The Debt Respite Scheme | About Debt Breathing Space

On 23rd February 2021, Calum, CEO of Howsy, sat down virtually with David Smith, Legal Counsel at the NRLA and Partner at JMW Solicitors, to discuss the key elements of the Debt Respite Scheme or ‘Breathing Space’ legislation. – Access the recording here

The webinar was broadly split into three sections, to help clear up some of the confusion around the new legislation:

• What is the ‘Debt Respite Scheme?
• The types of ‘Breathing Space’
• What does this mean for landlords?

David Smith outlined the ‘excitement’ around the implications of the new scheme and said that it was easy to become confused. Basically, the Debt Respite Scheme consisted of two different things that are not closely connected, despite what people might imagine. This legislation is the government’s answer to some of the spiralling debt issues regarding Covid’s impact. In addition, this now includes rental debt, as initially there was no provision for this.

One of the problems with the scenario regarding Covid debt means that governments needed to deal with this pressing issue. 

Government has been considering solutions.

1. The first is statutory changes. For example, should they make a law that writes off all the debt in its entirety? What would that do to the economy? Also its impact would be significant for landlords, mortgage providers and others.
   
2. Secondly, the Welsh and Scottish governments have offered loans on advantageous terms to tenants and landlords. The Welsh governments have focused on tenants while the Scottish government have put their emphasis on landlords. The problem is the issues are not equal across the whole of the UK. For example, there is more rental property in North Yorkshire and Humber alone than the whole of Scotland. Also, there is more rental in London than in Birmingham, for all types of property in that city. Therefore, different places require different solutions.
   
3. The aim has been to try and find a mechanism for people to pay down debts in a graceful way instead of speeding towards bankruptcy. Also, it is important not to ruin people’s credit history while spacing out affordable payments. These regulations are attempting to achieve this.

As an aside, there needs to be some breathing space for a government that’s also under significant scrutiny and intense pressure. With the optimism revolving around the vaccine program and the hope that being the first country to be well advanced with this the UK may leverage an advantage. This may well help, alongside Brexit to stimulate the economy, create more jobs and opportunities for people to pay down their debt.

Is the Breathing Space Legislation the same across the UK?

However, as suggested earlier, this legislation does NOT apply to the whole of the UK. It covers England and Wales that are a single jurisdiction. In Scotland and Northern Ireland there is a more substantial devolved package and they will develop their own way.

What is the impact of a debt breathing space?

If a debt breathing space is instituted during this period it is not possible to chase debts. As part of that breathing space cordon, as a landlord you can’t approach a tenant, levy fees or interest.

Some period after, a debt solution or agreed deal where defaulters pay debts off over time might be implemented. Call it debt rescheduling and this legislation puts some of this on a statutory footing. Therefore, Breathing Space is just that, a temporary lockout period where no one can pursue for accrued debt until the person gets themselves in order. Then they return to the fray and the debt still remains. However, with luck, debt advice, time and a little less worry, their situation will have improved.

Will people take advantage of Breathing Space, so landlords lose out?

Landlords will be notified if one of their tenants has been granted Breathing Space. These spaces are only given by debt advice officers with an FCA licence to offer debt advice. This is important to bear in mind. The person who comes to them for help and is accepted on to the Breathing Space scheme will be required to notify the adviser of everyone who is owed money…then the debt adviser will contact those on the list.

If you are concerned about tenants ‘pulling a fast one’ please be aware that there is a computer system run by the insolvency service on their website. You can also find the government contract tender for the company that runs the system. It is an online portal and it is searchable. People have to be registered officially to appear there. So, if someone says they have a Breathing Space you can check if it’s true.

Are there any benefits for landlords of the Breathing Space legislation?

The first part of this is a positive one. Becoming registered means that at least renters are seeking professional advice. They are not burying their heads in the sand. The government is not encouraging non-payment of rent. They are actually providing professional support to help people manage more efficiently. Bear in mind also that generally, tenant rent is not pursued, and it is eventually written off. That’s not a good thing for landlords and bad for the people who lent the money. It also affects the tenant‘s credit rating. Therefore, it does not benefit anyone. It is also damaging to the economy when debts are unenforced.

Landlords and tenants need a change of behaviours and thought processes

Some may still be of a mind that a section of renters may well use it to pull the wool over people’s eyes. Yes, perhaps some might well put off the day when they are eventually going to be evicted. However, the professionals issuing the Breathing Spaces will be regulated and are not just anybody. Tenants cannot make a decision to award themselves this space.

The other thing to consider is that when tenants go into arrears it is like a one-way street and they often stop paying all together. If they manage to save any money that goes towards the next property and the spiral continues.

In practical terms, it may be that this scheme will encourage people to seek advice and achieve some debt respite. This may well allow them to stay in the property. The logic is that some people just need time and eventually the debts will be paid.

Better relationships and longer tenancies

This also fits in with the government’s initiative to encourage longer-term tenancies. They would also like to see landlords supporting tenants through life experiences and long term there should be more chance for tenants to recoup income and a greater chance for landlords to get back the money that is owed.

End of the ‘easy come easy go’ mindset

This may well appear to be an alien approach to some landlords, and it may well be the time to change habitual thinking of ‘easy come, easy go.’ Of course, there are landlords that take this philosophy to extremes and don’t do repairs. They then serve a Section 21, throw out the tenant and get a new one instead of doing anything more. The logic is that another tenant may not moan so much about the living conditions.

This really is a poor tenant and landlord relationship and one that should be stopped. This has probably contributed significantly to the abolition of Section 21. You can see the trajectory starting towards a slightly different relationship between landlords and tenants. This is quite probably inevitable and has been coming for some time.

Section 8

To conclude this section please bear in mind that if you have a debt Breathing Space with respect to rent arrears a landlord cannot serve a section 8 notice with respect to those rent arrears because they are part of the Breathing Space. This also applies to possession proceedings with respect to rent arrears. In addition, you cannot get a court order progressed and cannot enforce it or get a warrant etc. These are only in relation to debt, however.

If you issue a Section 8 based on anti-social behaviour, you are entitled to serve a notice and repossession proceedings and finally secure possession.

There is a change coming across the sector

At present landlords can serve a section 8 for a number of reasons including rent arrears or a section 21 where they simply wish to recover possession. But the reality of abolishing Section 21 is that some landlords and their advisers specifically, will have to rethink their strategy of only serving a Section 21 because right now it is difficult to defend and is used predominantly by landlord eviction specialists.

Many advisers don’t possess the skill set to prove another case so they may well have to rethink this strategy moving forward. Section 21 is not going to be available in some cases. Rent arrears will also not be an available claim because of Breathing Space therefore landlords and landlord eviction specialists will have to think about other routes towards possession. These will have to be authorised by the law and then consider how they are going to be able to prove those cases.

This is a significant change in this sector’s construction and also a change for agents in finding the evidence to prove these cases.

Find out more about the mental health breathing space here.