OVER the past decade, commercial property has become a more attractive investment option for financial institutions and private investors alike.
Commercial property allows a fund to diversify risk by spreading investment across different property sizes, locations and business sectors.
The introduction of investment vehicles such as Real Estate Investment Trusts and Property Unit Trusts provide individuals with the scope to invest in the sector in a tax-efficient manner.
Yet the well-publicised problems with the housing market are dwarfed by problems in the commercial property world.
As the cost of bank lending has increased, investors have been forced to sell their investments, while fewer tenants means vacant premises and therefore reduced income returns.
Experience shows that where there is a fall in the market, lenders and investors tend to look to their professional advisers in the hope that some of the losses created by the credit crunch may be recovered.
Those in the firing line will be the usual suspects – solicitors and the surveyors. However, in circumstances where increasingly complicated deals have been made (such as those resulting from complex investment schemes and hedge funds), the insurance sector must be ready to deal with increasingly complex litigation against such professionals.
Those at increasing risk are financial and tax advisers and even the managers of the investment trusts themselves.
Those advising lenders and investors will be looking closely at the retainers of their professional advisers.
Allegations of mis-selling may well flow from the pre-sale information provided by fund managers and those selling the products.
Allegations could go as far as the improper, or even fraudulent, use of investors’ money.
The extent to which such allegations and claims are covered by professional indemnity insurance may well depend on the integrity of the individual involved.
Although courts are wary of imposing liabilities on professionals purely as a result of falls in the property market, they will look carefully at the range of contractual and tortuous duties imposed on the professional and the losses which are attributable to any breach.
This was demonstrated in a recent claim where a valuer was found to have breached his contract despite having been misled by the borrower into valuing a different property to that which was offered as security.
Such cases demonstrate that, in the current financial market, professional advisers will face claims and their duties will be scrutinised.
