I have been looking at the legislation regarding the penalties for non protection of deposits, and have come across some interpretation issues where I would welcome some input from readers.
Say a landlord has failed to protect a deposit. He does not want the prospect of the tenant suing him for the penalty to be hanging over him for the next six years so he prefers to resolve it now.
He also suspects that at some stage he will want to evict the tenants so wants to keep his section 21 options open.
Section 215 which is the section which deals with the prohibition on serving section 21 notices when the deposit has not been protected says, after the amendments in the Localism Act 2011 have been applied, as follows (per Lexis):
(1) [Subject to subsection (2A),] if a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when—
(a) the deposit is not being held in accordance with an authorised scheme, or
[(b) section 213(3) has not been complied with in relation to the deposit].
(2) [Subject to subsection (2A),] if section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with.
[(2A) Subsections (1) and (2) do not apply in a case where—
(a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or
(b) an application to a county court has been made under section 214(1) and has been determined by the court, withdrawn or settled by agreement between the parties.]
I am having trouble with this section. First off, (1) presumably means that the failure to protect within the 30 days is an absolute bar to serving a s21, save for where 2A applies, as s213(3) says
s213(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of  days beginning with the date on which it is received.
and presumably all the schemes will provide for the deposit to be protected within 30 days. Otherwise on the face of it, s1(a) might read as if you could serve the notice once you had protected the deposit ie outside the 30 days.
There is also a direct reference to section 2A there too, which I assume means that the draftsman wants compliance with 2A to be a condition of being able to serve a s21 notice. Although it does not really read like that – not to me anyway.
But I am particularly concerned with the bit in red.
If our landlord wants to dispose of the potential penalty claim, one solution is to make an offer to settle by making a payment to the tenant now. This seems sensible to me as the problem is resolved, the tenant gets a payment and the courts are spared another claim.
However does 2A(b) ONLY apply where the situation has been resolved in connection with court proceedings?
Let us take two examples. In both cases the deposit sum is £1,000, and in both cases the landlord has protected the deposit late with the DPS:
Landlord A – he agrees to settle with his tenant, Tenant A, now with a payment of £750 in full and final settlement. Both are pleased with this outcome.
The landlord is spared the prospect of the tenant bringing a claim against him in 5 1/2 years time. The tenant gets a welcome lump sum now which he can use to pay one of his pressing debts, and does not have to go to court to get it (the prospect of which terrifies him).
Landlord B – he is sued by his tenant for the penalty (perhaps with one of the no win no fee services available now or after using my kit).
However shortly after proceedings have been issued, he offers to pay the sum of £1,000 to the tenant plus the court fee and the claim is resolved on this basis.
Subsequently both landlords decide to evict the tenant using section 21. Landlord B is fine. He does not have to return the deposit as s2A(b) applies. But what about landlord A?
Can a landlord us s2A(b) if he settles?
It seems ludicrous to me that, on the face of it, Landlord A cannot take advantage of 2A(b). However that seems to be the way the clause is worded.
It this is the case, it would mean that landlords will be discouraged from resolving the matter by negotiation, which is generally what the courts prefer, being as there is such pressure on court time.
Or can the clause be interpreted in another way?
Does the wording or settled by agreement between the parties apply JUST in the context of a court claim, or does it stand on its own – meaning the Landlord A would not have to refund the deposit money before serving his section 21 notice.
What do you think?