A leading property lawyer insists that a controversial new ‘debt moratorium’ system starting this spring will not mean a free ride for defaulting tenants.
David Smith, a partner in the litigation team at JMW Solicitors, says that from May 4 landlords - in common with others owed money by individuals living in England and Wales - will have to respect so-called Breathing Spaces for individuals in significant debt.
The new Debt Respite Scheme - also known as Breathing Space - will give someone with 'problem debt' the right to legal protections from being chased up by creditors. As this applies to the rental sector, it is likely to protect tenants from being chased up by landlords or their letting agents.
The new details as set out on the Gov.uk website say there will be two types of breathing space - a standard breathing space and a mental health crisis breathing space.
“During a [breathing space] a debtor or tenant in arrears cannot be contacted to seek payment of the debt subject to the moratorium and cannot be asked to pay any part of that debt, any interest on it or any fee or cost created by it” says Smith.
“They also cannot be served with a section 8 notice citing one of the three grounds for possession for arrears (grounds 8, 10 and 11) or the equivalent notices in Wales under the Renting Homes (Wales) Act 2016 (when it comes into force).”
But Smith insists it does not mean landlords are powerless against an individual who successfully invokes a breathing space.
“A section 21 notice can still be served and enforced against a tenant subject to a moratorium and so can a section 8 notice citing grounds other than arrears of rent. In addition, it is an absolute requirement of a debt moratorium that a tenant benefitting from it continues to pay their rent for their main home” he states.
“Failure to comply with the obligations of a debt moratorium, such as ongoing rent payment, permits a landlord to apply to the relevant debt advice organisation for cancellation of the moratorium and if they decline, to the courts to ask for the moratorium to be ended or to permit legal action for eviction on the grounds of arrears to progress.
“However, the main factor that will also lead to this not being offered in all that many cases is that there must be an overall ability to actually clear the debts. A moratorium is not there to simply delay the inevitable.”
Under the new legislation a standard breathing space is available to any individual with problem debt and gives them legal protections from creditor action for up to 60 days.
“The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts” says the government guidance.
Individuals can access this standard breathing space - which the government states “is not a payment holiday” - only through an approved debt adviser registered with the Financial Conduct Authority, or via a local authority if it is approved to offer this kind of advice to its residents.
An individual who applies for such a ‘space’ can get no more than one a year.
A mental health crisis breathing space is only available to a client who is receiving recognised mental health crisis treatment.
If an approved mental health professional certifies a client is in mental health crisis treatment, the client or someone else might ask for a mental health crisis breathing space on the client's behalf.
The mental health crisis breathing space has some stronger protections than the standard breathing space. It lasts as long as the client's mental health crisis treatment, plus 30 additional days thereafter, no matter how long the crisis treatment lasts.
If you’re a creditor - that is, a landlord with arrears owed - and if you’re told that a debt owed to you is in a breathing space, you must stop all action related to that debt and apply the protections.
These protections must stay in place until the breathing space ends.
In addition, if you receive a notification of a breathing space debt that you have sold to another creditor - so for example, you may have sold your buy to let property to another investor or owner occupier - you must tell that creditor the breathing space has started and give their contact details to the debt adviser.
“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” says the government advice.