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AUSTRALIAN PROPERTY INSTITUTE

API Urgent Member Alert: ABA Code and Extension of Duty of Care Issue update and recommendation

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The API has been working closely with the ASIC, ABA and the Australian Small Business Ombudsman Kate Carnell AO and our 4 key Professional Indemnity insurers (PI Insurers) to reduce the level of risk attributed to the extension of duty of care issue identified in previous calls to pass on Valuation Reports to all banking customers.

The API confirms that the consultation period on the ABA Code has now been completed and that principle based Code can be found here.

Chapter 24 directly relates to the proposed now limited Valuation report sharing, headed “When we appoint external property valuers, investigative accountants and insolvency practitioners”

This Chapter as far as it pertains to our industry states as follows:

When using external property valuers we will be fair and transparent

  1. Our processes in relation to external expert valuations will be fair and transparent.
  2. Our communication will be clear and we will explain the purpose of the valuation to the customer.

When we will provide you with a copy of a valuation

  1. Where we have charged you (or you have reimbursed us) for a valuation of a commercial or agricultural real property, we will provide you with a copy of that valuation and the related valuer instruction (except where enforcement proceedings have commenced).

We may require you to acknowledge in writing that you accept our reasonable limitations on your use of the valuation before we provide it to you.

  1. We will only appoint appropriately qualified and experienced valuers who are members of professional organisations which abide by a similar code of practice.

We are recommending to all banking clients of API members the attached ‘Recommended Bank Release Letter’ be prepared, with an acknowledgement signed by the borrowers, their Customer.

From July 1, 2019 on all Valuation Reports relating to small business loans secured against Commercial and Agricultural properties, ALL API MEMBERS are to add the following wording as a front page to their reports

“This Valuation Report is prepared for the Lender named above for mortgage purposes and is not to be used or relied by any other party for any other purpose.  It is subject to the terms and conditions, disclaimers, qualifications and limitations contained in the Report and any annexures thereto, including the Lender’s Customer Disclaimer contained in annexure ##.

All members are to add in the executive summary of the following wording

“This Report is for the sole use only of <insert Lender> for mortgage purposes only and is not to be used for any other purpose by any other party.  Any reliance, use, distribution, publication of the Report and/or any other representations made relating to the contents of the Report is restricted solely to the Lender, and any additional parties expressly named in this Report.

No responsibility is accepted by the Valuer and/or Valuation Firm in the event that the Lender to which this Report is addressed, or any other agreed additional reliant party(s) noted in this Report, relies, uses, distributes, publishes and /or otherwise represents anything contained in the Report for any other purpose apart from that expressly noted previously. 

No responsibility is accepted by the Valuer and/or Valuation Firm to any other parties who rely, use, distribute, publish and/or otherwise represent anything contained in the Report for any purpose.”

We understand some members will be adding this to every valuation report from July 1.

Some Banks have slightly different wording, with some intending customers execute and some simply having the exact wording or words to that effect outlined in the letter attaching the Valuation Report for Commercial and/or Agricultural properties secured by standard form small business loans.

It appears that there are some PI Insurers who are not satisfied that the level of risk is now very low, with some PI Insurers unfortunately issuing exclusions. This is personally disappointing and unrealistic given the anticipated actual level of risk going forward at this time.

Professional Indemnity Insurance is a requirement of Bank Panel Valuer Agreements and the API are happy to provide details of those that do not appear to have adopted this position.  API is making every effort to support you to be in a position to move away from any service suppliers who are acting unreasonably. I would be interested to understand what your insurers are providing to you.

Please do not hesitate to contact Amelia Hodge should you have questions via communications@api.org.au