Social Housing Speed Read – Debt Respite Scheme (Breathing Space)
22nd March, 2021
The Debt Respite Scheme is due to come into force on 4 May 2021 and will provide, to people in problem debt, either standard 'breathing space' or mental health crisis 'breathing space' from their creditors.
Standard breathing space gives debtors 60 days protection from creditors and mental health crisis breathing space is applicable to debtors receiving mental health crisis treatment, for the duration of their treatment plus 30 days.
For the scheme to apply, the debts must be ‘qualifying debts’; this includes mortgage or rent arrears and those debts which have accrued prior to 4 May 2021. Landlords and Social Housing Providers with tenants in rent arrears may be considered creditors under this scheme. Debtors (the tenant) can initiate the breathing space scheme by seeking advice from a debit adviser (which includes Local Authorities who provide debt advice to residents).
For a tenant to be an eligible debtor, they must:
- be an individual
- owe a qualifying debt to a creditor
- live or usually reside in England or Wales
- not have a debt relief order, an individual voluntary arrangement, an interim order, or be an undischarged bankrupt at the time they apply
- not already have a breathing space or have had a standard breathing space in the last 12 months at the time they apply
- satisfy the debt adviser that they cannot or are unlikely to be able to repay some or all of their debt and breathing space is appropriate.
Obligations on the landlord
What can you do, as a Landlord, when you receive a breathing space notification?
When a tenant is in breathing space, you will be sent an electronic notification detailing the debt owed by the tenant and the duration of the breathing space.
Once you receive the notification, we recommend that you engage with the process. From this date, you must check your database to confirm that the amount of the debt is correct, and then stop:
- any interest, fees, penalties or charges on the arrears – if this is not possible, interest can be allowed to accrue but not be charged to the tenant (even after the end of the period);
- any enforcement or recovery action for the rent (including action taken by a recovery agent);
- contacting the tenant about the arrears; ongoing liabilities; or to start/continue any legal action
Note – a landlord may discuss the arrears with the debt advisor. A landlord may discuss with the tenant, debt solutions; queries; and/or complaints, i.e. relating to disrepair or anti-social behaviour issues etc.
Enforcement action includes (but is not limited to) starting action or legal proceedings against the tenant; serving a notice to take possession of a property on the grounds of rent arrears; and taking possession of a property let to the tenant having served a notice before the start of the breathing space.
Whilst a tenant is in breathing space, you cannot serve a Notice Seeking Possession or start possession proceedings on the grounds of rent arrears. If you proceed with any enforcement action, despite the tenant being in breathing space, any action will be null and void and you may be liable for the tenant’s costs.
If, when checking the arrears against your database, you identify any additional rent arrears owed, you should inform the debt adviser. If these further arrears are considered a qualifying debt, they will become another breathing space debt and another notification will be sent. You must put the relevant protections (as detailed above) in place for these arrears, from the date the second notification is received.
If there are ongoing legal proceedings regarding the arrears subject to breathing space, you must advise the court of this in writing. Court proceedings may continue until an order or judgement is made, however, any action to enforce an order or judgement must be stopped until the end of the period.
The tenant should continue to pay their debts and liabilities throughout this period and you can accept these payments.
The breathing space may be cancelled at midway review, if the debt adviser considers:
- the tenant has not met one or all of their obligations (i.e. they have not continued to pay their ongoing liabilities) – unless they didn’t have the financial means to;
- debt solutions are in place;
- they are unable to contact the tenant;
- there is an issue with the tenant’s application or there has been unfair prejudice to the landlord’s interest.
If the breathing space is cancelled, you will receive an electronic notification.
You may request that the debt adviser undertake a breathing space review if you consider that:
- the breathing space unfairly prejudices your interest;
- the tenant does not meet one of the eligibility criteria;
- any debts included are not qualifying debts;
- the tenant has sufficient funds to pay their debts.
This request must be made by written statement and within 20 days of the breathing space commencing. If they agree with your claims, the debt adviser must cancel the breathing space (unless it is considered unfair or unreasonable to do so).
If cancelled, you cannot backdate any interest/fees accrued during the breathing space period. If the breathing space is not cancelled after the debt adviser’s review, you can apply to court to cancel the breathing space, provided this is within 50 days of the breathing space starting.
When the breathing space ends, you will be sent a notification. From this date, you can re-commence applying interest, fees, penalties and charges; take enforcement action; and start/continue legal proceedings.
Social landlords need to be aware of this legislative change and be on alert when dealing with rent arrears.
If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact Melanie Dirom or a member of our expert Social Housing Team.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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