On 4th May the new Debt Respite Scheme, otherwise known as ‘breathing’ space will come into force, which is designed to ease the financial pressure of those hurt by the Covid-19 pandemic. The scheme will provide temporary legal protection to those in debt from their creditors, allowing them time and space to find a solution to their financial troubles, hence the name ‘breathing space’. This, in turn, will affect how landlords and letting agents can pursue tenants in rent arrears.
It’s currently thought that 7% of private tenants are behind on their rent, and the new breathing space scheme is designed to help them reduce the snowballing effect of mounting debts. The scheme will pause enforcement action from creditors, such as landlords and letting agents, preventing them from adding charges, fees, and certain types of interest, protecting the debtor for the duration of the breathing space. There are two types of breathing space: the standard breathing space and the mental health crisis breathing space.
The standard scheme is available to anyone who is unable to meet their debts, and lasts for 60 days, with a review half-way through. To access the scheme the debtor must be approved either by their local authority or by a Financial Conduct Authority (FCA) authorised adviser and can only be entered into the scheme once every 12 months. The mental health scheme on the other hand, is only open to those undergoing treatment for a mental health crisis, with an Approved Mental Health Professional (AMPH) needed to confirm the applicant is in treatment. This side of the scheme lasts for as long as the applicant is undergoing treatment, plus an additional 30 days, with no review, and there is no cap on the number of times it can be accessed.
The decision to award the debt relief will usually be based on if the applicant has a realistic prospect of raising the money to cover the debt, for example collects an income, or has holds assets that could be sold. If applicants already have in place a current individual voluntary arrangement (IVA), or debt relief order (DRO), they may not be eligible for a standard breathing space.
If a tenant has been granted a breathing space, landlords or letting agents will be notified, and from this point must pause any enforcement action, must not serve notices on the grounds of rent arrears, and freeze any charges, fees, or interest, for the duration of the breathing space. Agents will also be asked to undertake a ‘reasonable’ check of their records and report any other debts they are aware of, owed by the tenant, which may also be covered by the breathing space. The debt advisor of the breathing space case should be the only point of contact to landlords and agents, and they are prohibited from contacting the tenants about any debt, (including automatic debt reminders), unless required to by law.
Secured debts, such as mortgages, are unfortunately not covered by the breathing space scheme, which sounds like bad news for landlords. However, the tenant will still have to pay rent in full during the breathing space, as the debt respite only applies to arrears that have previously accumulated. Rent payments count as an ‘ongoing liability’ and usually, one of the conditions of entering the scheme is that you can continue to pay these liabilities. If a tenant were to default, this could result in the breathing space being terminated.
In summary, with record levels of debt in society there are many people crying out for a scheme such as this. Landlords may be the ones that financially suffer in the short-term, however its often better to give tenants the time and space to come up with a sustainable plan to pay their debts, to help everyone in the long-term. Good tenants that have been historically reliable, and may just be down on their luck, is who this scheme aims to help.
To read the Government’s full guidance click here.