Coming into force on May 4th is the new Government scheme, Debt Respite, or ‘Breathing Space’. Administered by the Insolvency Service, it has been created to offer legal protection to those with the common issue of problem debt, which has become increasingly prevalent during the pandemic and economic uncertainty across the country.
Although working in much the same way for both, the scheme applies to two separate ‘breathing spaces’ – standard and mental health crisis.
The standard is available to anyone with problem debt and gives legal protection from creditor action for 60 days. The mental health crisis ‘space’ is available to those who are receiving relevant treatment, for the duration of that treatment plus 30 days.
Protections include pausing enforcement action, contact from creditors, and freezing interest and charges, according to Government guidance on the scheme. They also state that this is not a payment holiday, and can be accessed only via an FCA-approved debt advisor or local authority for example. A mental health advisor must be involved in the mental health crisis cases.
Although the scheme is directed principally at large lenders such as banks, it relates to any creditor – including landlords. This creates a new hurdle for landlords with arrears owed.
The Insolvency Service will notify landlords if their tenants have entered into the scheme. If confirmed, tenants cannot be served a Section 8 eviction notice or receive a possession order for example. They should also not be approached to ask for payment of the debt, although mediation can continue during the process with a third party, and anything not debt-related, such as inspections, should still be supported and discussed between parties.
Adam Barker, Company Director, shares his stance:
“We take the mental health and wellbeing of our tenants as a complete priority, and welcome assistance for tenants to help deal with these difficult situations, however, we can’t help but feel that the Government’s attempt at help is at the expense of the landlord yet again. The measures taken during the pandemic have seen rental arrears increase, and many landlords experiencing financial difficulties themselves. This is of course exasperated when a tenant stops paying their rent.
Currently, the average time from first arrears to possession is around 14 months due to the backlog at courts and increased notice periods. If a tenant uses this new scheme to extend this process by a further 2 months, a landlord can be the better part of a year and a half without rent. The fact of the matter is that for a landlord who may also be struggling financially themselves, they will not be given the same generous timescales by their lender, and this could lead to multiple situations of foreclosures.
Even if the landlord did manage to keep on top of their mortgage payments, any rent arrears would still be due, and by extending the process, the debt increases for the tenant.
The Government would be much better off spending this time, effort and money reforming the housing benefits system in order to assist those who need help the most, not just offer a delay and increased debt to an already struggling tenant.”
For all guidelines, please visit the Government website here.
With this being introduced around a similar time to the furlough scheme ending, we would recommend landlords look to ensure that they have a rent guarantee policy in place.
If you’re a tenant struggling financially, or a landlord concerned about your situation, please get in touch with Orchards.