Breathing Space Moratoriums for Tenants

Landlords, letting agents and enforcement agents need to be aware of the new Debt Respite Scheme (Breathing Space) Regulations in England and Wales.

From the 04 May 2021, if your tenant is in a ‘breathing space moratorium’ you will be prevented from chasing your tenant (and anyone who is jointly liable) for rent arrears, charging late interest, and fees, and taking any enforcement action for rent arrears caught by the moratorium. Any action taken by the landlord or letting agent will be null and void if it is in breach of the regulations.

A breathing space provides a tenant in problem debt, a chance to address their debt through a debt adviser (regulated by the Financial Conduct Authority) or the tenants’ local authority. The hope is that the space will give the tenant a chance to get control over their financial situation and repay their debts. Landlords will be notified by the debt adviser if their tenant is in a breathing space. Landlords should check that the debt adviser is aware of all the debts owed to the landlord by the debtor.

There are two types of breathing space: 1) A ‘standard breathing space’ which lasts for 60 days; and 2) A ‘mental health crisis breathing space’ which lasts for as long as the tenant is receiving treatment for their mental health plus 30 days after the treatment has ended.

Whilst in a breathing space, the tenant does not have to repay their debts, but residential landlords can expect that the ongoing rent, tax and utilities continue to be paid otherwise the tenant may be taken out of the breathing space. Tenants in a mental health crisis breathing space are not required to pay their ongoing liabilities.

Landlords, letting agents and enforcement agents cannot take any action relating to the rent arrears protected by the moratorium or even contact the tenant about it during a breathing space. Contact can still be made with the tenant about other matters such as repairs and maintenance.

This means a landlord or letting agent cannot serve a Section 8 notice on the grounds of rent arrears or take possession having served such a notice. If court proceedings have got underway and the tenant is then placed in a breathing space, landlords must notify the courts as soon as possible.

Landlords must also inform any instructed agents to stop enforcement action otherwise they may be liable for any losses the debtor or the agent have as a result.

A Section 21 notice or a Section 8 notice on other grounds can still be served on a tenant in a breathing space.

Landlords can also pursue any guarantors to the lease (if applicable).

A breathing space moratorium can be challenged under the regulations but there are strict timeframes and requirements which must be followed.

Landlords and letting agents will need to ensure that any automated systems they have in place to chase for payment of the arrears will not apply to a tenant in a breathing space. Any automated bills or invoices will also need to be amended so that any rent arrears, interest and fees relating to the breathing space debt are not included in any rent demands which are sent to the tenant during a breathing space.

It is important that landlords and letting agents comply with the regulations or they will face complaints being made directly to them or directly to the Insolvency Service who can pass the complaint on to the relevant industry body. While letting agents in England are not currently regulated, this could be a risk to Welsh agents as they are required to be licenced by Rent Smart.

These regulations will also affect commercial landlords and letting agents if the tenant is an individual, not registered for VAT and the debts do not relate solely to the business. This may be the case if you have an individual tenant who is the director of a company which operates from the rented premises. The tenant is unlikely to be personally registered for VAT and some of the debt may be personal.

More information can be found in The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 which can be found here and the detailed government guidance which can be found here . Landlords and letting agents should review the regulations and guidance in detail.

The guidance notes on section 8 notices and the guidance notes on possession proceedings have been updated in light of these regulations.