Tenants and the Debt Respite Scheme (Breathing Space)

Don’t hold your breath before 4 May: A Landlord’s Guide to Chasing Bad Debts.

Since March 2020 the Government has introduced a raft of protections to protect Tenants from financial difficulty caused by the Coronavirus pandemic. These protections extend to restrictions on possessions in respect of residential properties, and a moratorium on possession of commercial property or use of enforcement agents to seize goods against commercial rent arrears. From a commercial perspective, these restrictions are due to end on 30 June 2021 (see earlier articles prepared by Nigel and Tim Kirkconel).

In addition to these restrictions within the landlord and tenant relationship, there are general restrictions on the use of insolvency procedures against companies for debts owed (to include rent arrears) during or as a result of the Coronavirus pandemic.

The Debt Respite Scheme (Breathing Space)

A further restriction will come into play on 4 May 2021, the Debt Respite Scheme (Breathing Space). This scheme is not linked to the Coronavirus pandemic, it is not temporary and its objective is to give time to individuals facing debt to sort their affairs in order free from enforcement action, or to protect an individual from enforcement action during a period of mental health crisis.

How the Scheme will operate

The scheme offers two types of Breathing Space to individuals, a standard Breathing Space and a Mental Health Crisis Breathing Space:

• a standard Breathing Space gives up to 60 days protection to individuals from enforcement action and contact from creditors and will freeze interest and charges on debts over this period
• the Mental Health Crisis Breathing Space is only available to an individual receiving mental health crisis treatment. It lasts as long as the person’s mental health crisis treatment plus an additional 30 days.

A Breathing Space can only be implemented by a Debt Advice Provider, authorised by the Financial Conduct Authority or a Local Authority.

The Insolvency Service will provide details of persons whose debts are in a Breathing Space and the date a Breathing Space ended or was cancelled in the last 15 months.

What debts will be protected within a Breathing Space?

The qualifying debts to which Breathing Spaces apply will include sums due under a Court judgement, utility bill arrears and rent arrears. The Breathing Space only applies to debts that are due at that time, if further sums become due they must be paid, such as rent falling due during the moratorium period.

Debts that relate solely to the business of VAT registered Tenants do not qualify for protection. This means that not all sole traders will be eligible.

What is the effect on Landlords?

For the duration of the Breathing Space Landlords cannot take enforcement action to recover the protected debt without court permission. This includes the service of statutory notices to take possession of the residential property during Breathing Spaces for reasons of failure to pay rent.

Breathing Spaces will also freeze existing Court proceedings to recover debts commenced before the Breathing Space arose. This means that court hearings and warrants for possession will be postponed until the end of any Breathing Space.

Will Breathing Spaces affect commercial leases?

Clearly, the Breathing Space scheme will have greater relevance to residential Landlords than commercial Landlords however individual commercial tenants still exist.

What should a Landlord do on receiving notification its tenant has secured a Breathing Space?

During the Breathing Space, a Landlord must not apply penalties or charges in respect of the arrears. Further, all contact the debtor to request payment of the debt must cease unless permission has been secured by a Court.

Therefore, a Landlord must make sure its agents are aware of the position and direct all agents to cease chasing a tenant in respect of all Breathing Space debts. Agents must ensure any automated processes to chase debts are suspended.

Landlords should clarify with the tenant’s Debt Advisor the debts disclosed as being accurate. If the Landlord finds an additional debt is owed or it is not clear what the Debt Notification relates to, the Debt Advisor must be informed as soon as reasonably practicable.

For a more detailed summary of the Debt Respite Scheme and its effect on recovering debts generally, our debt recovery team have produced a helpful guide.

How we can help

Our team has extensive specialist experience in this area and are available to assist you if you’re a Landlord with a bad debt against a Tenant. Please do not hesitate to contact our specialist Property Litigation Partner, Nigel Maguire, on 01223 431103 or Nigel.Maguire@ashtonslegal.co.uk who would be happy to take some initial details from you.