The failure to properly serve legal documents on behalf of landlords has potentially left Purplebricks open to compensation claims.
Since its set up in 2012, Purplebricks has failed to provide tenants with the legally required documents that explain how their deposit has been put into the national protection scheme.
These ‘prescribed information’ documents should be provided within 30 days of the deposit being paid. The tenancy deposit scheme has been in existence since 2007 and requires landlords to secure the deposit in a national protection scheme to prevent it being kept unfairly. In the event of a dispute at the end of a tenancy, the scheme retains the deposit until the dispute is resolved.
If the document is not served, the tenant can claim compensation of up to 300% of the value of the money.
The claim must be made within a six year limitation period and can be made against the estate agent or the landlord.
The breach of tenancy law means the estate agent has caused thousands of landlords to be at risk of fines.
Purplebricks has had a rocky year, resulting in a plunge in share price since the beginning of 2021 from £1.5 billion to £75 million. The company manages around 6,000 tenancies on behalf of landlords
A legal firm in Wirral, Phoenix Solicitors, is representing clients against Purplebricks. The firm has confirmed that compensation must be awarded if the “landlord or agent has breached their obligations”. A court of law cannot have discretion in this case.
The landlord is ultimately responsible for failure to protect the deposit, and can be sued if the estate agent fails to do so even if they were unaware of the failure.
Purplebricks has said it has “recently become aware” of the failure and blamed the issue on an administrative IT error.
It has set aside £9 million, but it is estimated that potential compensation claims could cost the company as much as £30 million.
Aside from the issues around tenancies, investors in Purplebricks have been warned that profits would “fall short of investors expectations” as a result of fewer property sales instructions. Also, in separate disputes, the company is fighting a legal claim by over 100 estate agents who are formally self-employed but say they should be paid holiday pay and pension contributions. Purplebricks is also involved in the IT issues of the Simplify Group, which have left customers unable to complete housing transactions.