The Supreme Court has ruled against tenants in a landmark case that could have given renters more powers when facing criminal landlords.

Campaigners have warned that the outcome of this judgment, which came from the UK’s highest court, will allow criminal landlords to exploit tenants “without fear”.

The case concerned a rent-to-rent scheme, where property owners lease out a building to a company, which then in turn rents it out to individuals.

In 2016, Martin Joseph Rakusen rented out his flat in north London to Kensington Property Investment Group Ltd, which in turn rented it out to tenants in 2016. But the property group never obtained the correct licence to do so, so tenants applied for compensation in the form of a Rent Repayment Order (RRO) from Rakusen, and not the property group.

A lower court ruled that while Rakusen may not have been “the” landlord, he was “a” landlord, and therefore was required to pay back the rent.

But today, after the decision was appealed, the Supreme Court ruled that only direct landlords of tenants should have to pay back rent in cases where an offence has been committed.

The rent-to-rent scheme seen in this case is often exploited by criminal landlords, who know there is little enforcement if the company commits an offence such as not acquiring the correct licences. When landlords are found to have committed an offence, they are required to pay back rent to tenants under an RRO.

But Safer Renting, a tenants’ advocacy group who were part of the case, told openDemocracy that barely 5% of the rent money won is ever paid as companies often dissolve before handing over a penny.

Today’s judgment sought to determine whether the property owner could also be liable to pay tenants’ compensation. Judges on the case determined that, as is current UK law, “an RRO cannot be granted against a superior landlord” and rejected the appeal.

John-Luke Bolton, a spokesperson for Safer Renting, said he was “disappointed” by the decision. “This judgement completely undermines the rights of tenants, and will allow criminal landlords to go on exploiting tenants without fear,” he said.

“It means that where a property has been overcrowded or rented out with unsafe conditions, or the tenants have been illegally evicted, they will effectively have no one they can pursue for compensation.”