Professional Negligence in NW Realite‘s Property Valuation Costs GT Bank Nearly Sh30 Million

A Kenyan court has delivered a costly lesson in professional accountability after ordering property valuation firm NW Realite Limited to pay Sh29.7 million in damages for negligent valuation services that exposed Guaranty Trust Bank Kenya to significant financial losses.

The case, decided by Justice Josephine Mongare at the High Court, centered on a 2014 property valuation in Kwale County’s Kiwegu area that went catastrophically wrong.

NW Realite had been hired by GT Bank to assess a property that would secure an Sh80 million loan for client Micro Mobile Limited.

The valuation company’s report painted an optimistic picture, stating the property’s open market value at Sh190 million, with a mortgage value of Sh150 million and a forced sale value of Sh142.5 million.

Based on these figures, GT Bank confidently advanced the Sh80 million loan, retaining the property title as security.

However, when Micro Mobile Limited defaulted on loan payments and the bank moved to auction the property, reality struck hard.

No buyers emerged, and a subsequent court-ordered valuation by Crystal Valuers Limited in 2019 revealed the property’s actual market value at just Sh50 million, with a forced sale value of merely Sh37.5 million.

The discrepancy was staggering.

NW Realite had overvalued the property by nearly 300 percent, creating a paper value that bore no resemblance to market reality.

Justice Mongare found that this gross overvaluation directly caused GT Bank to advance a loan amount far exceeding what the security could realistically cover.

The court identified several critical failures in NW Realite’s valuation process.

The report lacked basic professional standards, containing no inspection date or sketch plan.

More damaging was the company’s failure to recognize that the property contained protected mangrove forests, ecosystems safeguarded under Kenya’s Environmental Management and Coordination Act and Forest Conservation and Management Act.

“The fact that the defendant did not know that the mangrove forest sitting on the subject property was protected speaks of the defendant’s negligence,” Justice Mongare observed, noting that proper due diligence would have required consultations with relevant authorities to confirm the environmental status of the land.

GT Bank had initially sought damages totaling Sh106.6 million, representing the outstanding loan amount as of February 2020.

However, the court took a more measured approach, recognizing that the bank also bore some responsibility for the loss.

Justice Mongare noted that GT Bank had failed to conduct independent due diligence on the property and had not moved swiftly enough to mitigate losses by pursuing legal action against the borrower or selling the security.

The court also acknowledged that the valuation company could not reasonably have foreseen that the borrower would default entirely.

Applying the principle of contributory negligence, the court apportioned 30 percent liability to NW Realite.

The damages calculation took the difference between the loan amount and the property’s actual forced sale value (Sh80 million minus Sh37.5 million), then applied the 30 percent liability ratio, resulting in the Sh29.7 million award.

The judgment serves as a stark reminder to valuation professionals of their duty of care and the potentially severe consequences of negligent practice.

For financial institutions, it underscores the importance of conducting independent due diligence even when relying on professional valuations, particularly for properties in environmentally sensitive areas.

The case highlights broader issues in Kenya’s property valuation sector, where inadequate due diligence and environmental oversight can expose both professionals and their clients to substantial financial risks.

As property markets continue to evolve, the demand for accurate, professionally conducted valuations that account for all relevant factors, including environmental constraints, has never been more critical.​​​​​​​​​​​​​​​​