Hello, thank you for your question.
Unfortunately; regardless of the circumstances if you failed to protect the deposit then the tenant is normally entitled to compensation. The law is there to ensure that landlords follow the rules and it has to be strict to ensure that compliance. One thing to bear in mind is that under the legislation the judge has to award the refund of the deposit and then compensation. The judge has discretion to award compensation of 1x, 2x or 3x the deposit.
So, if you let the matter go to court then you could explain all the circumstances and perhaps the judge might be sympathetic and make the award at the lowest level. If you persuade the judge that you have repaid the deposit then they may well just award 1x the deposit as compensation.
In terms of the damage/ unpaid bills she caused you could issue your own small claim or if this matter went to court you could file a counterclaim.
Letting the matter get to court is risky though as firstly you never know how much the court will order and secondly, you could be ordered to pay the legal costs of the tenant.
There's nothing to stop you trying to negotiate with her solicitors. Explain that you already repaid the deposit and that you are considering claiming for the damage caused by the tenant make them an offer that you think is fair. It is best to reply by letter/ email. You can mark any letter you send as "without prejudice save as to costs" at the top. This means that generally the letter cannot be shown to the judge until after the case is concluded. This means that any admissions you make can't usually be used against you etc.
If you want to get your own solicitor to write to them you can find one here: https://solicitors.lawsociety.org.uk.
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