any proposal form or
by other means, may entitle an insurer to avoid the policy, impose additional terms and/or
additional premiums.
If there is any doubt whether a circumstance is material, it should be disclosed. If it comes

to the member’s attention that they have not disclosed full and accurate information, they
should contact their broker immediately for assistance.
Key points
• There is sometimes confusion surrounding the different topics of liability and
insurance. Contracts will typically apportion liability, and in some cases require the
parties to take out insurance to cover it. An example is ‘joint names all risks’ insurance
for a construction project, which is designed to cover all the risks associated with that
project, as defined by the contract itself. However, the presence of insurance cover
will not always limit each party’s liability; there may be prescribed limits for insurance
cover simply to make the cost of premiums financially viable, but absence of insurance
will not necessarily restrict liability, which in some cases may be severe. It is vital,
therefore, for each party to assess the risk and liability associated with the project from
their own perspective, and as noted elsewhere, to ascertain that they do not have more
– or less – liability (or insurance cover) than other parties in the same arrangement.
This can be especially difficult where there are several different agreements in place
for the same project. It is especially relevant where the project makes use of building
information modelling (BIM), where there may be several contributors to the BIM
model and there may be challenges in distinguishing between the relative contribution
of each party and the potential liability that this attracts.
• Members should remain mindful that cover for breach of contract claims under
professional indemnity policies is subject to certain limitations, with policies typically
excluding liability arising from:
– the acceptance by a firm of an obligation or the guarantee of fitness for purpose
(where arising as an express term)
– express guarantees
– penalty clauses and/or liquidated damages and
– any liability arising in consequence of any assignment of a collateral warranty of
similar third-party reliance document assigned to more than one party (except
where such agreements are given to a financier or funding party, where two
assignments is permissible).

71
IP
• Members involved in construction projects should be particularly mindful of these

market standard exclusions when negotiating appointments and other agreements
with clients. Professional body contracts (such as RICS, RIBA and ACE forms of
appointment) are drafted with these limitations in mind and may provide a good
starting point for negotiations, should firms have doubts.
F9 Dispute resolution
The Construction Act introduced the concept of adjudication as a statutory dispute resolution
method. This is intended to simplify the settlement of disputes and allow work to continue
while the resolution process is underway. Parties to contracts for ‘construction operations’
(as defined) have a right under the Act to refer disputes to adjudication at any time, whether
or not the contract has provision for it. The decision of the adjudicator will be binding until
the matter is finally determined, either by the courts or arbitration. There is a statutory
‘scheme for construction contracts’, which sets out the procedures and timescales to be
followed for adjudication under the Act.
Key points
• Contracts used in construction may contain a variety of ‘alternative’ dispute resolution
procedures, including mediation, negotiation, conciliation, dispute resolution boards,
etc. However, adjudication is a statutory right under the Construction Act, but only for
contracts of the type described in the Act. Note, for example, that the description
of ‘construction operations’ in the Construction Act is different to the description of
‘construction work’ under the CDM regulations, and the exclusion for ‘residential
occupier’ in the Act is different to the description of ‘domestic client’ in the CDM
regulations. Members working in these areas should be familiar with these differences
and how they apply to the work or services they are commissioned to undertake.
• Contracts for construction operations as defined in the Act must contain provisions for
an adjudication procedure that complies with the Act and the associated Scheme for
Construction Contracts (England and Wales) Regulations 1998. If they do not, then the
scheme will take precedence, so it is important to ensure, for instance, that published
standard forms have not been amended in a way that makes them non-compliant.
F10 Summary
The term ‘construction’ covers a variety of activities. RICS members and regulated firms
are asked to provide a wide range of services in connection with these activities. Before
accepting prospective commissions, the following points should be considered.
• Who is the client (employer)? Members should understand the differences between,
for example, consumers, residential occupiers and domestic clients as prescribed in

