Purplebricks share tumble as online estate agent warns of potential costs and delayed results
Further pressure has been piled on struggling Purplebricks, with the online estate agent warning it could face costs of up to £9 million following a “process issue” around deposits in the lettings management business.
The company added that it has delayed the publication of its first half results, which had been due this week.
Shares in the AIM-listed firm lost nearly 14%, or 4.41p, to 27.19p in early trading. At the start of January the shares had been 103p, and the firm floated at 95p in December 2015.
The group, led by Vic Darvey, said: “During an internal review the company recently became aware of a process issue in how it has been communicating with tenants on behalf of its landlords in relation to deposit registrations.”
It added that further enquiries are being conducted and the “communications process is now being corrected”.
The update came on the same day The Telegraph reported it is understood that since Purplebricks was founded in 2012, “it has failed to properly serve legally required documents to tenants explaining that their deposits have been put into a national protection scheme”.
The article added that these documents must be given to tenants within 30 days of the depo sit being paid, and failure to do so means the tenant can claim back up to three times the value of the deposit.
It said Purplebricks is threatened with a compensation bill of tens of millions of pounds.
Purplebrick’s update to the City said: “The company believes that it is prudent to provide for any potential future claims which could arise under the Housing Act in relation to this regulatory process issue.”
It warned early provisional estimates by the firm suggest a potential financial risk in the range of £2 million- £9 million.
Purplebricks said it is in the process of finalising the level of provision required and associated disclosures. It has decided to delay its results for the half year which were due to be published on December 14.
A company spokesman said: “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 believe the financial impact of this to be significantly lower than has been suggested.”
It marks the latest headache for the estate agent, after it last month issued a profit warning and pointed to a “more challenging” period in the six months to October with fewer properties coming to market.
Estate agents and builders have seen high demand for properties during the pandemic, as people reassessed housing needs during lockdowns, including many wanting more space. Buyers were also enticed by a stamp duty holiday which has now come to an end.
But in a sign of more traditional patterns coming back, Rightmove said the price of property coming to market has seen its usual December dip, down by 0.7% (-£2,234) this month.
The company is still forecasting prices will rise by another 5% in 2022, but it added: “Some of the edge will be taken off sellers’ pricing power by increasingly stretched buyer affordability, and more buyer choice boosted by previously hesitant sellers now gearing up for a New Year move.”
