‘Tech-led estate agency’ PurpleBricks, has suffered an IT glitch in its lettings agency business that could cost it £9m.
The AIMs listed company admitted this in a statement to the market announcing postponement of its next interim results.
‘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 said. ‘Further enquiries into this matter are currently being conducted and the communications process is now being corrected.
‘In light of the above, 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. Early provisional estimates by the company suggest a potential financial risk in the range of £2m to £9m. Purplebricks is now in the process of finalising the level of provision required and associated disclosures and has therefore taken the decision to delay its results for the half year ended 31 October 2021 which were due to be published on 14 December 2021’.
The company has not disclosed further details but it appears something has gone wrong in the processing of possibly thousands of tenancy deposits.
As landlords are well aware, they are required to protect deposits in one of three government-approved deposit protection schemes and to confirm to tenants that they have done so, and how the money can be reclaimed. In all there are 10 things that landlords, or their agents, must tell tenants within a 30 day deadline. These include the address of the rented property, how much deposit has been paid, the basis on which some or all of the deposit may not be repayable, and what tenants should do if there is dispute over return of the deposit, along with details of the relevant dispute resolution service.
Provision of the information is important because there are potential financial penalties payable to the tenant for non-compliance. Also landlords, to whom agents owe a duty of care, will be prevented from pursuing possession proceedings.
PurpleBricks latest annual report is for 2019. It reported revenue of £136.5m, cash in the bank of £62.8m but an operating loss of £52.3m. In 1917 its shares were trading at around the £5 mark but this week are down to nearer 25p.
Ironically, the 2019 report listed as one of the risks facing the business as ‘an evolving legal and regulatory environment’. It said ‘failure to ensure legal, regulatory and ethical compliance would impact the reputation and operations of the Group. Regulators may impose significant fines for non-compliance’.
It seems the fears of whoever wrote this may soon be proved to have been well founded.
Apart from financial settlements with tenants and landlords, the company may also face investigation by the agents’ professional body, Propertymark.
Its head of compliance, David Oliver, said that ‘as a representative body we take any allegations against our members incredibly seriously and we will be investigating the claims of failure to properly register tenancy deposits by Purplebricks.
‘Legal procedures exist to protect both agents and their clients. Performing them properly not only protects agencies but is paramount for consumer confidence, providing transparency between businesses and their customers’.