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The landlords serve an invalid section 21 (some pre requisites haven't been met), however, the tenants agree to the move out date (in writing).

The landlord then makes arrangements for travel costs to take the property back on the agreed date, and also puts a deposit down for builders to come and renovate the property (Starting immediately after the agreed move out date).

2 weeks before the agreed move out date the tenants then go back on their word, saying that "a couple of weeks after we put down our holding deposit, the offer fell through". The tenants then find a new place which is due to start 20 days after the agreed move out date, and the tenants refuse to find temporary accommodation before then, which means the landlords must stay in temporary accommodation instead, and the builders cannot renovate the property so the landlords lose their deposit with them.

Who is liable to pay the builder's deposit, and the landlord's temporary accommodation and other costs incurred as a result of these circumstances?

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    I think you need the advice of your own, paid for, lawyer. They will be able to advice if there is a cause of action against the tenants or not (or if the tenants actually have a cause of action against the landlord - in which case, don't poke the hornets' nest). – Martin Bonner supports Monica Jul 29 '19 at 14:26
  • Also, which part of the UK do you mean? The law in Scotland will be very different. – Martin Bonner supports Monica Jul 29 '19 at 14:27
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The contract between the landlord and the builder will have specified the terms of any deposit, but it appears that since the builders were ready but unable to carry out work as agreed they would be acting lawfully in retaining the deposit. To answer the question in the last paragraph as asked, paying this deposit will have been the landlord's responsibility.

Since the landlord has incurred costs because of action taken by the tenant (changing the date of their departure), there may be grounds to pursue compensation from the tenant.

There are two separate legal relationships here - between the landlord and the tenant, and between the landlord and the builder. While the landlord will have been responsible for paying the deposit to the builder and other associated expenses, they may have grounds to seek redress from the tenant for their costs.

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