The Debt Respite Scheme (Breathing Space) Regulations

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 commence on 4 May 2021 and apply to England and Wales. 

An FCA-authorised debt advisor or local authority can start a breathing space moratorium which will provide a debtor with legal protections from creditors. In the context of this article, the landlord will usually be the creditor and the tenant the debtor. 

There are two types of breathing space:

• Standard breathing space — available to anyone and lasts up to 60 days
• Mental health crisis breathing space — only available to a person receiving mental health crisis treatment and lasts as long as the mental health treatment plus an additional 30 days.

The Insolvency Service manages the electronic service that debt advisors use, and they have issued advice for creditors. 

There is also a Civil Procedure Rules Practice Direction supplementing the regulations.

Standard Breathing Space

A standard breathing space will only be started if that is an appropriate option. Under the regulations, the debt advice provider must consider whether:

• The debtor has sufficient funds or income to discharge or liquidate their debt as it falls due,
• It would benefit the debtor to enter into a debt solution,
• The debtor may be eligible to enter into a debt solution during a moratorium or as soon as reasonably practicable after the moratorium ends, and
• The moratorium period is necessary for the debt advice provider to assess which debt solution would be appropriate for the debtor, advise which debt solution would be suitable, or for a debt solution to be put in place.

As the regulations state, to be “appropriate”, the debtor (tenant in our context) must be able to continue with ongoing liabilities such as rent. Breathing space should not be used to delay paying the rent where there is no prospect of it ever being paid. A standard breathing space lasts up to 60 days, and there must be a “midway review” between 25 and 35 days from when the breathing space starts (see later).

Mental Health Crisis Breathing Space

For a mental health crisis moratorium to be started, the debt advisor must consider whether:

• The debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due,
• A mental health crisis moratorium would be appropriate, and
• An approved mental health professional has provided evidence that the debtor receives mental health crisis treatment.

A mental health crisis breathing space lasts for as long as the mental health treatment is ongoing plus 30 days.

Creditor Notification

Suppose the creditor (landlord in our context) is notified of a breathing space being started. In that case, the landlord must conduct a “creditor search” and check that the debt mentioned in the notification is correct. If there is a debt owed by the debtor that was not included in the notification, details must be provided to the debt advisor promptly. 

Failing to do so can result in being liable for any debtor's losses due to the failure to notify. Where there’s an agent and the landlord has been notified of breathing space, the landlord must inform them of the breathing space and, if they fail, could be liable for any losses the agent incurs. 

It would also be advised that if an agent receives the notification about a breathing space, they inform their landlord client. Suppose there are ongoing court proceedings relating to the debt (for example, about a rent arrears notice previously served). In that case, the court must be told promptly in writing about the breathing space. Once a landlord creditor (or their agent) has been informed about starting a breathing space, no action against the debt must be taken. This includes even contacting the debtor tenant (about the debt). Contacting the tenant about other matters such as repairs or routine maintenance is acceptable. 

Any communication about the debt must be directed to the debt advisor. Still, care should be taken as to what is disclosed to the third-party debt advisor if any information is not legally required under the regulations:

Regulation 22(2) - A duty or power to which this regulation applies does not operate to require or authorise the disclosure or use of information which would contravene the data protection legislation (but the duty or power is to be taken into account in determining whether the disclosure or use would contravene that legislation).

The effect of the breathing space is to halt the debt for the specified period. The actions which must NOT be taken include (but are not limited to):

• Making any contact with the tenant about the debt
• Serving a section 8 notice on rent arrears grounds (8, 10 or 11), but a section 21 notice can be served
• The equivalent to section 8 rent arrears for Wales when Renting Homes (Wales) Act 2016 commences
• Commencing proceedings after a section 8 (or Renting Homes equivalent) on rent arrears grounds if notice was served before the breathing space started
• Commencing any other legal proceedings relating to the debt
• Enforcing a judgment relating to the breathing space debt (if the decision was obtained before breathing space started)
• No interest, fees or other charges can be added during the period (even if the tenancy allows).

Where the tenancy is joint and several, and the debt relates to the tenancy (e.g. rent), the actions above must NOT be taken against any of the other tenants, even if the breathing space is in a single name. The breathing space applies to all persons jointly and severally liable for the debt. The list above is not exhaustive (basically, don’t do anything, no contact, nothing for the duration of the breathing space). 

For the regulations' complete list, see the guidance linked earlier. 

As a point of note, if the landlord or agent has software that automatically sends rent due notifications, there will need to be some system to stop this automation during a breathing space to avoid inadvertently making contact about the debt. In addition, if there is a system of automatically adding interest, that will need to have a plan to prevent such adding.

Request a Review

Within 20 days, a landlord can request a review on limited grounds, namely:

• The moratorium unfairly prejudices the interests of the creditor, or
• There has been some material irregularity, namely:
  • The debtor did not meet the relevant eligibility criteria when the application for the moratorium was made,
  • A moratorium debt is not a qualifying debt, or
  • The debtor has sufficient funds to discharge or liquidate their debt as it falls due.

The review can be conducted simultaneously as the midway review (see next).

Midway Review (Standard Breathing Space)

Between 25 and 35 days from the start of a standard breathing space, there must be a review by the debt advisor. At the review, the debt moratorium must be cancelled respecting some or all of the moratorium debts if the debt advice provider considers that—

• a debt solution has been put in place respecting all the moratorium debts,
• the debt advice provider has been unable to contact the debtor, including for reasons of the unavailability of the debtor or,
• the debtor has failed to comply with any of the debtor’s obligations, namely:
  • inform their debt advice provider if there is any material change in their circumstances or financial position,
  • make any payment due relating to an ongoing liability as it falls due to be paid during the moratorium period,
  • not to obtain additional credit, either alone or jointly with any other person, that at any one time collectively exceeds £500,
  • engage with the debt advice provider in a way that the debt advice provider considers appropriate.

There are some exceptions to cancelling the breathing space, even if any of the above for which see here. 

If the breathing space is not cancelled, it will continue until its end (maximum 60 days from the start). If it is cancelled, the landlord or agent will be notified.

End or Cancellation of the Breathing Space

When the breathing space ends, action can be taken (such as serving a section 8 notice, for example) if the debt has not been paid and suitable arrangements are not made. No interest, fees, penalties or charges may be made against the debt for the period during the breathing space, and Non-payment during the breathing space will not be deemed a breach of contract during the breathing space period.

After the end of a moratorium period, neither a creditor nor their agent is entitled to—

(a) require a debtor to pay interest, fees, penalties or charges … that accrued during the moratorium period, or

(b) treat the non-payment during the moratorium period by the debtor of interest, fees, penalties or charges as a default by the debtor under, or a breach of, the agreement between the debtor and the creditor.

More Information

When is Rent Arrears not Arrears? When it is a Moratorium Debt! — a good article by David Smith of jmw solicitors

The guidance for creditors issued by The Insolvency Service is a worthwhile read and provides much more information than here which is only intended to be an overview.