72
IP
legislation. Each will present different risks and liabilities and it is important to distinguish
what these are and how they can be dealt with in a construction scenario.
• What services are being requested? Are they part of the normal schedule of services
outlined in the RICS standard form of consultant’s appointment or will they involve
additional services?
• Are any of the services required by law (e.g. principal designer under the CDM
regulations; roles under the Building Safety Act, Fire Safety Act or Construction Act)? Each
will include specific tasks and/or timescales prescribed by statute, and it is important
to ensure that members have the appropriate skills, knowledge and experience to
undertake those roles. Members should avoid accepting roles or responsibilities that
are beyond their professional expertise and, by extension, outside the scope of their
professional indemnity insurance cover.
• Are the appointment terms and conditions compatible with others on the same project?
Are provisions concerning duties, apportionment of risk and liability balanced with others
carrying out similar roles? Who bears the ultimate responsibility for certain activities,
irrespective of who undertakes them?
• Is the provision of additional services covered by the member’s professional indemnity
insurance? There may be exclusions or limits to the level of cover for specific
circumstances. Also check that there are no inconsistencies for net contribution or
capped liability.
• Are any third-party rights undertakings required? Who are the beneficiaries and what are
the terms?
It is incumbent on members to undertake an appropriate assessment of the risks and their
own competence before accepting commissions, and, if necessary, they should be declined.

Delivering confidence
We are RICS. Everything we do is designed to effect positive
change in the built and natural environments. Through our
respected global standards, leading professional progression
and our trusted data and insight, we promote and enforce
the highest professional standards in the development
and management of land, real estate, construction and
infrastructure. Our work with others provides a foundation for
confident markets, pioneers better places to live and work and
is a force for positive social impact.
Americas, Europe, Middle East & Africa

aemea@rics.org
Asia Pacific
apac@rics.org
United Kingdom & Ireland

contactrics@rics.org
rics.org

Risk Liability and Insurance - Updated Oct 2023

Uploaded by

Copyright:

Available Formats

Risk Liability and Insurance - Updated Oct 2023

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Risk Liability and Insurance - Updated Oct 2023

Uploaded by

Copyright:

Available Formats

RICS PRACTICE INFORMATION

Risk, liability and

1st edition, April 2021

Risk, liability and insurance

Effective from 1 April 2021

Published by the Royal Institution of Chartered Surveyors (RICS)

Alexandra Anderson (RPC LLP)

Joe Arnold (Arnold and Baldwin Chartered Surveyors)

John Baguley (Countrywide)

Hugh Garnett (RICS)

Andrew Gooding FRICS (Knight Frank LLP)

Greg Harrison (Howdens)

Michael Holden (Michael Holden Chartered Surveyors)

Robert Jones (CMS)

Chris Lee (Savills)

Anthony Major (Barclays)

Charles Phayer (eSurv)

David Reynolds (David Reynolds Building Preservation)

Paul Tonkin (Hogan Lovells LLP)

Roland Finch FRICS

RICS Standards leads

Jo FitzLeverton and Megan Reed

Risk, liability and insurance

Risk, liability and insurance

A1 The court’s approach to professionals’ liabilities ����������������������������������������������� 31

Risk, liability and insurance

F8 Liability and insurance ����������������������������������������������������������������������������������������� 68

Risk, liability and insurance

RICS standards framework

Risk, liability and insurance

RICS professional standards are principles-based and focused on

They include practices and behaviours intended to protect clients and

• mandatory requirements, which use the word ‘must’ and must be

Practice information includes definitions, processes, toolkits, checklists,

Risk, liability and insurance

Alternative dispute The process of resolving disputes, including negligence

Arbitration A private dispute resolution process. See Appendix E.

Assignment The process whereby the benefit of all or part of a contract, is

Bilateral loan A simple type of commercial loan. See Appendix C.

Bracket The bracket of hypothetical reasonable valuations used to

Commercial mortgage- A type of finance transaction. See Appendix C5.

Delict Used in Scots law instead of ‘tort’.

Desk-top valuations Valuations conducted without a site visit.

Disclosure Permitting advice to be seen by or disclosed to a third party (i.e.

In the context of litigation, this can also refer to the parties’

Risk, liability and insurance

Expert witnesses Members giving independent expert evidence to courts and

Indemnity A contractual agreement sometimes given by a party providing

Joint tortfeasors Parties (usually professional firms) who take on responsibilities

Limited Liability A type of legal entity for carrying on business, governed in

Mediation A principal form of ADR. See Appendix E.

Risk, liability and insurance

Negligence Negligence is a ‘tort’. In the case of a professional, negligence

Residential mortgage- A type of finance transaction. See Appendix B.

Risk, liability and insurance

SAAMCO Cap An important principle in the common law of damages, which

Securitisation A type of commercial finance transaction whereby a primary

Syndicated loan A commercial loan that is shared by a group of lenders. See

Risk, liability and insurance

A1 The court’s approach to professionals’ liabilities �� 31

F8 Liability and insurance �� 68