Negligence/PII/Handling Client's Money

Question 1

What is the margin of error in a valuation?
Determined by case law:

Answer 1

• 5% residential
• 10% standard commercial valuations
• 15% difficult commercial valuations

Question 1

When does negligence occur?

Answer 1

A duty of care exists to clients and 3rd parties, using a ‘reasonable care and skill’. When breached, and there is a loss, a claim for damages arises (negligence claim)

Question 2

How long are you liable for a claim / What is the current limitation period for negligence?

Answer 2

• Limitation Act 1980:
  o Contract: 6 years from the date of the negligent act, breach of contract or omission. Section 14A: 3 years from the date of knowledge of the damage subject to the 15 years long stop from the negligent act/omission
  o Tort: 6 years from the date the claimant suffered the loss

Question 3

Is PI cover needed for pro bono work?

Answer 3

Yes – can work for free but you need PI cover

Question 4

What must you do if you receive a claim?

Answer 4

I would inform my line manager and insurer ASAP

Question 5

What case law is there that relates to negligence claims when providing pro bono work?

Answer 5

• Burgess v Lejonvarn (2020)
• Court Appeal determined that professionals providing services pro bono and without a contract are not under a duty to advise or give warnings and are not liable for work they do not do

Question 6

Tell us about the Merrit V Babb case law?

Answer 6

• Highlights the importance of having run-off cover in place
• Surveyor sued for negligence by former client
• Surveying firm no longer existed so individual surveyor was pursued for damages successfully

Question 7

How can you avoid / reduce the risk of negligence?

Answer 7

• Clearly understand client’s objectives and confirm instructions in writing in ToE
• Ensure you are competent to undertake instruction
• Undertake work in accordance with relevant professional standards and practice information
• Make detailed file notes and take photos
• Cap professional liability excess on your PII policy in ToE
• Keep up to date with market knowledge and legislation and undertake CPD

Question 8

What is PII?

Answer 8

• Professional Indemnity Insurance
• Mandatory and must be approved by an RICS insurer
• It is designed to protect clients, surveyors and 3rd parties against negligence claims when there is a duty of care breached and a claim for damages arises
• All members must ensure that an adequate and appropriate level of insurance is in place for each instruction having considered potential liabilities which may exist

Question 9

Is there any RICS guidance?

Answer 9

RICS Professional Indemnity Insurance Requirements (April 2022)

Question 10

What is HG’s PI cover limit?

Answer 10

£5 million

Question 11

What is the current minimum PI requirements for a firm?

Answer 11

Firms Turnover in previous year / Minimum Level of Indemnity Required for each claim
£100,000 or less: £250,000
£100,001 to £200,000: £500,000
Above £200,001: £1,000,000

Question 12

What is the current maximum level of uninsured excess required by RICS?

Answer 12

Firms Turnover in previous year / Maximum Uninsured Excess
Up to £10m: Greater of 2.5% of sum insured or £10,000
Over £10m: No set limit

Question 13

If it’s a new business, how will you calculate your turnover?

Answer 13

Estimate and adjust accordingly in due course

Question 14

What are you required to do in terms of PI?

Answer 14

• Consider your likely risk profile to negligence claims when deciding upon the level of insurance needed. The above are only minimum levels.
• Certificate sent to RICS on an annual basis
• Early notification to firm’s insurers is required when a claim arises
• Most firms aim to cap their liability
• PI cover needed for pro bono work

Question 15

How do PI policies work / On what basis is it underwritten in the UK?

Answer 15

• Policy should be Retroactive – on a ‘claims made’ basis
• Cover claims that are made during the period of insurance regardless of when the negligent act occurred

Question 16

What support does the RICS give to firms that are facing a claim but have gone into administration?

Answer 16

Members Support Service (MSS) ran by RICS for members facing claims for work carried out by an employer who has gone into administration, offering help, advice and further support

Question 17

When a firm stops trading / is closing down, what run-off cover is required?

Answer 17

• Adequate and appropriate run-off cover is required
• Consumer claims: a min of £1m of aggregate cover over 6 years
• Commercial claims: firms must consider what is adequate and appropriate for a min of 6 years
• Firms that can’t obtain run-off cover from insurer or open market can apply for coverage to the RICS Run-off Pool

Question 18

What RICS Guidance is there for PII?

Answer 18

• RICS Practice Information – Risk, Liability and Insurance, 2021
• RICS recommends the use of liability caps to manage risks associated with professional work
• Be aware of 3rd party reliance and make it clear that advice can only be relied upon by client named in ToE

Question 19

What is Clients’ money?

Answer 19

Holding deposits / rent / service charge

Question 20

What are the different types of client money accounts?

Answer 20

• General accounts that hold money for more than one client
• Discrete accounts reference a single named client

Question 21

What guidance does the RICS provide for handling Client’s money?

Answer 21

RICS Professional Standard ‘Client Money Handling’ 2019

Question 22

What are the 6 main areas of good practice as set out in the RICS Professional Standard ‘Client Money Handling’ 2019?

Answer 22

1. Holding client money
2. Providing information to clients
3. Receipts of client money
4. Payments from client accounts
5. Accounting records and controls
6. Compliance

Question 23

What is your firms clients’ money handling procedure?

Answer 23

HG doesn’t hold any clients’ money but if they did, they would have to:
- Keep client accounts separate
- Word “Client” must be on bank account and cheque book
- Client must be able to draw out money on request
- Agree payment of interest with client and accounts must be kept in credit
- Regular bank reconciliation to check payments received are transferred – checked monthly
- Accurate records are kept with running balance available
- Annual audit and reporting obligations are met certified by RICS accountant
- Record all cash taken in
- Signatories must be agreed with authorised staff and 2 signatures should be required
- RICS Regulatory Review Visits every 3 years by RICS accountant
- All firms handling clients’ money need to display their procedures document on their website (residential agencies need to display their scheme membership certificate in their premises)

Question 24

What guidance does the RICS provide for claims from clients which provide last resort protection in instances where an RICS regulated firm is unable to repay a client’s money?

Answer 24

• RICS runs a Clients’ Money Protection Scheme
• There are limitations and exceptions set out in the scheme rules
• Scheme is split in 2 parts: commercial and residential surveying firms

Question 25

Why is it important to remain solvent?

Answer 25

If advising others to be responsible with money, you should also be

Question 26

What is the purpose of the joint names on a client account?

Answer 26

For the purposes of dual authorisation