deposit taken and no agreement entered

Tenancy Deposits

Hello
i took a 'deposit' in March this year to book a house from March. It was all done very quickly as the future tenants arrived late. They signed a form to say their deposit would be non-refunable if they changed their minds and did not take up the tenancy.

we had little information from them at this point apart from a phone number. We tried from March to May to contact them to get them to sign agreements, we tried different phones, we asked other people if they knew them, they just seemed to have disappeared.

we had no alternative but to seek new tenants from 1/7/11 whcih we managed to do although time was tight.

we haven't heard from the original girls since then but now they are threatening to take us to court. The 'deposit' wasn't protected as there was no agreement in place

where do we stand? We do not feel we had to pay this fee back as we had to offset costs and had to relet so close to the student intake

comments please!

many thanks

Marie