What do the new Debt Respite Scheme Regulations mean for Landlords and Tenants?
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, which will come into force on 4 May 2021, will provide individuals with the opportunity to obtain legal protection from creditors in the form of either a breathing space moratorium or a mental health crisis moratorium. Given the economic impact of the Covid-19 pandemic, there may be a significant number of individuals seeking to obtain a moratorium to pause action against them to recover debts.
Both moratoria prevent creditors from taking action against a debtor to recover qualifying debts. A breathing space moratorium can be granted for up to 60 days, if the debtor cannot or is unlikely to be able to repay all or some of their qualifying debt. A mental health crisis moratorium can be granted for the length of a person’s mental health treatment plus 30 days in circumstances where the debtor cannot or is unlikely to be able to repay all or some of their qualifying debt and they are receiving mental health treatment. The moratoria may only be put in place by a debt advice provider authorised by the Financial Conduct Authority or local authority.
- Qualifying debts is widely defined and will include:
- arrears of rent payable by an individual;
- service charge arrears; and
- Any amount payable under an order or warrant for possession of the debtor’s residence or business, a Court Judgment or a controlled goods agreement.
A creditor will receive notification of the relevant moratorium and the qualifying debt will become a moratorium debt. From the commencement of the moratorium period, the action which can be taken by a creditor is severely restricted. For example:
- Interest and fees do not accrue on the debt;
- No enforcement action can be taken by the creditor or any agent; and
- Bankruptcy proceedings will be stayed by the Court until the end of the moratorium.
The creditors’ perspective
Not only are creditors restricted in the actions they can take during the moratorium period, creditors also face positive obligations including:
- Notifying any agent appointed in relation to the moratorium debt of the moratorium and its effect;
- Searching their records for debts and assignees relating to the debtor, and notifying the debt advice provider of any such information; and
- Notifying any Court or Tribunal seized of proceedings regarding a moratorium debt of the existence of the moratorium.
If a creditor wishes to oppose the moratorium, the Regulations provide a mechanism whereby a creditor may request a review of the moratorium on specific grounds, which if satisfied will result in the moratorium being cancelled. Alternatively, a creditor may apply to a Court or Tribunal directly for permission to take steps otherwise prohibited by the moratorium.
It may be helpful to know that creditors can discuss settlement of the debt at the debtor’s request. However, such discussions can only be initiated by the debtor so creditors would be wise to proceed with extreme caution.
The Regulations contain both restrictions and positive obligations with which creditors must comply. Accordingly, creditors would be well advised to seek legal advice at an early stage in these circumstances.
Landlords and tenants
In the specific context of landlord and tenant, whilst some tenants may obtain assistance from the Regulations during difficult periods, landlords and their advisers will need to ensure they have a full understanding of the impact of the Regulations to minimise the risk of ineffective action and potentially costly non-compliance.
In particular, landlords should note that the Regulations restrict the ability to serve a Section 8 Notice during the moratorium period upon Grounds 8, 10 or 11 in Schedule 2 of the Housing Act 1988 to terminate an Assured Shorthold Tenancy where there are arrears of rent. It remains possible, however, for a landlord to serve a Section 21 Notice to terminate an Assured Shorthold Tenancy, giving the relevant notice period, and to serve a Section 8 Notice relying on other grounds for possession. There is a new prescribed form Section 8 Notice from 4 May 2021 which contains references to the Regulations.
Landlords should be mindful of, amongst other things, the following:
- Any actions taken contrary to the moratorium may be rendered null and void;
- Any legal proceedings resulting from a breach by a landlord of the Regulations may result in an adverse order for payment of legal costs; and
- Any creditor who fails to notify agents (including Solicitors appointed regarding the qualifying debt) of the moratorium debt as they are required to will be liable for any losses that result from their non-compliance.
What will be the impact of the Regulations?
It remains to be seen whether there will be significant take-up of these procedures in practice and what the impact will be on debtors and creditors alike. The impact of the Covid-19 pandemic may result in a significant increase in debtors seeking to rely on the protections afforded by the Regulations. It is therefore important for creditors and, in particular landlords, to understand the effect of the Regulations on their ability to seek to recover debts from individuals of any type of property or possession of residential properties let on Assured and Assured Shorthold Tenancies.
We will be following the developments closely so please visit our Essential Residential Hub and our timelines on the Evolution of the Private Rented Sector and Changing Landscapes in Residential Leasehold to keep up to date.
Please do not hesitate to contact Lauren Spark or your usual Charles Russell Speechlys contact if you have any queries. This insight is not a substitute for legal advice on the specific circumstances of your case.