Online estate agent Purplebricks has been forced to delay the publication of its half-year results as it revealed a “process issue” in its lettings business that could cost millions of pounds to fix.
Purplebricks said the issue posed a “potential financial risk in the range of £2m-£9m” and was identified by an internal review, which discovered that the company had failed to follow the correct procedures when handling tenant deposits.
The company said it was finalising the amount of the provision and would delay its results, which were due on Tuesday.
Monday’s announcement compounds a difficult few months for the company, which has lost market share to competitors and has reported a dip in home sales as the number of properties coming to market dries up.
Purplebricks’ share price fell 20 per cent to 25p after the announcement, pushing losses to 75 per cent for the year to date. Its stock lost roughly 30 per cent on a single day last month when it warned on profits.
The latest problem relates to the company failing to alert tenants that their deposits had been placed in a protection scheme. A failure to inform tenants within 30 days means they are able to claim back up to three times the value of the deposit, up to six years after the event.
The Telegraph newspaper, which first reported the lettings process issue, estimated that costs could run as high as £30m if every eligible tenant pursued a full claim, but Purplebricks pushed back against that figure. “We believe the financial impact of this to be significantly lower than has been suggested,” it said.
As many as 11,000 current and former tenants using Purplebricks could be affected, according to Sam Cullen, an analyst at Peel Hunt. While the total sum those tenants could be entitled to could exceed £9m, he said it was unlikely to.
“The deposits were put into the correct schemes, the tenants just weren’t notified in the correct way. While the regulations weren’t strictly adhered to, the tenant wasn’t put at a disadvantage and, because you don’t have a load of tenants who have lost, say, £500, it’s unlikely we will have a load of aggrieved tenants mobilising,” he said.
When it floated in 2015, Purplebricks promised to shake up the estate agent sector by offering a sleeker, cheaper product, and spent heavily to take on high street rivals.
The company charges a flat fee of £999, or £1,499 in and around London. This is payable even if it does not sell the property, distinguishing it from traditional agents that charge a commission on completion.
Under Vic Darvey, who has been chief executive since 2019, Purplebricks has been trying to remodel itself, bringing all of its formerly self-employed workers in-house as staff. But the company is battling on a number of fronts.
Helen Ogden, head of Purplebricks’ lettings business, left the company this month after less than a year, after it emerged that an unknown number of tenant deposits had not been registered with a government-backed scheme.
Separately, hundreds of current and former Purplebricks agents are pursuing legal action against the company, claiming they are entitled to benefits such as holiday pay, pensions and national insurance contributions.
The agents said they were treated as full-time employees by the company, with their work schedules determined by Purplebricks, despite legally being self-employed. Their case follows previous successful actions against ride-hailing company Uber and food delivery company Deliveroo.