The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 commence on 4 May 2021 and applies to England and Wales.
An FCA authorised debt advisor or local authority can start a breathing space moratorium which will provide a debtor with legal protections from creditors.
In the context of this article, the landlord will usually be the creditor and tenant the debtor.
There are two types of breathing space:
- Standard breathing space — available to anyone and lasts up to 60 days
- Mental health crisis breathing space — only available to a person receiving mental health crisis treatment and lasts as long as the mental health treatment plus an additional 30 days.
The Insolvency Service manages the electronic service that debt advisors will use, and they have issued advice for creditors.
There is also a Civil Procedure Rules Practice Direction supplementing the regulations.
Standard Breathing Space
A standard breathing space will only be started if that is an appropriate option. Under the regulations, the debt advice provider must consider whether:
- The debtor has sufficient funds or income to discharge or liquidate their debt as it falls due,
- It would benefit the debtor to enter into a debt solution,
- The debtor may be eligible to enter into a debt solution during a moratorium or as soon as reasonably practicable after the moratorium ends, and
- The moratorium period is necessary in order for the debt advice provider to assess which debt solution would be appropriate for the debtor, to advise the debtor on which debt solution would be appropriate or for a debt solution to be put in place.
As the regulations state, to be “appropriate”, the debtor (tenant in our context) must be able to continue with ongoing liabilities such as rent. Breathing space should not be used to simply delay paying the rent where there is no prospect of it ever being paid.
A standard breathing space lasts for up to 60 days and there must be a “midway review” between 25 and 35 days from when the breathing space starts (see later).
Mental Health Crisis Breathing Space
For a mental health crisis moratorium to be started, the debt advisor must consider whether:
- The debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due,
- A mental health crisis moratorium would be appropriate, and
- An approved mental health professional has provided evidence that the debtor is receiving mental health crisis treatment.
A mental health crisis breathing space lasts for as long as the mental health treatment is ongoing plus 30 days.
If the creditor (landlord in our context) is notified of a breathing space having been started, the landlord must conduct a “creditor search” and check that the debt mentioned in the notification is correct. If there is a debt owed by the debtor that was not included in the notification, details must be provided to the debt advisor promptly. Failing to do so can result in being liable for any debtors losses as a result of the failure to notify.
Where there’s an agent and the landlord has been notified of a breathing space, the landlord must notify their agent of the breathing space and if they fail could be liable for any losses the agent incurs.
It would also be advisable that if an agent receives the notification about a breathing space that they inform their landlord client.
If there are any court proceedings ongoing relating to the debt (for example in relation to a rent arrears notice previously served), the court must be told promptly in writing about the breathing space.
Once a landlord creditor (or their agent) has been informed about the starting of a breathing space, no action against the debt must be taken whatsoever. This includes even contacting the debtor tenant (about the debt).
It’s acceptable to contact the tenant about other matters such as repairs or routine maintenance for example.
Any communication about the debt must be directed to the debt advisor but, care should be taken as to what is disclosed to the third party debt advisor if any information is not legally required under the regulations:
Regulation 22(2) – A duty or power to which this regulation applies does not operate to require or authorise the disclosure or use of information which would contravene the data protection legislation (but the duty or power is to be taken into account in determining whether the disclosure or use would contravene that legislation).
The effect of the breathing space is to put a halt on the debt for the period specified.
The actions which must NOT be taken include (but not limited to):
- Making any contact with the tenant about the debt
- Serving a section 8 notice on rent arrears grounds (8, 10 or 11) but a section 21 notice can be served
- The equivalent to section 8 rent arrears for Wales when Renting Homes (Wales) Act 2016 commences
- Commencing proceedings after a section 8 (or Renting Homes equivalent) on rent arrears grounds if notice was served before the breathing space started
- Commencing any other legal proceedings relating to the debt
- Enforcing a judgment relating to the breathing space debt (if judgment was obtained before breathing space started)
- No interest, fees or other charges can be added during the period (even if the tenancy allows).
