Shares in Purplebricks tumbled another 20 per cent after the online estate agent warned that it faces a multimillion-pound payout to tenants because of a “process error” in its lettings business.
The potentially costly mistake means that the company has had to delay its half-year results, which were due to be published today. Bosses warned that Purplebricks could face claims from tenants totalling anywhere from GBP2 million to GBP9 million.
The shares, which had already lost more than two thirds of their value this year, dived a further 6 1/2 p to 25p, their cheapest since last March. The stock made its debut at 100p in December 2015 and peaked at above 500p some 18 months later.
Purplebricks said that it had been carrying out an internal review into its lettings business, which was what had alerted it to “a process issue in how it has been communicating with tenants on behalf of its landlords in relation to deposit registrations”.
It is understood that the issue partly related to the company not putting some of the deposits it had received from tenants into a deposit protection scheme, which it should have done.
However, it is thought that the bigger issue was that Purplebricks, ever since it was founded in 2012, has failed to properly send legally required documents to tenants explaining that their deposits had been placed into a protection scheme.
These documents must be given to tenants within 30 days of the deposit being paid. If they are not, tenants are entitled to claim back up to three times the value of their deposit.
That is how Purplebricks came to its estimate that it faced claims of between GBP2 million to GBP9 million, although The Telegraph, which first reported the errors, suggested that the bill could be as high as GBP30 million if every eligible tenant made a claim.
Purplebricks only told Deloitte, its auditor, that it was facing a multimillion-pound liability on Friday, according to The Telegraph. A spokesman for the company said that Deloitte was informed “as soon as the matter came to light”.
A spokeswoman for the company dismissed the GBP30 million forecast, explaining that “we believe the financial impact of this to be significantly lower than has been suggested”. She added: “It is disappointing not to be able to update on our business transformation. Our lettings division is a small part of our business and this situation relates to a specific process issue in how we’ve been communicating with our tenants.
“We look forward to presenting our half-year results in due course and sharing the progress we’ve made in delivering on our strategy.”
Purplebricks has no physical branches and has previously charged a fixed fee of GBP999, or GBP1,499 in London, regardless of whether a home is sold. However, this summer it started to return fees in full if properties had not attracted an offer within 10 per cent of the valuation.
In its stock exchange filing, Purplebricks added that its “communications process is now being corrected”. It plans to make an announcement about its half-year results “as soon as practical”.
The error compounds what has been an annus horribilis for Purplebricks. More than a third was knocked off its stock market value in November after it warned that profits for its financial year, which runs to the end of March, would come in well shy of expectations.
That is despite the UK property market being at its hottest since before the global financial crisis: transaction volumes — key for estate agents — have been tracking 2007 levels, while in the past year house prices have risen more than 10 per cent to record highs.
Purplebricks has started to employ its “local property experts”, who were previously classed as self-employed, but the “disruption” this caused was partly to blame for it having lost market share in recent months.
The company is facing legal action from former agents who claim that by being deemed self-employed, they missed out on holiday pay and pension contributions to which they were entitled.
The law firm bringing the claim believes it could cost Purplebricks and its peers “tens of millions of pounds”. Purplebricks has said that there is no legal basis for this potential action.