On 4 May 2021, new changes were introduced that will impact landlords who are considering possession proceedings based on rent arrears. In addition, there is also a change to the notice used to seek possession of a property.
What are the changes?
The government has introduced a new Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, also known as Breathing Space Moratorium, which gives someone who is in problem with debt the right to legal protection from their creditors.
What is a Breathing Space and who can apply for one?
The scheme sets out two types of Breathing Spaces;
- Standard Breathing Space
This is available to anyone with problem debt and provides a person with legal protection from creditor action for up to 60 days. The protection includes pausing most enforcement action and contact from creditors and freezing most interest charges on the debt.
- Mental Health Crisis Breathing Space
This is only available to someone who is receiving mental health crisis treatment. The protection that is offered here lasts as long as the person’s mental health crisis treatment lasts, plus 30 days after the treatment ends. There is no limit to how long the crisis treatment lasts.
A Breathing Space can only be started by a debt advice provider who is authorised by the Financial Conduct Authority to offer debt counselling or a local authority, where they provide debt advice to residents.
Who is eligible for a Breathing Space?
To be eligible for a Breathing Space, the person must be:
- an individual;
- owe a qualifying debt to a creditor;
- live or usually reside in England or Wales;
- not have a debt relief order or an individual voluntary arrangement, an interim order or be an undischarged bankrupt at the same time they apply; or
- not already have a Breathing Space or have had a standard Breathing Space in the last 12 months at the time they apply.
There are also a further two conditions which must be met which are:
- the debtor cannot, or is unlikely to be able to, repay all or some of the their debt; and
- a Breathing Space is appropriate for the person.
When dealing with a Mental Health Crisis Breathing Space, the above criteria applies and the person must also be receiving mental health crisis treatment at the time that an application is made. Therefore, if a debtor has had a Standard or Mental Health Crisis Breathing Space in the last 12 months, they may not be eligible for another Mental Health Crisis Breathing Space.
How does the Breathing Spaces Scheme impact landlords?
The aim of a Breathing Space is to offer protection to a debtor for at least 60 days, depending on the type of Breathing Space they may have. The qualifying debt for a Breathing Space includes mortgage or rent arrears.
If a tenant, who is in rent arrears, seeks any one of the two Breathing Spaces and it is granted, a landlord would not be able to:
- serve a Notice Seeking Possession;
- purse a possession order which includes holding a hearing;
- apply for a warrant for possession;
- obtain a money judgment; or
- enforce a money judgement
In addition, if a Breathing Space is granted, a landlord is not able to contact the tenant to request any payment(s) towards the debts or make any attempts to apply for third party deductions from any benefits the tenant may be receiving (unless the landlord has permission from the court).
In circumstances where the legal proceedings have already been commenced and the tenant applies for Breathing Space, those proceedings cannot be enforced until the Breathing Space ends, unless the landlord has permission from the court or tribunal to continue. If the Breathing Space means there is a pause in those proceedings and the time limit for enforcement or new claims relating to the claim runs out during the Breathing Space, this time is extended to eight weeks after the Breathing Space ends.
What about current rent owed by a tenant?
Not all debts can be considered for a Breathing Space and these are known as ongoing liabilities which include current rent, but not rent arrears.
If a Breathing Space is in force and the tenant fails to continue paying their current rent, the Standard Breathing Space could be cancelled by a debt advisor unless, the debt advisor believes that the tenant does not have the financial means to pay the current rent. As part of the Standard Breathing Space the debt advisor must also complete a midway review between 25 and 35 days. This is to ensure that the tenant is complying with their obligations.
There is no midway review for a Mental Health Crisis Breathing Space as this continues as long as the treatment continues.
What can a landlord do?
The Debt Respite Scheme will impact many landlords who will need to put in to place additional steps to recognise if a tenant has a Breathing Space in place, and to ensure no contact is made with the tenant to chase any debt or no court orders are enforced or new proceedings are commenced.
Should a Breathing Space be applied for and granted during ongoing legal proceedings, landlords will also need to be put measures into place to ensure that such proceedings are put on hold and the courts are also properly notified, as well as key dates being noted should they need to rely on the eight week extension period.
A landlord can also challenge a Breathing Space that has been granted by requesting a review of the Breathing Space, or of specific debts being included, if a landlord considers the Breathing Space unfairly prejudices its interests or material irregularity. For example, the tenant is not eligible for a Breathing Space.
The first step for a landlord would be to make an application to review the Breathing Space, which must be made within 20 days from when the Breathing Space was granted. The application must be made in writing and supporting evidence must also be provided to demonstrate why the Breathing Space should be cancelled.
If the grounds are made out, the debt advisor must consult with the tenant, unless the debt advisor finds the grounds for cancelling the Breathing Space make it unfair or unreasonable to cancel based on a tenants personal circumstances
What if the challenge to review is unsuccessful?
Should the challenge to review not be successful a landlord does have the option to make an application to the county court for cancellation of the Breathing Space. Again the application has to be made in writing with supporting evidence and the application has to be made within 50 days from the start of the Breathing Space. It is important to note that this step can only be taken if the challenge to review has been carried out and the landlord was unsuccessful.
When seeking to challenge a Breathing Space a landlord would need to balance out the prospect of being successful in challenging, versus the costs and time involved in making an application to challenge.
Changes to Form 3 – Notice Seeking Possession
As a result of the new Debt Respite Scheme there have been changes to Form 3 – Notice Seeking Possession to reflect the above. Landlords who issue a Notice Seeking Possession from 4 May 2021 will now need to ensure that they are using the most up to date Form 3 regardless of what ground(s) they are using to seek possession of the property.
For further information contact Habib Khan in our housing management team, who can guide, help support and you and your teams to deal with any housing management and litigation issues you face during these evolving times.
Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.
From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.