IMPACT OF TITAN WILL BE FELT FOR ‘YEARS TO COME’

Commercial Mortgage-Backed Securities industryleaders highlight key lessons to be learned from landmark case

The impact of a landmark court judgment issued against Colliers International (UK) plc over its negligent valuation of a commercial property will be felt in the commercial mortgage-backed securities (CMBS) market for years to come.

Leading figures involved in the CMBS market debated the ramifications of the case at a seminar in London hosted by CREFC Europe, the trade association for the commercial real estate finance industry, and Rosling King LLP.

Rosling King were legal advisers in the case brought by Titan Europe 2006-3 plc against Colliers following its valuation of a commercial property in Germany. In his judgment in the Commercial Court, Blair J. concluded that Colliers had negligently overvalued the property by €32m and this is the figure that Colliers are required to pay to Titan. The case was progressed by Hatfield Philips International, the special servicer of the loan. Colliers are attempting to appeal the judgment and have applied direct to the Court of Appeal, although they were denied leave to appeal by Blair J.

Georgina Squire, head of dispute resolution at Rosling King and moderator of the debate, says the industry debate has highlighted a range of lessons to be learned from the case.

“We know the case is already making waves in the CMBS market but the lessons to be learned look as through they will have implications for the sector for years  to come.”

More than 150 industry figures attended the debate and key issues arising included:-

• How to identify where a professional negligence claim can be realistically progressed.
• Agreeing the appropriate party to make a claim.
• How to minimise costs in the pursuit of a claim.
• Identifying time limitations on claims.
• The margin of error that should be afforded to valuers.
• Valuer retainers are now being negotiated to a greater degree.
• Ensuring greater clarity in new CMBS documentation to cater for potential claims.

Georgina Squire, Head of Dispute Resolution at Rosling King,  said: “The judge set the margin of error for the valuer at 15%.  This was, in my view, as complex a valuation as any I have seen and so I believe it sets the high watermark for margins of error on mortgage valuations.”

“There is still time to pursue claims arising from valuations in the heady days of 2006/7 – it is not too late”

James Walton, partner at Rosling King, who advised Hatfield Philips throughout the case, said: “When the market is hot and the deal flow is high, it is inevitable that professionals make mistakes. The surprising thing is that the transaction documentation on complex CMBS structures like this did not expressly cater for what happens when such a mistake is made”.

“As the volume of CMBS issuance starts to increase, it is important that we have greater clarity in the documentation so that all parties within the structure know what to do and when to do it”.