Breathing Space: Debt Respite Scheme to Prevent Landlords From Chasing Unpaid Rent

From 4^th of May 2021, a new government scheme will come into force that will give anyone with a problem debt a legal right to protection from creditors. This includes tenants who are in rent arrears with a debt owed to their landlords. The ‘Breathing Space’ arrangement, otherwise known as the Debt Respite Scheme, will allow debtors time to find a solution to their financial issues.

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 were originally created to protect debtors from pressure from larger lenders, but it is without doubt set to impact upon landlords with tenants who are behind on their rental payments. The scheme allows creditors breathing space to sort out their financial problems without being actively pursued.

There are two types of breathing space: standard breathing space, and mental health crisis breathing space. Both will generally operate in the same way.

What is a standard breathing space?

A standard breathing space is available to anyone with a problem debt. It will afford them legal protection from creditor action for up to 60 days. Enforcement action will need to be paused, and creditors will not be allowed to contact the debtor in relation to the outstanding payments. Most interest and charges related to the debt will also be frozen. For landlords, this means that no possession proceedings can be set in motion.

What is a mental health crisis breathing space?

A mental health crisis breathing space is only available to those who are receiving mental health crisis treatment. This type of breathing space offer stronger protections. It endures for as long as the treatment continues, plus 30 days.

Who can grant breathing space to debtors?

Financial Conduct Authority (FCA) approved debt advisors, and local authorities providing debt advice, are responsible for granting and administering breathing space. Both bodies will be the point of contact for the debtor and their creditors.

The debt adviser will be responsible for establishing whether the scheme is the most appropriate course of action for the debtor. There is a chance that the adviser may consider that the individual can settle their debt through more organised budgeting, or by selling off possessions. If this is the case, then a breathing space may not be granted.

If on the other hand a debtor is approved for the scheme, then their name will be added to an electronic register, and their creditors notified so that no contact is made. Creditors can however challenge the decision to allow the breathing space.

How will the Debt Respite Scheme affect Section 8 possessions?

Breathing space will usually be granted when a tenant is in arrears. When the arrangement in in place, landlords will be prevented from serving a Section 8 notice, from applying for a warrant or money judgement, or from receiving a possession order. As a landlord, you will also be prevented during the period of the arrangement from making contact with the tenant to request payment of the debt.

What are landlords prevented from doing under the Debt Respite Scheme?

Once you have been notified that your tenant is protected by the Debt Respite Scheme, you must wait until the breathing space is officially ended until you are able to:

• Directly contact the tenant in relation to the unpaid rent
• Obtain a warrant in relation to the rent arrears
• Serve a notice seeking possession due to the arrears
• Sell the debt on to a third party
• Charge interest on the debt
• Apply for a judgement in relation to the unpaid rent
• Enforce an existing money judgement for the debt

You must also refrain from taking control of the tenant’s belongings, requesting third party deductions from Universal Credit or other benefits, and commencing bankruptcy proceedings.

You can however keep in touch with tenants in connection with any matters unrelated to the debt. So you can stay in contact to arrange maintenance visits or repairs, or safety inspections, for example. What’s more, if a tenant asks to talk to you about a debt or about finding a solution to their rent arrears, then you will be allowed to answer such queries. You just can’t chase them for the money owed.

For more information on the Debt Respite Scheme, this official government guidance is one of the best resources.

How can landlords guarantee rental payments even during breathing space agreements?

A guaranteed rent scheme provides landlords with total peace of mind that rent arrears will never become an issue. Even if a tenant is granted breathing space and cannot be pursued for unpaid rent, you will still be paid in full and on time every month by standing order. This is because with homes2let guaranteed rent, we collect our rent from the local authority whilst letting your property to local families.

You will enjoy market rate rental fees, whilst not having to pay legal costs or management commission, even though we will fully manage your property, including sourcing tenants and handling repairs and maintenance.

To learn more about how our guaranteed rent scheme could safeguard your buy to let investment in Croydon or South London during challenging times, you are welcome to get in touch with our team of local property experts.