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How will a new government scheme impact landlords chasing rent arrears?

The new government Debt Respite Scheme will prevent landlords and their managing agents from chasing rent arrears or charging late fees, as well as introducing new administrative points to manage.

Known as new ‘breathing space’ rules, the scheme will begin on 4 May 2021, and will temporarily protect tenants from enforcement action against them, and any mounting debts.

There are two separate types of ‘breathing space’ cases outlined by the government; the standard ‘breathing space’ and a mental health crisis ‘breathing space’:

• A standard ‘breathing space’ is available to any tenant with problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts.
• A mental health crisis ‘breathing space’ is only available to a tenant who is receiving mental health crisis treatment. If an Approved Mental Health Professional (AMHP) certifies a tenant is in mental health crisis treatment, the tenant or someone else might ask you for a mental health crisis ‘breathing space’ on the tenant’s behalf. The mental health crisis ‘breathing space’ has some stronger protections than the standard ‘breathing space’. It lasts as long as the client’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

An FCA-approved debt adviser, or the tenant’s local council, will have the ability to award tenants a standard ‘breathing space’ once per year. In the event this is approved, any interest or other charges (such as late payment fees) are frozen for 60 days. Any pending enforcement action (such as evictions) are to be paused, and a review will be conducted at the halfway mark.

Tenants undergoing mental health crisis treatment have the potential for their ‘breathing space’ to last longer, based on the duration of the treatment itself. The length of the treatment, plus 30 days protect tenants in these circumstances, but their treatment must be confirmed every 20 to 30 days.

Additionally, whilst the standard ‘breathing space’ can only be declared once per year, tenants falling into the mental health crisis ‘breathing space’ face no limits on how often they can have this annually.

On receiving notice that a tenant has commenced a ‘breathing space’ period, managing agents and landlords are required to check their documented records for any debts they have been notified about. In the event any other debts are found on record, they must be reported after which the debt advisor will decide whether or not these are covered by the ‘breathing space’ rules.

Tenants will still be required to pay rent and other liabilities such as bills as normal whilst on a ‘breathing space’. However, landlords and their managing agents will be unable to collect or enforce debts, commence legal proceedings, or serve notice on the grounds of rent arrears.

Both landlords and managing agents will also be prohibited from contacting tenants about ‘breathing space’ debt, except in circumstances where they receive prior communication from tenants; or when required to do so by other laws.

The purpose of a ‘breathing space’ is to give your tenants time to get debt advice without the stress of immediate enforcement action. They do however, have fulfilments they have to make to their managing agent or landlord. These include:

• Providing accurate information surrounding the nature of their debts, and must not withhold information.
• Inform you if they discover any further creditors or debts after the ‘breathing space’ has started. For example, a creditor that was forgotten on the original application.
• Inform you if there is any change in their circumstances. This could mean a new job, a new source of income, or a problem that would affect their ability to pay their ongoing liabilities or engage with you.
• Make any payment due in relation to their ongoing liabilities.
• Not get any additional credit individually or jointly with another person (including any overdraft facility) that exceeds £500 at any point.
• Engage or communicate with you in a way you consider appropriate.

‘Breathing spaces’ are not rent payment holidays which many may have become accustomed to during the Covid-19 pandemic. Creditors cannot enforce ‘breathing space’ debt during a ‘breathing space’ or charge interest or fees on it, however, your tenant is still legally required to pay their ongoing debts and liabilities.

During a ‘breathing space’, the client should still continue to pay any debts and liabilities they owe, and creditors can continue to accept these payments. This does not stop you from advising your tenant on how to manage their repayments in their best interests.

During a ‘breathing space’, a creditor or their agent cannot contact your tenant about enforcing a ‘breathing space’ debt. This includes them demanding payment or starting any legal proceedings against your tenant for these debts.

However, you can contact your tenant’s creditors during the ‘breathing space’ about:

• A ‘breathing space’ debt
• A debt solution for the tenant
• Additional debts not included in the ‘breathing space’
• A request from a creditor for a review
• A tenant or creditors not meeting their obligations

This new scheme emphasises the need for landlords to ensure many components of their tenancies are legally documented, and easy to refer back to. Communication, and knowing how and when, is also a key element of the proposed scheme. If you have any concerns about how the new Debt Respite Scheme will impact you, or how we can help effectively manage your property with this new scheme in place, call us on 0161 820 6638.