The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the "Regulations"), which were passed in November 2020, will come into force on 4 May 2021.
This article considers the application of the Regulations and the impact on both landlords and tenants.
There are two types of breathing space: (a) a standard breathing space and (b) a mental health crisis breathing space. The government guidance defines the two breathing spaces as follows: (a) A standard breathing space is available to all debtors, including tenants, and gives them legal protections from their creditors, including their landlords, actions for up to 60 days. The protection also includes a stay on enforcement action including anyone who is jointly liable with the tenant i.e. joint tenants and prohibits contact from the landlord unless they have the permission of the court. Landlords are further not entitled to add any interest or charges, including legal costs, to the rental arrears; (b) A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. If an Approved Mental Health Professional (AMHP) certifies that a person is receiving mental health crisis treatment, the AMHP’s evidence can be used by a debt adviser to start a mental health crisis breathing space. AMHPs exercise functions under the Mental Health Act 1983. Social workers, mental health and learning disabilities nurses, occupational therapists and practitioner psychologists, registered with their respective regulator, may train to become AMHPs. If a tenant obtains a mental health crisis breathing space then that lasts as long as the person's mental health crisis treatment, plus 30 days irrespective of how long the crisis treatment lasts.
It is important to understand that these Regulations will apply to all rent arrears regardless of when the rent arrears were incurred including arrears incurred since the beginning of the pandemic in 2020.
Where a tenant obtains a breathing space then any rent arrears cannot be pursued in any way and any legal proceedings initiated based on those rent arrears must be stayed during the term of the breathing space.
What is the purpose of the breathing space?
The purpose of the Regulations is to provide tenants with a temporary respite from their debts while they arrange a deal with their landlord, and other creditors, to settle them.
Will this just result in tenants not paying rent and tenant’s rent arrears continuing to increase?
No, tenants are required to continue to pay their debts during the moratorium. If tenants fail to continue to pay their rent as and when it falls due after the breathing space is obtained then they run the risk of the breathing space being cancelled.
What about the Debt Advice Providers (‘DAP’) referred to in the Regulations?
A tenant is required to seek and obtain advice in connection with the problem debt from an approved DAP. The Regulations describe a DAP as:
• a debt advice provider who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling; or
• a local authority (‘LA’) (where they provide debt advice to residents).
DAP are responsible for the administration of a breathing space. They are the point of contact for the debtor, their creditors (and appointed agents), and the Insolvency Service (who own and maintain the electronic service).
A breathing space can only be started by a DAP or LA if:
(i) the debtor is eligible;
(ii) the debts are qualifying debts; and
(iii) certain other conditions are met, including whether or not the debtor is able to pay their debt as its falls due and whether a moratorium would therefore be appropriate.
The Insolvency Service will maintain an electronic service that DAP’s will use to start the breathing space process. The Insolvency Service will also send notifications to creditors while a breathing space moratorium is in place and maintain a private register with details of:
(a) persons whose debts are in a breathing space; and
(b) the date a breathing space ended or was cancelled in the last 15 months.
DAP’s are required during a standard breathing space to carry out a midway review between day 25 and day 35 and satisfy themselves that the debtor is complying with their obligations.
If the DAP believes that:
• the tenant has been meeting their obligations and communicating with them, the standard breathing space will continue until the end date;
• the tenant has not met all of their obligations, they can cancel the standard breathing space in respect of some or all the debts.
Creditors, including landlords, who are unhappy with the breathing space can ask within 20 days of it starting for it to be reviewed by the DAP, they will likely do so during the midway review.
If after the DAP has carried out the review the DAP decides that the breathing space should continue then the landlord can, if they are unhappy with the decision, inform the DAP and apply to a court to cancel the breathing space in respect of some or all of the debts.
The landlord will need to apply to the court within 50 days of the breathing space having commenced.
What if the tenant while subject to a breathing space fails to pay the rent?
The landlord should in the first instance inform the DAP. It is also important to remember that the moratorium on legal proceedings only applies to debts subject to the moratorium so there are no restrictions on the landlord initiating proceedings in respect of new rental arrears accruing after the commencement of the breathing space.
There are further no restrictions on the landlord initiating s.21 proceedings (providing they are not coupled with a s.8 notice based on rental arrears) or possession proceedings on grounds of anti-social behaviour.
What if the landlord fails to adhere to the moratorium imposed by the breathing space?
Any action taken or notice served by the landlord will be considered null and void. Landlords could even, if they initiate legal proceedings in breach of the moratorium be liable for the tenant’s costs.