Where the tenancy is joint and several and the debt relates to the tenancy (e.g. rent), the actions above must NOT be taken against any of the other tenants even if the breathing space is in a single name. The breathing space applies to all persons jointly and severally liable for the debt.
The list above is not exhaustive (basically don’t do anything, no contact, nothing for the duration of the breathing space). For the full list in the regulations, see here or the guidance linked earlier.
As a point of note, if the landlord or agent has software which automatically sends rent due notifications, there will need to be some system in place to stop these automations during a breathing space to avoid making contact about the debt inadvertently. In addition, if there is a system of automatically adding interest, that will need to have a system in place to prevent such adding.
Request a Review
Within 20 days, a landlord can request a review on limited grounds namely:
- The moratorium unfairly prejudices the interests of the creditor, or
- There has been some material irregularity namely:
- The debtor did not meet the relevant eligibility criteria when the application for the moratorium was made,
- A moratorium debt is not a qualifying debt, or
- The debtor has sufficient funds to discharge or liquidate their debt as it falls due.
The review can be conducted at the same time as the midway review (see next).
Midway Review (Standard Breathing Space)
Between 25 and 35 days from the start of a standard breathing space, there must be a review by the debt advisor.
At the review, the debt moratorium must be cancelled respecting some or all of the moratorium debts if the debt advice provider considers that—
- a debt solution has been put in place respecting all the moratorium debts,
- the debt advice provider has been unable to contact the debtor, including for reasons of the unavailability of the debtor or,
- the debtor has failed to comply with any of the debtor’s obligations namely:
- inform their debt advice provider if there is any material change in their circumstances or financial position,
- make any payment due relating to an ongoing liability as it falls due to be paid during the moratorium period,
- not to obtain additional credit, either alone or jointly with any other person, that at any one time collectively exceeds £500,
- engage with the debt advice provider in such a way as the debt advice provider considers to be appropriate.
There are a number of exceptions to cancelling the breathing space even if any of the above apply for which see here.
If the breathing space is not cancelled, it will continue until its end (maximum 60 days from start).
If it is cancelled, the landlord or agent will be notified.
End or Cancellation of the Breathing Space
When the breathing space ends, action can be taken (such as serving a section 8 notice for example) if the debt has not been paid and suitable arrangements not made.
No interest, fees, penalties or charges may be made against the debt for the period during the breathing space.
Non-payment during the breathing space will not be deemed as a breach of contract during the breathing space period.
After the end of a moratorium period, neither a creditor nor their agent is entitled to—
(a) require a debtor to pay interest, fees, penalties or charges … that accrued during the moratorium period, or
(b) treat the non-payment during the moratorium period by the debtor of interest, fees, penalties or charges as a default by the debtor under, or a breach of, the agreement between the debtor and the creditor.
At first glance, it might be thought this was terrible news for landlords. A tenant stops paying the rent and can then get breathing space for 60 days during which no contact can be made nor a rent arrear section 8 notice served.
However, we don’t think that will be the reality.
Hopefully, the intention of the regulations — to help those genuinely in trouble with every intention and ability to pay if just given a little extra time — will bear out.
The most common use type that we can think of might be if a tenant fails to pay the rent after losing their job and promptly seeks debt advice. At that time, breathing space might be a good option as it will allow time for a Universal Credit claim to be made and paid out (which would presumably satisfy the continuing to pay ongoing rent requirement for the standard breathing space).
It cannot be used where somebody is simply not paying rent, has no income and refuses to engage in making a claim.
Nor can it be used to delay forever the debt. There must be some ability to pay at some point otherwise it won’t be a suitable option for the debt advisor to use.
The guidance for creditors issued by The Insolvency Service is a useful read and provides much more information than here which is only intended to be an overview.
When is Rent Arrears not Arrears? When it is a Moratorium Debt! — a good article by David Smith of jmw solicitors