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The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force on 04 May 2021 and gives individuals in debt the right to legal protection from credits.
Its objective is to give additional time to individuals facing debt to sort their affairs in order free from enforcement action, or to protect an individual from enforcement action during a period of mental health crisis.
For landlords of both residential properties and commercial landlords where the tenant is an individual the debt respite provisions may make it more difficult to enforce payment of debt.
The regulations impose two types of moratorium, a breathing space moratorium and a mental health crisis moratorium. Once the breathing space comes into effect creditors must stop all action relating to that debt and apply the protections, including putting on hold any enforcement action.
Breathing Space Moratorium
A breathing space moratorium can only be started by debt advice providers who are authorised by the Financial Conduct Authority or by a local authority who provide debt advice to residents. The moratorium is available to anyone with problem debt, however in order to qualify the person must:
- Be an individual;
- Owe a qualifying debt to a creditor (these include credit cards, store cards, personal loans, overdrafts and arrears of mortgages or utility bill);
- Reside in England or Wales;
- Not have a debt relief order; and
- Not already have a breathing space or had one in the previous 12 months.
Joint debts can be included and protection from enforcement action applies to both parties although creditors can still charge the other parties' interest or fees if they do not activate the moratorium. It does not, however apply to debts such as student loans, secured loans, and child maintenance or obligations under a family court order.
Mental Health Crisis Breathing Space Moratorium
The Mental Health Crisis Breathing Space Moratorium provides stronger protection and is available to anyone who is receiving mental health treatment. The protection lasts as long as the person's mental health crisis treatment plus 30 days (no matter how long the treatment lasts).
The debtor themselves can make the application to the debt advisor or the application can be made by the debtor's carer, the AMHP, mental health workers, social workers, or a debtor's representative.
The eligibility requirements are the same as that for the standard breathing space moratorium with the exception that there is no limit on how many mental health crisis breathing spaces an applicant can be granted in a 12-month period.
Impact on Landlords and Tenants
A breathing space is not a payment holiday and a debtor is therefore still legally required to pay their debts and liabilities, which they should continue to do so during the breathing space. The breathing space simply means that the creditor cannot enforce a debt or charge interest or fees on it during the breathing space.
As a creditor, if you are told that a debt owed to you is in a breathing space, you must stop all action related to that debt and apply the protections. The protections apply from the date of the notification and must stay in place until the breathing space ends.
The protections the creditor must apply include:
- Stopping the debtor having to pay interest, fees, penalties or charges during the breathing space;
- Stopping any enforcement or recovery action to recover that debt; and
- Not contacting the debtor to request payment of that debt unless they have permission to do so from the Court.
It is worth bearing in mind that the Breathing Space only applies to debts that are due at the time of the application, such as rent arrears. The debtor still has an ongoing liability to pay sums that become due throughout the breathing space, such as rent, mortgages, taxes, and utility bills. If the debtor fails to pay these then the breathing space may be cancelled by the debt advisor. This does not apply to those under a mental health crisis breathing space.
In particular residential landlords should note that the Regulations restrict the ability to serve a section 8 Notice during any moratorium period upon any of the below rent arrears grounds for arrears existing at the time of the application:
- Ground 8 – The tenant is in rent arrears (mandatory ground)
- Ground 10 – The tenant is in rent arrears (discretionary ground)
- Ground 11 - The tenant has persistently delayed paying rent, whether or not the rent is currently in arrears (discretionary ground)
The Regulations do not however prevent a landlord serving a Section 21 Notice to terminate an Assured Shorthold Tenancy or serving a Section 8 Notice relying on any of the other grounds.
Although Landlords should note that the breathing space will freeze any existing court proceedings, meaning that any court hearings or warrants will be postponed until the end of any breathing space.
VAT Registered Tenants
If the debt relates solely to the business of VAT registered tenants, the tenants do not qualify for protection. Debts under a commercial lease may not qualify for the protection, depending on the business status of the sole trader. If rent arrears under a commercial lease qualify for the breathing space the landlord must not apply any interest or charges to that debt for the duration of the breathing space. The tenant, however, is still obligated to pay the rent that falls due throughout the breathing space. Should the tenant fail to pay this, and further arrears are accrued, the new arrears are not subject to the breathing space protections and the landlord can ask for the breathing space to be terminated by the debt advisor.
This does not however apply to those under the mental health crisis breathing space. If a tenant under this breathing space fails to pay the rent when due the landlord can ask the debt advisor to review the debt. The debt advisor has 35 days in which to comply with this request.
It is impossible to predict the likely take up of these moratoria, however the impact of the ongoing COVID-19 pandemic may result in a significant increase in debtors seeking this extra layer of help. It is important to note that these regulations are not a temporary measure and therefore Landlords should ensure that they familiarise themselves with the impact of the Regulations to minimise the risk of ineffective action. If a landlord fails to comply with their obligations under the breathing space, any action they take will be considered null and void and they may be liable for any costs incurred by the debtor particularly if proceedings are issued. As always (regardless of whether you are a landlord or tenant) it is sensible to obtain legal advice as soon as arrears accrue so any further actions can be considered.