Help! Short term tenancy deposit issue as Landlords

[MerdeAlor]

This may be long - apologies
We rent out our house in the UK while we are living abroad.

New tenants moved in a year ago, found by a letting agency. The lettings agent was particularly poor and was fired between finding and installing our tenant so we had to fight to get a copy of the tenancy agreement etc. We gave them our DPS number and asked them to log the deposit there which they agreed to. I didn't check - I didn't know how inept they were at the time and was seriously ill so it wasn't a priority.

A year later and the tenants have just moved out. They were poor tenants for lots of reasons. Our house manager who did the exit Inventory told us that they have stuck sound proofing to the lounge walls (without our permission). The paint had come off in massive several metre wide patches and they have repainted the patches in different colours.
They have been asked to repaint those patches in the original colour, we have even given them the paint to do it with, then we will return the deposit.
We have spent £1000 already just sorting out the garden as they hadn't touched it for a year so we feel we are being very reasonable.

We have just discovered that the DPS never got their deposit so it has sat in our UK bank account for a year. The tenants have been told this and have now stopped all contact and are, I suspect contacting a solicitor to demand their deposit back without doing the work as we should have logged the deposit with the DPS.

I don't want to return the full deposit until they do the work to rectify the damage as it is a huge room that will cost several hundred pounds to rectify. I realise we are in the wrong for not logging the deposit, despite it being unintentional by us.
Do we have legal standing to keep part of the deposit if they don't repair the damage or should we just hand it all over before we get into trouble with the DPS?

Any advice gratefully recieved.

I would just hand it over and write it off. The trouble you could get into just isn't worth it.

Can you claim against the letting agents for negligence?

Tenants could claim 3 times the deposit if the decide to pursue it legally. You are obliged to give them details of where it is lodged within a short period of the onset of the tenancy - this is ll obligation whether an agency is involved or not. You may be best cutting your losses and hoping they leave it. If they have damaged the paintwork to that extent I wouldn't trust them to make a decent job of redoing it, get a decorator in.

I think this is a lesson learnt, you are very much in the wrong for not having adequately protected the deposit and could be fined up to the value x3. If the tenants chose to take action against you, I don't think this would be swiftly sorted out. I would be inclined to do more checks during the next tenancy to make yourself aware of potential problems and ask tenants to remedy them in good time and refund in full this deposit to avoid costly legal action. An expensive lesson I'm afraid. Sorry.

thanks all. I'm glad I asked. We will pay it in full now and take this one on the chin as a lesson learned.

Why don't you see if you can pay it into the dps now? If there is anything to be taken out of the deposit you can send the quote and if the tenant disputes it you can use the arbitration process.

Won't putting it into the DPS and then immediately starting arbitration highlight to the DPS that we have broken the law by not logging the money with them a year ago?

Yes, it will. Is the letting agency still in business? I would consider a small claims action if you have emails or similar asking them to protect the deposit and something from them agreeing to do so.

I guess we will take that route if the tenant sues us.
The tenants have stopped all contact with us, so I suspect they are thinking about legal action. I put a cheque in the post to them today for the full deposit amount.
I'd be surprised if they sued us after getting the deposit back.