How The Debt Respite Scheme Might Affect Landlords

 

The past year has been challenging for tenants and landlords. When a tenant faces financial difficulties, there is every chance that this pressure is placed onto landlords.

Therefore, it is vital landlords familiarise themselves with schemes which aim to assist people with debt. This support, while welcome for tenants, might provide landlords with a fresh challenge.

 

Breathing space is on offer to people struggling with debt

The Debt Respite Scheme, which is also known as Breathing Space, is set to come into effect as of May 2021.

The scheme will provide people who have “problem debt” the right to receive legal protection from being chased by creditors. This will apply to the rental sector, which means landlords and letting agents should be aware of how this affects them when chasing tenants for unpaid rent.

According to information found on the Gov.uk website, there are two types of breathing space:

• The standard breathing space
• A mental health crisis breathing space

Any individual with problem debt can access the standard breathing space. This will provide them with legal protections from creditor action, and will remain valid for up to 60 days.

Government guidance states; “The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts.”

The Government stresses the standard breathing space is NOT a payment holiday.

People looking to access the standard breathing space can do so in the following ways:

1. Through an approved debt adviser registered with the Financial Conduct Authority (FCA)
2. Through their local authority, if the authority has been approved to provide this level of advice to residents

Anyone who applies for “space” is not allowed to obtain this assistance more than once per year.

The mental health crisis breathing space is only available for people receiving recognised mental health crisis treatment.

 

Landlords must adapt to new challenges

If you are a creditor, with the obvious example being a landlord who is owed arrears, and you are informed that a debt to you is a breathing space debt, you must immediately stop actions relating to the debt. The creditor is also expected to apply the protections and ensure that these protections remain in place until the breathing space concludes.

This is also the case if you are informed of a breathing space debt where you have sold the debt to another creditor. You must inform the creditor about that breathing space.

The Government advice states; “If you do not do this as soon as possible, you’re liable for any losses the debtor or the assigned creditor have as a result.”

The Government has provided considerable guidelines on their website which can be accessed here.
 
The National Residential Landlords Association has analysed the guidelines and they believe there will be an impact on landlords where the tenant is in arrears.
 
The NRLA have released a statement, saying; “In these cases they cannot serve a Section 8 notice, apply for a warrant or money judgement or receive a possession order during the breathing space. They should also not contact the tenant to request payment of the debt during this time.”
 
The NRLA have also said; “It is worth noting that secured debts aren't covered by breathing space rules, so your mortgage lender would still expect to receive mortgage payments during the period your tenant was in their tenant is in a breathing space. However, it is likely you would be able to come to an arrangement should you explain the situation.”
 
The NRLA concluded by saying; “You may continue to contact your tenant about anything not related to the debt. For example, arranging repairs or inspections for electrical or gas safety checks. In addition to this, if the tenant has asked to talk to you about a debt solution or debt then you can answer these enquiries.”
 
At Regal Estates over the last 12 months we have seen a vast number of landlords who have not used an agent or who have used an agent for lettings only without the aid of a professional Property Management team that have sought our guidance to assist them with tenant issues.
 
If you are interested in our lettings or property management services or you are looking to buy, sell, let or rent property in or around North West London, call us on 020 8459 2530 and a member of our estate and letting agent team will be happy to help.