Purplebricks reveals deposit legal issues could cost up to £9m

The estate agent said its planned results will be delayed after an internal review found it may have not informed tenants about deposits properly.

An investigation is under way to fix the problem (Joe Giddens/PA) (PA Archive)

Struggling estate agent Purplebricks has delayed its financial results and revealed it could be on the hook for compensation to tenants of between £2 million and £9 million as part of a legal battle.

The company said an internal review has uncovered a “process issue” in how it has been registering deposits for its 6,000 tenants.

Shares plunged nearly 20% in early trading following the announcement.

An investigation is under way to fix the problem but reports suggest it is an issue that stretches back to 2012 and relates to the company failing to properly serve legal documents.

Tenants must be informed that their deposits have been put into a national protection scheme and the documents must be given to tenants within 30 days of a deposit being paid.

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

Purplebricks

Failure to do so can result in a claim of up to three times the value of the deposit.

Purplebricks said: “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 £2 million to £9 million.”

While bosses figure out how to fix the problems, they said planned publication of their results due on Tuesday will now be delayed.

Alisha Butler of Phoenix Solicitors a legal firm in Wirral that is representing clients with claims against Purplebricks, told The Daily Telegraph: “The court does not have discretion as to whether they can or cannot award compensation; they must award it if the landlord or agent has breached their obligations.

“While claims can be brought against an agent for their failure to protect a deposit, ultimately the buck stops with the landlord, who can be sued as a result of the agent’s failure, even if they did not know about that failure.”

The tenant deposit scheme, in which a deposit is held in an independent account to protect tenants in any dispute at the end of their tenancy, was set up in 2007.