Debt Respite Scheme: A Guide for Landlords on Breathing Space Moratorium

On the 4th of May 2021, the Government introduced the Debt Respite Scheme, which marked a significant shift in how landlords manage rental arrears and possession claims. Commonly known as the Breathing Space Moratorium, the scheme provides residential and commercial tenants with legal protection that can delay landlords from obtaining vacant possession of their property and enforce a monetary judgment for arrears.

In this article, we'll break down the important aspects of the Debt Respite Scheme, including eligibility, types of Breathing Spaces, and the scheme's impact on landlords.

What is a Breathing Space?

There are two types of Breathing Spaces available under the Debt Respite Scheme:

The Standard Breathing Space: This protection is available to anyone with problem debt. It gives tenants a 60-day window where creditor actions, such as enforcement, are suspended. During this time, interest and fees are frozen, and creditors are prohibited from contacting the debtor regarding the debt. An individual can only be placed in a Standard Breathing Space once a year.

The Mental Health Crisis Breathing Space: This protection is available to individuals receiving treatment for a mental health crisis. This breathing space lasts for the duration of their treatment, providing an additional 30 days of protection. There is no time limit for treatment or restriction on the number of Mental Health Crisis Breathing Spaces an individual can access.

These protections apply to tenants with qualifying debts, including rent arrears and County Court Judgments. However, debts related to VAT-registered businesses are excluded from protection under the scheme.

Eligibility for a Breathing Space

For an individual to be eligible for a Breathing Space, they must meet the following criteria:

• Not to have a debt relief order (DRO), individual voluntary arrangement (IVA), interim order, or be an undischarged bankrupt when applying.
• Not to use the 'Breathing Space' scheme at the time of application.
• Not to have used the scheme in the last 12 months unless it was for a mental health crisis.

The Impact on Landlords

For landlords, the Breathing Space scheme has significant implications, particularly in possession claims based on rent arrears.

No Enforcement Action During Breathing Space

While a tenant is under the Breathing Space moratorium, landlords are prohibited from taking enforcement action to recover the protected debt unless they obtain permission from the court. This includes actions such as:

• Serving a Section 8 notice for possession
• Issuing court proceedings for possession based on rent arrears
• Instructing a Bailiff to enforce possession

If a tenant enters a Breathing Space after proceedings have already been issued, the case will be stayed. However, any rent arrears accumulated during the Breathing Space will be added to the overall debt once the Breathing Space ends.

Additionally, interest payable on rent arrears (under the tenancy agreement or Section 69 of the County Court Act 1984) is frozen during the moratorium. Therefore, while the tenant is in a Breathing Space, no interest is payable on the protected debt.

What Happens if My Tenant Enters a Breathing Space?

If your tenant enters a Breathing Space, you must not:

• Contact the tenant about the debt owed to you.
• Serve a Section 8 Notice based on rent arrears.
• Issue possession proceedings or enforce any existing court orders.
• Apply for third-party deductions from benefits such as Universal Credit.
• However, you may still accept payments from the tenant if they choose to make them.

Challenging the Moratorium

Landlords who believe the Breathing Space is unjustified can challenge the decision with the Debt Advisor. To do so, they must provide evidence within 20 days of the moratorium's start, citing unfair prejudice or showing the tenant does not meet the eligibility criteria.

If the Debt Advisor (DAP) upholds the decision, landlords can apply to the County Court for a review within 50 days.

Terminating the Breathing Space

In certain situations, a Breathing Space can be terminated early. For example, if a tenant fails to pay current rent during a Standard Breathing Space, the landlord can request the Debt Advisor to cancel the protection. Mental Health Crisis Breathing Spaces does not have a midway review but can be ended if the treatment is invalid or fraudulent.

What Happens After the Breathing Space Ends?

Once the Breathing Space ends, creditors, including landlords, will be notified. Landlords can then resume enforcement actions, apply interest and fees to debts, and continue or initiate legal proceedings. However, if the time limit for enforcement actions or new claims has expired during the moratorium, landlords have an additional eight weeks after the Breathing Space ends to take action.

Summary

The Breathing Space Scheme offers tenants essential protection by providing a temporary respite from debt recovery actions, including possession proceedings.

For landlords, it's crucial to understand how these regulations can delay possession claims for matters concerning rent arrears. A tenant can enter a Breathing Space at any stage of the proceedings, including after a possession order has been obtained or even when a Bailiff is instructed.

Failure to comply with the Breathing Space regulations can result in serious consequences for landlords. Any attempts to enforce debts or possession during the moratorium will be considered void. Furthermore, landlords may be liable for damages resulting from non-compliance and could face disciplinary action if breaches are repeated.

Get in touch

For further information or advice about the Debt Respite Scheme and Breathing Space Moratorium, please get in touch with our Residential Possession Proceedings Expert, Amelia Ford, on 023 8063 9311 or email ameliaford@warnergoodman.co.uk.