What are they and how do they work?
Marion Ellis MRICS CCXP, Founder, InspiringCX explains how liability caps affect customers.
In May 2016 RICS issued revised guidance for residential valuers and surveyors in the Surveys of Residential Property 3rd edition. The guidance provides a clear, flexible framework for practitioners to develop their own services and, in particular, on the use of liability caps.
Recommendations were made to limit surveryors’ liability to third parties wherever possible, following the publishing on an independent report by Dr Oonagh McDonald, Risk Liability in Insurance Valuation Work in January 2103. But are these recommendations being used in practice?
What is a liability cap?
A liability cap is intended to limit the amount a client or third party can request in the event of a claim. Many surveyors who weathered the collapse of the property market from 2008 (and some earlier in the rollercoaster 1990s) would agree on a need to protect businesses and claims liability. Liability caps and excesses are used regularly in other industries, so it seems logical to apply them to residential survey and valuation.
How does it work?
Contracts with Lenders or other larger organisations are usually overseen by lawyers. The type and level of liability cap will be taken into context given the risk of the work being undertaken, and the appetite of the parties to work together.
Generally, they will either be agreed, not agreed or a mutual figure reached. As long as the liability cap has been through due diligence, it can be said that it has been reasonably debated. This would satisfy any professional indemnity insurance requirements, depending on the terms.
However, implementing such a clause in a contract between businesses is very different to formulating a direct contract with a member of the public, particularly when considering a defect claim.
Our reputation as surveyors
The majority of house moves occur in the wake of major life events, such as births, deaths, marriages and divorce. It could be argued that many customers in these positions are more vulnerable and are reaching out for a surveyor’s professional specialist advice and support, which is why the RICS has a Royal Charter for acting in the best interest of the public.
The reputation of residential surveyors inspecting properties for purchase fluctuates. While the RICS 2013 research report showed that the advantages of getting and acting on a survey before buying a house saved homebuyers an average of £5,750. Five years on, this research is now dated, and media coverage of poor service and missed defects damage the sector’s reputation.
Some firms are finding that defect claims are on the rise, due to a reduction in the valuation claim confetti letters of the past, improved governance of valuation methodology and better use of technology when it comes to comparable evidence. It also reflects the type of work now carried out by some surveyors.
Reasonable clauses only
Inserting a liability cap into the terms of engagement with a customer must be considered. If not, it would be unenforceable, as it must comply with the Unfair Contract Terms Act and the Unfair Terms in Consumer Contract Regulations.
Brief research into surveyors with their terms displayed online show just how poorly the liability caps are being demonstrated to customers. Often cited at 20 to 30 times the fee paid, one examples states: “For example, if you paid £100, our maximum compensation that we are obliged to pay you would be limited to £3,000.”
Whether the customer understands that they are paying a higher fee and the liability cap would most likely be more is debatable.
A better way might be to calculate the liability in the terms relevant to the customer. For example, a £400 fee at 30 times would be £12,000. Terms do not need to be standard and it is possible to easily tailor letters and terms to help explain such matters to customers.
Larger claims could also be considered on their individual merit and therefore be much less aggressive from the outset. As in reality, when things go very wrong and the extent of a defect claim is significant and sensitive, would a liability cap of £12,000 on a much more expensive claim be applicable? Time will tell as defect claims come in and the media take a view.
Either way, it’s important that surveyors remember the business we are in. Customers come to us for professional advice and reassurance, and it is therefore vital that customers feel they understand not just the scope of a survey, but also the risks and benefits of an often-visual non-invasive inspection. It is also important to understand that they can ask questions and talk to surveyors if they are unsure before they commit to purchase.
By creating an open and positive connection with your customer, rather than a defensive approach due to the fear of being sued, it makes our job easier. To do this, surveyors must create the opportunity to connect with their customers. This can potentially prevent some post-completion claims occurring and establish a better relationship with your customer. After all, house sales do fall through, and customers will return if they feel they have had good advice and support.
How to connect with your customer
• Simple courtesy – a friendly welcome and thank you for your business is often missed, and yet is so powerful. This is particularly important if the request for a survey was received through a third party.
• Communication before your inspection – this doesn’t always happen. Customers play a part in the agreed terms and should be asked to discuss the property with the surveyor as part of the agreed terms at a convenient time before inspection. These conversations often highlight early warning signs that can prevent aborted appointments and expectations of what the survey will provide and can be used for.
• Understand motivation – buying a home is exciting and surveyors can maintain that experience by finding out more about why the customer is moving, why they want/like the property and the timescale they would like. This can help you tailor your service to make it more personal.
• Personal connection – The key thing that makes a difference to a customer is the personal service from a surveyor. So, taking the time to let your customer know you value them and are interested in their property is gold dust. It validates their decision in choosing you as their surveyor and instils confidence.
• Don’t try to be everything to everyone – depending on the size of your practice it is important to note that you do not need to do everything for your customer yourself. If explaining liability caps is not your bag, then get the right person in your team to do it – just make clear your team’s involvement and be up-to-date at all stages before you speak to a customer.