Debt Respite Scheme reassurance for landlords
- Published: Tuesday 02 February, 2021
- By: Commercial Trust
Landlord’s fears that the government’s new Debt Respite Scheme may be exploited by debtors have been eased, after clarification from property solicitors.
The Debt Respite Scheme, also known as ‘Breathing space’, is a newly launched scheme which gives a debtor in problem debt the right to legal protection from their creditors.
Standard breathing space
The scheme has two different types; the first, ‘Standard breathing space’ can be applied for by anyone with problem debt and affords them legal protection from their creditors for up to 60 days.
The protections offered include “pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts.”
Mental health crisis breathing space
The second type is ‘Mental health crisis breathing space’, this option is only available to those receiving mental health crisis treatment. The debt holiday lasts the length of the individual’s mental health treatment (regardless as to its length) and 30 days after it finishes.
Many landlords have been voicing their concerns that this new scheme will just be adding to their difficulties. A National Residential Landlords Association survey, conducted in December 2020 has already estimated that as many as 800,000 private tenants may be behind on their rent.
This fact, coupled with the eviction ban that has been in place throughout the Covid-19 pandemic has meant that landlords are unable to get their properties back, even if their tenant’s financial situation is having a knock-on effect on the landlords own.
Reassurance from solicitor firm
However, David Smith, a partner in the litigation team at JMW solicitors has insisted that landlords won’t be powerless against tenants who are receiving the breathing space protections.
Mr Smith said:
“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”
The scheme’s conditions, laid out by the government and accessible here state that debtors are only able to access breathing space by seeking debt advice from a qualified debt advisor.
The advisor will consider whether or not a breathing space is the most appropriate form of action, by taking into account whether the debtor could pay their debts through assets that may easily be sold, or whether they could enter a more suitable repayment solution straight away.
Qualifying criteria restricts access to the scheme
Mr Smith continued to quell landlord’s fears about the new scheme by stating:
“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.”
A tenant must be able to prove they are able to pay their debts back in the future, to qualify for the breathing space scheme.
As a result, landlords may find that, after a tenant has a period to assess their financial position, they may be able to agree a repayment plan once the respite period has ceased.
However, regardless of which debt respite scheme a tenant applies for, they will still be expected to continue paying the rent that becomes due. A failure to keep up with these payments will allow their landlord to apply to have their breathing space cancelled.
Though landlords are unable to make contact with their tenants about debt repayment, they are able to pursue any guarantors the tenant has named, a fact the NRLA believes will lead to a likely increase in the use of guarantors in the coming months.
Landlords will hope that a tenants use of the debt respite scheme will afford them the time to properly assess their financial position and that the schemes use will allow tenants to effectively plan how to repay what they owe.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.