Online estate agency Purplebricks will be forced to set aside as much as £9m after it found that its lettings business had failed to follow law protecting tenants’ deposits.
The company on Monday said it would delay publication of its results for the six months to 31 October, which were due on Tuesday, in order to work out how much the error would cost.
Purplebricks’s share price slumped by 20% on Monday morning to reach a new all-time low of 25p after it revealed the error.
The company described the problem as a “process issue in how it has been communicating with tenants on behalf of its landlords in relation to deposit registrations”, in a statement to the stock market.
Purplebricks, which is listed on London’s Alternative Investment Market, on Monday said it needed to cover “potential future claims which could arise under the Housing Act in relation to this regulatory process issue”.
Under the Housing Act, landlords have 30 days to inform their tenants of details of how their deposits are protected under government-backed schemes. If the landlord has not protected a deposit, a court can order the landlord to pay tenants up to three times the original amount.
The deposit protection schemes were brought in by the government in 2007 to prevent unscrupulous landlords from keeping tenants’ deposits, which are often worth a month’s rent or more.
The error is the latest blow to Purplebricks, which has struggled to live up to its promise as a UK tech company that was worth as much as £1.4bn in 2017 before its international expansion foundered. On Monday its market value fell below £80m.
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Purplebricks made revenues of £91m in the year to the end of April, but a £9m hit would have wiped out operating profits of £8.2m.
The company last month warned that profits would be lower than expected as the supply of homes on the market failed to match the demand for more space prompted by the pandemic. The profit warning sent shares down by more than a third.
It faces legal action from 100 estate agents who argue that they were in effect employed by the company so should be entitled to holiday pay and pension contributions.
