Breathing Space Moratoriums for Debtors
11th February 2021
11th February 2021
And take a deep breath … The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 come into effect from 04 May 2021 and will apply to most debts accrued before or after that date, including arrears of rent and service charges. The government guidance can be found here.
These new regulations are designed to give those in debt some protection from creditors. These regulations are not specifically aimed at tenants, but they will apply to landlords trying to recover rent/service charge arrears and also possession on the basis of arrears.
The regulations create two types of breathing space:
A standard breathing space; and
A mental health crisis breathing space.
The Government guidance defines the two breathing spaces as follows:
“A standard breathing space is available to anyone with problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts.
A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts.)”
A “standard breathing space”
Breathing spaces can only be started by an FCA authorised debt advice provider or a local authority - you can check here on the FCA website (the “Check information about a firm or individual” is about half way down the page) whether or not the person writing to you on behalf of the debtor is an FCA authorised debt adviser.
The debt adviser will consider whether a breathing space is suitable for the debtor taking into account their individual circumstances. Not all debtors or circumstances will qualify for a breathing space moratorium. The debt adviser will be the point of contact for the debtor during the moratorium.
If the breathing space moratorium is granted it must be registered on a system that will be maintained on behalf of the Secretary of State. A breathing space moratorium starts on the day following the day on which the Secretary of State causes an entry to be made on the register. A moratorium continues for 60 days beginning with the date on which it started in accordance with the above unless -
it ends in accordance with regulation 21 as a result of the death of the debtor, or
it is cancelled in accordance with regulations 18, 19 or 27 of the Act.
A “mental health crisis breathing space”
These are for people suffering a mental health crisis and are far more powerful. They last as long as the treatment for the mental health, plus 30 days. Evidence from an Approved Mental Health Professional can be used to start a mental health crisis breathing space.
What is the effect of moratoriums?
If a breathing space is started, the debtor’s details will be put on a breathing space register and the creditor will receive a notification. At that point the creditor must
Stop/stay any enforcement action against the debtor;
Stop contacting the debtor to request payment of the debt; and
Stop charging costs and interest in respect of the debt.
This means that landlords will not be able to serve any notices seeking possession that are reliant on the rent arrears due up to the start of the breathing space or proceed with obtaining a possession order. Landlords must inform their agents so they can also stop recovery action in relation to the debt and where Court proceedings are already underway, the landlord’s solicitors would need to inform the Court of the breathing space.
For landlords of tenanted property, this does not mean that a landlord cannot now seek possession or serve notice in preparation for the eviction of the tenant as a section 21 notice can still be served and enforced against a tenant, notwithstanding a moratorium so long as the claim does not include a claim for any part of the arrears subject to that moratorium. A section 8 notice can also be served so long as the grounds cited are other than those relating to arrears of rent.
In addition, a moratorium is not something that is given freely. Debtors are expected to keep paying ongoing liabilities during the breathing space so tenants would be expected to continue to pay rent for their main home, just not the arrears accrued up to the start of the breathing space. If they do not pay their rent, the debt adviser can cancel a standard breathing space. If the debt adviser does not cancel the breathing space and the landlord disagrees with that decision, the landlord can apply to the Court requesting that the breathing space is cancelled.
Debt advisers must carry out a midway review during the standard breathing space to check whether the debtor is complying with his or her obligations.
There are greater restrictions on cancelling a mental health crisis breathing space but the debt adviser will have to regularly check that the debtor is still undergoing the relevant treatment.
In addition to the above, and an important caveat to it all is that there must be an overall ability to actually clear the debts. A moratorium is not there to simply delay the inevitable and make the debtors financial situation worse!
Although mental health crisis breathing space moratoriums can last for an indefinite period and are going to be more troublesome for creditors, standard breathing space moratoriums (which are likely to be far more common) are only in place for 60 days so, although they will cause delays in the recovery process, that delay is fairly minimal.
Due to Covid-19, it is inevitable that there will be many tenants, and leaseholders/property owners, with substantial debts accrued or that will have accrued as the country starts to get back to some sort of normality. In some of these cases a debt moratorium may be appropriate where the individual has a source of income, or will gain one, that can be used to pay the debts off if they are appropriately re-scheduled. It is likely that a high number of landlords will find themselves with tenants seeking moratoriums on the basis that their arrears were incurred during a temporary reduction in income caused by Covid-19 and that they are now able to pay the rent and clear the debts on a scheduled basis.
If you are contacted by a tenant, or their representative, seeking a delay or claiming a moratorium, it is important to first confirm if the claim is one registered as a breathing space and thus a legitimate moratorium by which you/your client is bound. If in doubt do contact us and we will seek to assist.
This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.
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