Thank you for your question.
It's bad news I'm afraid, the penalties on landlord's for not having placed a deposit in to a tenancy deposit scheme are severe.
All deposits taken under ASTs must be paid in to a scheme and if they are not the tenants may make an application at Court for the return of the whole of the deposit monies (regardless of the fact that they may have been 'bad' tenants) and if the Court finds the landlord in breach of their obligations (as you are I'm afraid) then the Court will order the landlord to pay a fine of three times the deposit amount to the tenant.
They can make the application after they have vacated.
You've got to think practically about the situation, if you think you can come to some understanding with them about the remaining rent in exchange for them not making an application then I would leave it there and wait to see what happens. You will still have an action against them for the rent arrears but I assume the potential liability for not having placed the deposit in a scheme far exceeds the arrears and so is not worth pursuing unless they issue in respect of the deposit. I would imagine any action by you for the arrears would quickly precipitate an action by them for the deposit/fine.
Fingers crossed they have not done much research in to the penalties on the deposit issue.
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Okay, thanks. It's my own fault of course for not checking if things had changed since the agreement was printed.
Is there a statute of limitations after which they wouldn't be able to start legal proceedings or is this something that they could start years later?
Do the penalties get paid to them?
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