Debt Respite Scheme – what it means for landlords

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium)(England and Wales) regulations come into force on 4th May 2021. The scheme allows a debtor to apply for a “breathing space” if they have qualifying debts that they are unlikely to be able to repay.

This scheme clearly has significant consequences for both commercial and residential landlords as a creditor must not take any action to enforce the debt while the breathing space remains in place.

For residential landlords:

If a landlord is notified that one of their tenants has been awarded a breathing space in relation to a qualifying debt, then under the new regulations they must not take steps designed to pursue or enforce that debt. This includes;

  • serving a possession notice on the grounds of rent arrears
  • starting possession proceedings in the court
  • obtaining a warrant
  • taking steps to enforce a judgement already obtained

Importantly, a landlord must not even contact a debtor about enforcing a breathing space debt while the breathing space is in place.

A landlord must also take certain active steps upon being told of a breathing space. They must notify any court or enforcement agents involved in recovery of the debt, and they must notify the debt advice provider of any other debts owed to them by the tenant that are not currently part of the breathing space.

It seems that a landlord can still serve and enforce a s21 notice while a breathing space is in place, as long as it does not include a claim for rent arrears. Landlords should also be extremely cautious about serving a s21 notice in place of a s8 notice in order to escape a possible breathing space – there may be scope for a tenant to argue that proceedings were in fact brought in response to a protected debt.

In cases where a landlord has tenants who are jointly liable for rent, it is not possible to pursue one tenant for recovery of the debt if the other tenant has been granted a breathing space. If there is a guarantor then the landlord can still pursue them for payment of a breathing space debt, unless the guarantor qualifies for a breathing space in their own right.

The regulations do state that a debtor must satisfy any ongoing liabilities during a breathing space, which includes payment of rent. It therefore seems that a landlord can contact a tenant in respect of these ongoing liabilities, although they should be extremely cautious about any contact with their tenant during this period.

There are provisions within the regulations that would allow a landlord to ask for the breathing space to be ended or reviewed, and to apply to court for permission to take steps that are prohibited under the regulations. The likelihood of any such applications being granted remains to be seen.

For commercial landlords:

For commercial landlords, the implications of the scheme are slightly different. The scheme only applies to individuals and not to corporate entities, which make up the majority of commercial tenants. If a commercial landlord does have an individual tenant, the scheme also does not include debts where the debtor is VAT registered or in partnership with any other person, or where the debt relates solely to the business carried on by the debtor. However, if a commercial landlord has a tenant whose debt is guaranteed by an individual, that individual may be eligible to apply for a breathing space.

This means that commercial landlords are much less likely to be notified that one of their tenants has been granted a breathing space. If they do receive such notification, they must ensure that they comply with the rules and regulations outlined above.

Ultimately both commercial and residential landlords should familiarise themselves with the regulations to avoid inadvertently taking prohibited steps whilst a breathing space is in place. Any prohibited action during a breathing space is rendered ineffective, and the landlord may face liability for legal and other costs incurred by the debtor as a result of the breach.

If you require advice and assistance in relation to this or other landlord and tenant matters then please email Fiona Hannaford or call on 01803 403403.

The content of this article is correct as at the date of posting and is for information purposes only. Whilst we try and ensure it is accurate we do not warrant or guarantee that this is the case, nor do we accept any responsibility in the event that it is relied on. The information is not intended to be a substitute for legal advice which you are recommended to obtain.

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