Debt Respite Scheme – breathing space for tenants or hot air for landlords?

Quick read

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations) came into effect on 4 May 2021. While the Regulations will provide residential tenants with additional procedural protection regarding rent arrears, they will be an unwelcome additional hurdle to landlords.

What do the Regulations do?

The Regulations apply to debtors (individuals living or residing in England & Wales, not companies) more generally, but here, we focus on the implications on rent arrears owed by residential tenants. Two types of legal protections from landlord creditors are created: a standard breathing space moratorium and a mental health crisis breathing space moratorium.

Standard breathing space moratorium

To apply for a standard breathing space moratorium, a tenant must apply to, and seek debt advice from, a debt adviser. The debt adviser will review an application and assess whether they consider that the tenant debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due.

If the application is successful, the tenant debtor will benefit from legal protections from creditor action for up to 60 days (although this must be reviewed by the debt adviser between day 26 to 35). Once the 60 days has expired, a further application cannot be made for another 12 months.

The effect of the moratorium is that landlord creditors will be unable to:

serve a notice under section 8 of the Housing Act 1988 which relies on grounds relating to rent arrears
commence or continue possession proceedings based on a section 8 notice referred to above
commence proceedings against the tenant debtor for the debt, or
require the tenant debtor to pay interest or fees incurred as a result of the debt.

The moratorium does not prevent landlords from serving a notice under section 21 of the Housing Act 1988 or commencing/continuing possession proceedings based on a section 21 notice. It is assumed that landlords will not be able to seek to recover rent arrears from a tenant debtor as part of those proceedings while a breathing space moratorium is in place.

Mental health crisis breathing space moratorium

To apply for a mental health crisis breathing space moratorium, the same requirements apply as a standard breathing space moratorium but the tenant debtor must also be receiving mental health crisis treatment.

A mental health crisis breathing space moratorium will end either 30 days after the tenant debtor’s mental health crisis treatment ended, or 30 days after the date a debt adviser had no response after asking for confirmation from the nominated point of contact about a debtor’s ongoing mental health crisis treatment.

Breathing space register

Landlord creditors will be notified if a tenant debtor has been granted a standard or mental health crisis breathing space moratorium. Landlord creditors can then access the breathing space register which will confirm details about the tenant debtor, including how much is owed to the landlord creditor and when the moratorium starts and end. However, they will not be able to review information about any other debts that tenant debtor may have.

Key takeaways

While the threshold required to qualify for a mental health crisis breathing space moratorium is high and therefore unlikely to be abused, there may be a large number of residential tenants who could be eligible for a standard breathing space moratorium as a result of the pandemic.

Although this is good news for tenants who may need more time to settle any rent arrears owed, this may be viewed as prolonging the inevitable by landlords. This is because it is likely to result in a delay to any process required to obtain possession of its property and/or recover some of the rent arrears owed.

Landlords have already been affected by longer notice periods before being able to obtain possession of their property, a stay on possession proceedings and a ban on evictions. It is yet to be seen whether this additional measure will provide enough protection for tenants or simply result in a further hurdle for landlords.