From 4 May 2021, individuals can apply for a moratorium to shield debts from creditors' enforcement action.
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the “Regulations”) are the latest in a series of measures to protect tenants who have suffered during the COVID-19 pandemic.
What do the Regulations do?
In order to apply for a “breathing space moratorium” under the Regulations, a tenant must apply to and seek debt advice from a debt adviser. The debt adviser will review their application and assess whether they consider that the tenant/debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due. These include amounts due under a court judgment, utility bill arrears and rent arrears.
If the application is successful, the tenant/debtor will benefit from legal protections from creditor action for up to 60 days (this must be reviewed by the debt adviser between days 26 to 35). Once the 60 days has expired, a further application cannot be made for another 12 months. However it should be noted that the breathing spaces are not a debt holiday; tenants must still pay debts as they fall due during the moratorium period.
This also includes a mental health crisis moratorium, open to anyone receiving mental health crisis treatment and lasting for the duration of that treatment plus 30 days. The debtor/tenant must still meet the same criteria and conditions for a standard breathing space, but they must also be receiving mental health crisis treatment at the time that an application is made.
Impact for residential landlords
If a landlord is notified that one of their tenants has been awarded a breathing space, then under the Regulations they must not take steps to pursue or enforce that debt.
For the duration of the breathing space moratorium, landlords cannot take any enforcement action to recover the protected debt (unless the court has given permission). This includes any steps to recover that debt (either by itself or via an agent, including taking control of goods under the Tribunals, Courts and Enforcements Act 2007), to enforce a judgment or court order or to start new court proceedings (including bankruptcy) and to apply for default judgment.
Furthermore, a landlord must not contact a tenant/debtor about enforcing a breathing space debt while the breathing space is in place.
If recovery action is already in progress, a landlord must notify the court or tribunal of the breathing space in writing so they can implement the appropriate protections.
A landlord is unable to serve notice under grounds 8, 10 or 11 of Schedule 2 of the Housing Act 1988 (the “1988 Act”) to take residential possession during breathing spaces. If such notice has been served, a landlord cannot issue proceedings to recover such residential property until the moratorium has expired.
The moratorium does not appear to prevent landlords from serving a notice pursuant to section 21 of the 1988 Act or commencing/continuing possession proceedings based on a section 21 notice. However, it is assumed that landlords will not be able to seek to recover rent arrears from a tenant/ debtor as part of those proceedings where the landlord is not using the accelerated possession procedure whilst a breathing space moratorium is in place.
A landlord can ask for a breathing space to be ended or reviewed or apply to court for permission to take steps that are prohibited under the Regulations. The likelihood of these applications being granted remains to be seen.
Impact for commercial landlords:
For commercial landlords, the implications of the Regulations are slightly different as these only apply to individuals and not to corporate entities.
Debts that relate solely to the business of VAT-registered tenants do not qualify for protection. Therefore an individual business tenant who is VAT registered will not qualify for protection. However, if a commercial landlord has a tenant whose debt is guaranteed by an individual, that individual may be eligible to apply for a breathing space.
Ultimately both commercial and residential landlords should familiarise themselves with the Regulations to avoid inadvertently taking steps whilst a breathing space is in place. As mentioned above, any prohibited action during a breathing space is rendered void, and the landlord may face liability for legal and possibly other costs incurred by the tenant/debtor as a result of the breach.