UK Landlord Forum / Life

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If you didn't protect the deposit (and this is an AST), they can sue you for the penalty for up to six years after the deposit was meant to be protected.
There is nothing you can do to prevent this (including agreeing to pay the £700, although it might work).

Returning the deposit allows you to serve a section 21 notice, which otherwise you wouldn't be able to do.

In reality, the process of claiming a penalty is quite complex and expensive and it's more likely to be a threat than actually carried out.
But it might be worth £700 to ensure that they leave - given everything else you've experienced.

It does sound like an odd arrangement, do you live next door to them?
And why on earth have you let the property with energy bills included?

The thing that you'll need to accept is that - all the other stuff you mentioned is (in some cases) quite literally just noise.

All that matters is whether you took a Deposit and then protected it - in time and correctly.

In this case you did not.

This is very odd. Based on the deposit the rent must be incredibly low,you would not get a bedsit in most areas for that.I have never heard of a winter let,but that makes it even dafter that you include heating bills.Is this some sort of lodger arrangement? To answer your question,there are no circumstances that will let you off the hook for not protecting the deposit.Do you have any proof that you repaid the deposit ? Please don't say you gave them cash.If you pay further money get them to sign an agreement that they will make no further demands.