The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (“the Scheme”) will come into force from 04 May 2021 and will allow individuals with “qualifying debts” to obtain a period of relief from creditor action, which includes action by their landlords.
Unlike many of the measures implemented during the coronavirus pandemic, the Scheme is permanent and is here to stay.
Who can apply?
The Scheme applies to “individuals” residing or usually residing in the UK and therefore to a range of debtors, including those with tenancy arrears.
As the Scheme applies only to individuals, they are most likely to affect residential landlords, whose viable remedial methods have already been restricted by the Government to protect tenants during the crisis.
What is applied for?
Individuals who meet the qualifying criteria may apply to their local authority or an FCA-authorised debt advice provider (‘DAP’) and acquire a “breathing space” moratorium for either:-
- A Standard Breathing Space moratorium, lasting up to 60 days; or
- A Mental Health Crisis moratorium, if the individual is having medical treatment for his/her mental health, which will last for the duration of the treatment plus 30 days.
What does this mean for indebted tenants?
The Scheme is not designed to afford indebted tenants a rent holiday or delay the inevitable. To acquire a breathing space, tenants must demonstrate that they are willing and able to continue paying their debts as they fall due throughout the moratorium period.
What does this mean for landlords?
During a moratorium, landlords (and their agents) are prohibited from taking certain action which includes contacting the tenant about the debt, taking action to take control of goods or assets, issuing or progressing court proceedings, or enforcing security.
Significantly, during a moratorium, landlords are unable to serve section 8 notices under Schedule 2 of the Housing Act 1988 to take back possession on rent grounds. If a notice has already been served, a landlord cannot issue legal proceedings until the moratorium has ended. This could have consequences given the extended notice periods which remain in force until 30 June 2021.
They are also prohibited from charging and recovering certain interest, fees, penalties or charges for the arrears during the moratorium period.
Landlords are also obliged to consider upon notification whether the tenant owes any other debts which may be qualifying debts and if so, to notify the debt advice provider or Local Authority if this is the case.
Consequences for getting it wrong
Any action a landlord takes in breach of the Scheme will be null and void, representing a waste of resources and any costs incurred by the landlord will not be recoverable. Landlords might even find that they may have to pay their tenant’s costs. Regulatory action could also be taken against them.
Is there anything landlords can do?
Upon receiving notification, a landlord should check that the debt matches its own records and consider whether there are any other debts owing which also qualify for protection.
If relevant court proceedings are already underway, it is for the landlord to inform the court.
If a landlord believes a moratorium has been improperly acquired, it has 20 days from the start of the moratorium to contest it by providing written evidence to the debt advice provider / local authority that it is either suffering unfair prejudice or there is some material irregularity which means the tenant is not actually eligible for the protection.
If the DAP chooses not to cancel the moratorium, the landlord has the option of submitting evidence to the DAP for a ‘mid-way review’ to have the moratorium brought to an end early, or may apply to the County Court to challenge the decision within a given time limit.
End of moratorium
At the end of the moratorium, the landlord may resume pursuit of its debts. That is provided some other formal arrangement has not been agreed with the tenant during that period. Anything which has been agreed should be documented to mitigate the risk of dispute.
The Scheme will be welcomed by tenants who have struggled to pay their debts during the pandemic but is likely to be of concern to many landlords who have already had to contend with an influx of government measures which have afforded those tenants legal protection.
Landlords should be considering the risk to themselves if tenants acquire a moratorium, especially those with larger portfolios, if there is a wave of applications following 04 May 2021.
Albeit the duration of the moratorium is relatively short, there might still be cash flow implications for landlords if moratoriums are granted. This impact is likely to be compounded if a landlord has already been waiting out an extended notice period to bring its claim, or has benevolently been holding off to see if a tenant’s finances will recover as the restrictions start to ease.
It may be that the existence of the Scheme will motivate some landlords to try and reach agreement with their tenants for the repayment of arrears to try and avoid those tenants applying for a moratorium, if they have not already been able to do so. However, reaching an agreement will not prevent a tenant from applying for a moratorium where they qualify.
It should be the case that only those tenants who are willing and able to pay off their debts eventually, if given the opportunity to do so, will be able to benefit from a moratorium: yet, it remains to be seen how robustly the DAPs will police the Scheme. Landlords will be wise to assess the risk and possible impact early, and prepare as best they can.
1. Certain debts are excluded.
2. The tenant must be an individual owing a “qualifying debt”, residing or usually residing in England or Wales; not have a debt relief order an individual voluntary arrangement, interim order or be an undischarged bankrupt at the time they apply and not already have obtained a breathing space or have had a Standard Breathing Space in the last 12 months at the time of application.
A tenant may owe debts to the landlord that are not eligible for moratorium protection.
3. Whether a tenant is receiving medical treatment must be confirmed by a professional such as a mental health nurse or social worker.
4. Unless the court’s permission has been granted
5. The Regulations are separate to the Government measures which have already temporarily altered possession and bailiff action.
6. The “rent grounds” include section 8, 10, 11 of Schedule 2 of the Housing Act 1988.
7. See Coronavirus Act 2020 (Residential Tenancies: Protection from Eviction) (Amendment) (England) Regulations 2021 (SI 2021/284)
8. A landlord has 50 days to challenge the decision of the DAP.