The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force this week. The scheme applies to individuals in England and Wales.
There was a worrying silence in the run up to the scheme being approved in October 2020, at least from letting agents. No one was talking about the scheme, no one was asking any questions. Perhaps this was understandable. The scheme was introduced just before the UK’s third lockdown, and few wanted to think about something that wouldn’t happen for another six months.
In last month’s Legislation Update webinar (a webinar regularly hosting over 200 agents), a popular lawyer spoke briefly about the moratorium, expressing a belief that the scheme would not be widely taken up. I was surprised to hear this, but still couldn’t shake off my feeling of unease. For me as a letting agent, a moratorium on rent payments for potentially three months, a period during which we will be unable to protect a landlord’s income, is a frightening prospect.
The Treasury anticipates that as many as 700,000 people to benefit from the Breathing Space moratorium. Admittedly, not all of those will be renters, but it’s best to be informed about this scheme, for as we all know, knowledge is power. This scheme offers legal protection for debtors, and you must have a process in place to recognise and implement the protection.
What Is The Scheme?
The purpose of the Debt Respite Scheme is to provide people in debt (e.g. tenants) with a temporary period of respite from creditors (e.g., a landlord or letting agent), giving them time to consider their options and seek professional debt advice.
How Does It Impact Me As A Landlord?
If an individual’s application to the scheme is successful, and rent is included, it will put on hold most enforcement action, creditor contact, and interest and charges on a person’s qualifying debts. Qualifying debts include credit and store cards, personal and payday loans, overdrafts, utility bills, rent and mortgages arrears, and government debts like tax and benefits.
Agents will be unable to pursue outstanding rent. A section 8 notice cannot be issued for rent arrears (grounds 8, 10 and 11) but can be issued on other grounds, such as section 21 notices or section 8 notices, citing non-rent arrears grounds where they fulfil the necessary criteria.
Two Types of Moratorium
The first moratorium is the legal protection mentioned above and which would be in place for 60 days.
The second moratorium is the scheme for people receiving mental health crisis treatment. The Mental Health Crisis Moratorium has stronger protections and lasts for the duration of a person’s mental health crisis treatment, and for 30 days following.
The Good to Know Bit
The Debt Respite Scheme is not a payment holiday and certain debts are considered ‘ongoing liabilities’, such as:
- a lease or rental agreement for the debtor’s primary residence (this does not include arrears prior to the start of the Breathing Space) during a standard Breathing Space
- a mortgage secured against the debtor’s primary residence (this does not include arrears accumulated up to the start of the Breathing Space).
NB: Where a debtor does not pay an ongoing liability, the debt advisor might decide to cancel the Breathing Space.
Access to the Scheme
Anyone can apply to the scheme. The Breathing Space Moratorium can only be accessed once every 12 months, but there is no limit to the number of times an individual can enter a Mental Health Crisis Moratorium.
It must be started by a debt advice provider authorised by the Financial Conduct Authority (FCA) to offer debt counselling or a local authority which provides debt advice to residents.
An agent/landlord will receive a notification from the Insolvency Service that an application has been approved. At this point, they should conduct a reasonable search of a tenant’s records for any additional debt(s) owed, as they may be eligible to be added to the moratorium.
Agents and landlords can contact [email protected] for managing notifications.
Once notified about a Breathing Space, the agent/landlord must:
- stop any interest, fees, penalties, or charges for that debt during the Breathing Space
- stop any enforcement or recovery action to recover that debt
- make NO contact with the renter to request repayment of that debt.
What If I Believe A Tenant Has Made A Spurious Application?
The debt advisor must complete a midway review to ensure the tenant is complying with their obligations. If you can prove the tenant has the means to pay the rent but is not doing so, then submissions can be made to the debt advisor to cancel the standard Breathing Space.
If the debt advisor does not cancel the Breathing Space and the landlord disagrees, the landlord can apply to the Court requesting the Breathing Space is cancelled. The death of a tenant will end a standard Breathing Space.
A Mental Health Crisis Breathing Space does not have a midway review.
The more we speak to DIY landlords, the more fearful we get. The majority simply do not know or care about their many legal obligations and responsibilities, nor consider imminent changes. Legislations change frequently in the private rental sector, and it is not easy to find out reliable information.
To avoid any criminal or civil penalties, we recommend you employ a reputable managing agent to look after your tenants and properties. You have better things to do, and a good agent will help you attain a better quality of life.
Frustrated and confused on where to start as a landlord? Call us on 0203 588 5115 today.
Disclaimer: Marybow Property takes all reasonable care to ensure that the information contained on this website is accurate. However, we cannot guarantee its accuracy or completeness of content. Our website, including the blogs, are not legal or financial advice and should not be construed as such. We reserve the right to change the information on this website at any time.