Creditors, such as private residential landlords, are being warned about an urgent change to the arrears process, which has been brought about by the government’s Breathing Space initiative.
Breathing Space, or the Debt Respite Scheme, was launched on 4 May 2021 to give people in debt up to 60 days’ legal protection from creditors.
The protections include pausing most enforcement action and contact from creditors, as well as freezing most interest and charges on their debts.
In essence, if you are told that a debt owed to you is in a breathing space, you must stop all action related to that debt and apply the protections, which must stay in place until the moratorium ends.
For landlords, agents and solicitors it also means that they must now include details of the Breathing Space scheme in documentation, such as a Section 8 Notice, when seeking to gain possession of a property. Failure to do this, runs the risk of the eviction being rejected.
Landlords should note that the regulations restrict the ability to serve a Section 8 Notice during the moratorium period on Grounds 8, 10 or 11 in Schedule 2 of the Housing Act 1988 to terminate an Assured Shorthold Tenancy where there are arrears of rent.
It remains possible, however, for a landlord to serve a Section 21 Notice to terminate an Assured Shorthold Tenancy, giving the relevant notice period, and to serve a Section 8 Notice relying on other grounds for possession. There is a new prescribed form Section 8 Notice from 4 May 2021 which contains references to the regulations.
A breathing space can only be started by a debt advice provider authorised by the Financial Conduct Authority (FCA) or a local authority which provides a debt advice service to residents.
The Insolvency Service meanwhile maintains the electronic service used by debt advisers, so will send notifications to creditors during the Breathing Space process, for example notifying creditors when a debt has entered a Breathing Space Moratorium.
What to do if you receive a breathing space notification
When you receive a notification that a debt has entered a breathing space you should check your records to identify the debt in question. If you are owed more than one debt, you should inform the debt adviser of the additional debts as they will advise you whether these also qualify for breathing space.
Crucially, you must make sure you stop:
- The debtor having to pay interest, fees, penalties or charges for the debt for the duration of the breathing space,
- Any enforcement or recovery action by you or any agent that you have appointed,
- Contacting the debtor to request payment of the debt unless you’ve got permission from the court.
A breathing space halts enforcement action but is not a payment holiday, so a debtor is still legally required to pay their debts and liabilities that they owe you and you can continue to accept these payments.
Ongoing liabilities include:
- A mortgage or rent (this does not include arrears up to the start of the breathing space)
- An insurance agreement
- Taxes, duties and national insurance contributions
- Local taxes or rates
- Water, sewerage or fuel bills.
When the moratorium ends you will receive a notification. At this point you may:
- Start applying interest, fees, penalties and charges to the debt,
- Take action to enforce your debt
- Start or continue legal proceedings.
The scheme is designed to give debtors 60 days’ breathing space to get advice and find the means to clear their debts.
While this is a fair and reasonable approach to take with those who may be struggling financially, it does represent a big change for creditors, particularly landlords and agents. Over the coming weeks and months they will doubtless be faced with reviewing their processes when it comes to tackling tenants who have accrued rent arrears.
If you are a landlord and you need help to recover money that you are owed, please don’t hesitate to get in touch with our debt recovery team by emailing email@example.com or phone 01782 205000.