The £1 Transaction That Protected a Landlord From Liability
A Symbolic Act That Spoke Volumes
Some headlines make you pause and read twice: “The £1 transaction that protected a landlord from liability.” At face value, the concept seems absurd—how can a nominal payment of £1 shift an entire legal risk? Yet here’s the remarkable part: a well-drafted contract, with only a symbolic £1 consideration, was recognised by the courts as sufficient to transfer legal responsibility. The case involved a rent-to-rent arrangement where the superior landlord (the ultimate owner) leased the property to an intermediary, who then sub-let rooms. The intermediary failed to secure necessary licensing. When the council sought to penalise the property owner, the courts ruled firmly in their favour, recognising the legal sharpness of the arrangement.
Rent-to-Rent Explored: Structure, Risks, and Legal Nuance
What Is Rent-to-Rent?
Rent-to-rent refers to scenarios where a property owner (the “superior landlord”) leases a property to an operator—often a company—that sub-lets it, typically on a room-by-room basis. These intermediaries assume full property management and collect rent from tenants. For property owners keen to avoid day-to-day running of lettings, the model can provide hands-off income.(NRLA)
The Legal Quagmire: Licensing and Responsibility
One key risk arises when sub-letting turns the property into a House in Multiple Occupation (HMO), necessitating a licence by law. If the operator fails to obtain the licence, who bears the legal and financial consequences? In the Rakusen v Jepson case, tenants attempted to impose a Rent Repayment Order (RRO) on the property owner, despite the superior landlord not being involved in the licence failure.(Landlords Guild England, Lodders Solicitors, NRLA)
The Legal Odyssey: From Tribunal to Supreme Court
Starting at the Tribunal
The legal journey began in May 2016, when Mr Rakusen leased a London flat to Kensington Property Investment Group (KPIG). KPIG then sub-let to tenants without securing an HMO licence. The tenants applied for a Rent Repayment Order of £26,140—claiming the superior landlord was liable.(Landlords Guild England)
The Appeals Process
The first tribunal allowed the RRO claim against the superior landlord. Undeterred, Mr Rakusen appealed. The Court of Appeal ruled in his favour, finding that an RRO could only be made against the immediate landlord.(Landlords Guild England, Lodders Solicitors)
The Supreme Court delivered its judgment on 1 March 2023, unanimously upholding the appeal. The Justices confirmed that RROs are limited by statute to the landlord of the tenancy under which the rent was paid—here, KPIG, not Mr Rakusen.(Lodders Solicitors, NRLA, LandlordZONE)
The Legal Logic Unpacked
Chief among the reasoning was statutory interpretation. The justices considered it counter-intuitive to require a landlord—who never received rent—to “repay” it. RROs were intended for those who benefit directly from the rent, reinforcing that legal liability must follow economic and contractual reality.(LandlordZONE, NRLA)
Why It Matters—Lessons for Landlords and Operators
Contracts Are More than Money
This case underscores that contracts distribute not just revenue but also risk. Even a “£1 transaction”—a nominal consideration—can clarify roles and responsibilities. What counts is the clarity and drafting, not the monetary value.(Property118)
Licensing Liability Is Contextual
Licensing liability attaches to whoever holds control for which the legal duty exists—not necessarily the property owner. The rent-to-rent operator, who received rent and managed the property, rightly bore responsibility for licensing.(NRLA, Ansons Solicitors)
Disputes Can Span Years
This case stretched from 2016 to the Supreme Court’s ruling in 2023—an extended legal battle. It speaks to the stamina and documentation required to defend one’s position.(Landlords Guild England, NRLA)
The Rise of Rent-to-Rent and Reform on the Horizon
A Divisive Business Model
Rent-to-rent is polarising. It provides hands-off income and management relief—but also attracts criticism as a “scam” or exploitative model when licencing and tenant care are neglected.(NRLA)
The National Residential Landlords Association Speaks
The NRLA intervened in Rakusen v Jepson to ensure landlord perspectives were heard. They applauded the Supreme Court for affirming that rent-to-rent companies—who receive rent—must also bear related liabilities.(NRLA)
The Renters’ Rights Bill: Future Change
Legislation is already in motion. The Renters’ Rights Bill proposes to expand RRO liability to include superior landlords and company officers. This reflects concern that rent-to-rent structures may be used to skirt responsibility. If enacted, such changes could reverse the Rakusen precedent.(Wikipedia)
When the £1 Transaction Isn’t Enough
The Cabo v Dezotti Warning
A cautionary tale comes from Cabo v Dezotti (2024), in which a landlord attempted to use a limited company as a shield from RRO liability. She argued the company—intermediary landlord—received no money, and she suffered no personal benefit. The courts (Tribunal, Upper Tribunal, and Court of Appeal) rejected that arrangement as a sham: the company was merely her agent. The RRO was valid.(JMW Solicitors)
Thus, while rent-to-rent contracts can distance liability, they must stand up to close scrutiny. The substance—not just the form—will be assessed.
Broader Implications: Protecting Tenants Against Rogue Landlords
A Different Kind of RRO Saga
The landmark Rakusen case isn’t the only story in RROs. In another, 46 tenants of billionaire landlord John Christodoulou secured £263,555.68 in rent repayments after enduring unsafe, unlicensed HMOs in Hackney, east London. The tribunal condemned the landlord’s companies as “rogue,” citing hazardous conditions and licensing failures.(The Guardian, The Times)
Legal Victory, Practical Challenges
The tenants won—but face hurdles. The landlord’s corporate restructuring and liquidation efforts may shield him from paying. Tenants fear the judgment may remain theoretical in financial terms.(The Guardian)
A Stark Contrast to Rakusen
This case reveals the consequences when RRO liabilities cannot be forestalled by contractual manoeuvres. Here, tenants—not landlords—had to fight, and the system struggled to ensure practical compliance.
Summary: Key Takeaways for Landlords, Operators, and Tenants
- Clarity in Contracts Matters
Even symbolic transfers—like a £1 token payment—can establish clear contractual boundaries, so long as responsibilities are unambiguous. - Liability Follows Control
Licensing responsibilities accrue to the party exercising control and receiving rent—not necessarily the property owner. - Legal Battles Take Time
Stretching over years, disputes demand thorough documentation and resolve. - Statutory Interpretation Is Critical
The Supreme Court’s decision rested on the plain reading of RRO provisions and commonsense expectations. - Structural Safeguards Aren’t Ironclad
Courts will look beneath the surface—nominal corporate shields like in Cabo v Dezotti may fail if they’re artificial. - Reform Is Afoot
The Renters’ Rights Bill aims to broaden RRO accountability—especially targeting rent-to-rent strategies. - Tenants Can Win—but Enforcement Is Not Guaranteed
The Christodoulou case shows tenants can win RROs, but collecting them is another challenge.
Final Thoughts
This “£1 transaction” might sound trivial, but it encapsulates a potent legal principle: precision in drafting plus clarity in allocation of duty can yield powerful protection—if built on genuine substance. The Rakusen case serves as a textbook example for landlords aiming to shield liability through rent-to-rent structures. At the same time, Cabo v Dezotti and the Christodoulou saga are cautionary tales that landlords and tenants alike must learn from.
Your Reflection
Have you ever experienced legal brushes with licensing or enforcement due to a tenant or intermediary’s oversight? How did you manage it—through negotiation, legal defence, or documentation of clear contractual terms? Your insights could be invaluable to other landlords navigating this intricate terrain.