Debt Respite Scheme: what it is, pros, cons and what it means for landlords

The UK Government is introducing new ‘breathing space’ regulations in May to offer some tenants struggling to pay their rent some time to sort out their finances. Here’s how it will work.

Throughout the COVID-19 pandemic, the finances of many landlords have taken a battering as a large number of tenants have struggled to pay rent due to their incomes falling or drying up altogether.

According to a survey by the National Residential Landlords Association (NRLA) in December, as many as 800,000 private renters could be behind on their rent due to COVID-19.

There’s been little financial help on offer for landlords and the eviction ban has prevented most from getting their properties back if their tenants’ finances are having a knock-on effect on their own financial situation.

Against this backdrop, it’s understandable that the forthcoming ‘breathing space’ regulations are being viewed by some landlords as something of a last straw.

Over the last couple of weeks, online landlord communities have been rife with postings about the Debt Respite Scheme, which comes into effect on 4 May.

“We have had a number of members contact us with concerns regarding breathing space,” said James Wood, senior policy officer at the NRLA.

“They have raised some concerns about how it will operate in practice and some of those concerns are valid.”

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What is a breathing space moratorium?

A breathing space moratorium is something that can be granted by a debt advice provider to a person in debt to give them some time to sort out their finances.

During this period of time, they do not have to repay certain debts, including rent arrears, and those they owe money to are not allowed to contact them about the debt. Landlords also can’t serve or enforce eviction proceedings due to arrears during the moratorium.

There are two types of breathing space: a standard breathing space and a mental health crisis breathing space. The former lasts for up to 60 days and the latter for 30 days after the person’s mental health crisis treatment has ended.

At first glance, the regulations may seem like another way to delay landlords recouping money they are owed, but the scheme may actually present an opportunity according to David Smith, partner at JMW Solicitors and specialist in landlord and tenant litigation.

“In terms of debt, a lot of rental debt is uncollected in the UK,” commented Smith.

“This actually sets off a process where it is more likely to be collected and I don’t see that as a problem, and in fact it probably keeps more tenants in their properties paying their debts down, which is good for everybody.”

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The upside

During a breathing space, a tenant is expected to pay the rent that becomes due and if they don’t, landlords can apply to have the breathing space cancelled.

So, breathing space could therefore incentivise non-paying tenants to restart payments and agree a plan to repay the arrears once the debt moratorium is over.

Wood points out that if the system works as intended, breathing spaces should only be granted to people who have a realistic prospect of repaying their debts.

“There will be a lot of applicants for breathing spaces, but I don’t think there will be as many people as you might expect actually on breathing spaces,” said Wood.

“The number of people who have unsustainable debt that they can pay off in the future if you give them 60 days is probably not as big as people think.

“If someone is in unsustainable debt, there is a chance that they are permanently in unsustainable debt and these people shouldn’t really qualify for a breathing space.”

The risks

The more worrying part of the legislation for many landlords is likely to be that related to mental health breathing spaces.

Wood believes that the uncertain nature of the time frame is causing concern for many landlords.

Indeed, on online forums landlords have speculated that with the widely reported backlogs in mental health treatment, these breathing spaces could last years, and many worry they’ll lose control of who lives in their property indefinitely.

But Smith believes only a very small number of people will be eligible for mental health breathing spaces, and that these may not be as prolonged as feared.

“If you’re under the care of a mental health crisis team, you don’t stay under the care of a mental health crisis team for an extended period of time because they don’t have the funds to do it, apart from anything else,” commented Smith.

“It is a short-term intervention.

“The prospect of them getting the initial appointment to be assessed and declared having a crisis at all is going to take so long that it is unlikely that it is going to affect a landlord because they’ll have been evicted long before they are ever declared as in crisis.”

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How landlords can protect themselves

As the regulations are not yet in force, it’s difficult to know exactly how big the take-up of breathing spaces will be and how new rules will be interpreted and implemented by various debt and health professionals involved.

But there are steps landlords can take to protect themselves from ending up with unmanageable levels of unpaid rent.

Asking a tenant for a guarantor is one option as while landlords cannot pursue tenants – and this extends to any joint tenants – on breathing spaces for debts during the moratorium period, they can pursue guarantors.

For this reason, Wood expects the use of guarantors to become ‘far more prevalent.’

He also expects there will also be more rigorous tenancy screening.

“Tenancy application forms are likely to expand to include more questions about other debts the tenant may have, because obviously if the tenant is in other debt then it increases the chance that they are likely to go into a breathing space,” said Wood.

Landlords should also stay on top of rental payments, added Smith.

“They can’t chase previous arrears, but they can chase new arrears that accrue during the moratorium and they should chase those arrears and if the tenants don’t pay, they should ask the debt advice service to terminate the moratorium on the basis that their obligations are not being fulfilled,” commented Smith.

“They should also consider if there are other reasons for asking the tenant to leave regardless of the moratorium.”

While the regulations state landlords cannot evict tenants on breathing spaces for arrears, they can evict them for other reasons using the grounds-based Section 8 eviction process, including for anti-social behaviour or because a landlord wants to live in the property themselves.

And though the Government plans to abolish so-called ‘no fault evictions,’ where landlords do not have to have a reason for evicting a tenant, this hasn’t happened yet and so Section 21 eviction notices can still be served, including to tenants on breathing spaces.

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