As of 4 May 2021, individuals who have unsustainable debts can apply for a breathing space moratorium from an approved debt advice provider, under the new Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the “Regulations”).

If the debtor’s application is accepted, for a period of 60 days, creditors will not be able to contact the individual directly in relation to the debt; most interest and other charges will be frozen on the debt; and creditors and their agents will be prevented from taking certain enforcement action.

If the debtor is receiving mental health crisis treatment, they may qualify for even stronger protections, meaning that the breathing space may last for as long as the person’s mental health crisis treatment is in place, plus 30 days.

It is expected that, during this time, the debt advice provider will be able to assess which debt solution would be appropriate for the debtor and advise the debtor on the same; or put a debt solution in place.

Not everyone will be accepted for a debt moratorium; it will only be given to an individual if the debt advice provider is satisfied that:

  •  The debtor is unable, or unlikely to be able, to repay some or all of their debt as it falls due; and
  • A breathing space moratorium would be appropriate.

This step would not be appropriate, for example, for those who will have no reasonable means of paying their debts regardless of breathing space. Similarly, those who could pay their debts with some budgeting help are also not likely to have their application accepted.

Someone who has had their wages temporarily reduced to 80% due to being furloughed in the current climate is a good example of when a breathing space moratorium might be useful.

What does this mean for tenants?

Rent arrears are a qualifying debt under the Regulations, which means they have the ability to be caught within the breathing space.

This means a landlord whose tenant has successfully applied for a breathing space moratorium cannot, during the moratorium period, serve a section 8 notice under the Housing Act 1988 which cites grounds 8, 10 or 11 as the basis for possession because these grounds involve rent arrears or persistent late payment of rent.

Should the section 8 notice have already been served prior to the moratorium period, but the tenant is subsequently granted one, the landlord will be prevented from applying for a possession order under these grounds during the moratorium period.

In cases where the landlord has already been granted a possession order and then the tenant is given a breathing space moratorium, the possession order will not be enforceable during the moratorium period.

The trigger point for a landlord no longer being allowed to proceed further with an eviction as a result of rent arrears is the landlord’s receipt of an electronic or postal notification of the tenant’s breathing space.

What does this mean for landlords?

This will be seen as a blow for landlords insofar as making it harder for them to evict their tenants who are not paying their rent goes, especially in situations in which the tenant is in a mental health crisis breathing space, given that this type of moratorium may last for some time.

The above being said, it is important to remember that a section 21 notice can still be served and enforced against any tenant who is subject to a moratorium, as can a section 8 notice, provided it cites grounds for possession which are not related to rent arrears. Landlords can also be reassured that tenants are still expected to continue to pay their rent whilst the moratorium is in place and failure to do so will allow a landlord to apply to the debt advice organisation or the courts to have the moratorium cancelled or to permit enforcement action on the grounds of arrears, regardless of the situation of the tenant.

It is also important to note that new debts that occur during the moratorium period are not qualifying debts, so whilst there is a protection against eviction in respect of arrears that have already built up prior to the breathing space, if the tenant only gets into rent arrears during the breathing space, the landlord should still have a cause of action by following the usual eviction process.

Does this apply to licensees and those who are not classed as tenants under the Housing Act 1988?

The regulations also state that no legal action in a court can be taken against a person on the strength of a moratorium debt. This would seem to protect licensees and non-Housing Act tenants too, to a certain extent.

How will this play out in practice?

This step is not intended to give debtors an easy ride but rather give them a chance to stabilise their finances.

Given that any tenant will be at liberty to approach a debt advice provider for a breathing space moratorium, landlords will need to focus on the importance of serving section 21 notices alongside section 8 notices on their defaulting tenants as a backup in the event that such breathing space is granted.

The effect of this legislation on landlords and creditors in general is, of course, yet to be seen.