The government’s new debt respite programme, known as the “breathing space” scheme, comes into force today, 4 May 2021. In the wake of the Covid-19 pandemic, where rising debts and the cost of living is of critical concern for many, the scheme is designed to help those in need to overcome the debt issues they face and reduce the impact on their mental health.

We explore what this means for the future of possession proceedings and the impact on the social housing sector below.

Two types of breathing space

Designed to give those struggling with debt the right to legal protections from their creditors for a limited period of time, two types of breathing space have been introduced:

• A standard breathing space is available to anyone with qualifying debt. It gives legal protections from a creditor for up to 60 days. This includes pausing most enforcement action and contact from creditors. Other ways a standard breathing space might end is if a debt adviser or a court cancels it or if the debtor dies during the breathing space period. In both cases, the breathing space ends on the next day.
• A mental health crisis breathing space is only available to those receiving mental health crisis treatment, and has stronger protections. It lasts as long as the person's mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts). The legislation can be found here.

Qualifying for help is very wide ranging and covers nearly all debts a person could owe – including rent arrears, sundry debts and former tenant debts. New debts incurred during a breathing space are not qualifying debts – so ongoing obligations to pay rent will not be covered.

What does this mean for registered providers?

If registered providers (RPs) are told that any debt they hold relating to a tenant or former tenant is covered by a breathing space, they have to stop all action related to that debt until the breathing space ends.

Breathing spaces can only be put in place by a qualified debt advisor (FCA registered) or a local authority providing debt advice to their residents. The debt advisors are obliged to run the breathing space from beginning to end. RPs can therefore expect to be continuing professional engagement (notifications and record keeping) in an electronic format.

For a mental health breathing space, the rules are slightly more complex, as the scheme requires an approved mental health worker’s involvement. However, the fundamental protection is still the same but could potentially last a lot longer. There are some concerns around the mental health breathing space which could be used as a long term tool to prevent enforcement, although it is possible to challenge this, and the reference to crisis would suggest a high threshold.

The practical steps

Once contacted over the breathing space, RPs must consult their records, ensuring all debts are included in the breathing space that are owed on the date the breathing space is started. They must notify the debt advisor of the correct arrears/debt owed, as well as of the ongoing rent liability and state it must be met.

They must then stop all enforcement action – this includes sending letters, calls, texts, NOSP’s or any action in court proceedings. You have to tell the court if proceedings are live and stop all action unless you wish to apply to the court for permission to continue with the process. The court will only give permission where it feels it is fair/proportionate to do so – and this won’t be an easy test to satisfy due to the involvement of the debt advisors. Any existing orders cannot be enforced whilst the breathing space is in place – again unless the court gives permission.

Generally, during a breathing space, you must not contact a debtor about any collection or enforcement action. This includes asking them to pay or starting or continuing any legal action. Note – only NOSP’s based on grounds 8, 10 and 11 are covered. All other NOSP’s, Notice to Quits, Section 21 notices can still be served and progressed. It is important to remain cautious, as you may still be required to justify the reasons behind service of the same and, if linked to arrears, that could be legally challenged.

The exceptions to the non-contact rule can be found under point 3.9 here.

During the breathing space, you can contact the debtor’s debt adviser about the debt you are owed, or to discuss a debt solution. You will need to consider data protection obligations on a case-by-case basis when discussing the tenancy.

The regulations make clear that a breathing space is not a payment holiday. While you cannot enforce a breathing space debt during a breathing space or charge interest or fees on it, a debtor is still legally required to pay their debts and liabilities. This means no obligation to write anything off.

When a breathing space ends, you can start applying charges to the debt from the date that the breathing space ends, as well as take action to enforce your debt.

Existing legal proceedings can continue when the breathing space ends. If there is a time limit for enforcement that ran out during the breathing space, this is extended to 8 weeks after it ends. Read more under point 4.4 here.

Debtors’ obligations and review of the breathing space

As the breathing space only relates to previous arrears, the debtor needs to keep paying the rent and any ongoing liabilities during a standard breathing space, ensure there are no issues with their application, and communicate regularly with their debt advisor. If they don’t, the debt adviser may cancel the standard breathing space in respect of some or all of the debts, but must consider whether this would be unfair or unreasonable to the debtor (e.g. as part of the mid-way review process). This obligation and review process does not apply to debtors during a mental health crisis breathing space.

RPs may request a review of the breathing space after 20 days from its start date. The conditions of this can be found under point 3.18 here.

To request a review, you need to give the debt adviser a written statement with the reasons you want a review and provide any supporting evidence.

After a review, if you do not agree with a debt adviser’s decision, you can apply to a court to cancel the breathing space in respect of some or all of the debts.

New Prescribed Form on Section 8 Notice of Seeking Possession (NOSP)

As a result of the introduction of these new Regulations, the prescribed form of notice for Assured tenancies, also known as Form 3, has been updated to account for the impact of a Breathing Space being made against an assured tenant. The updated prescribed form can be found on the Government website.

All NOSP’s served from today must be in this updated format. One potential problem with the update to the prescribed form of notice only being published on Friday afternoon is that if any NOSP’s were served in the old format by post in accordance with the relevant tenancy terms on Thursday 29 April or Friday 30 April 2021, then it will not be in the prescribed form by the time it is ‘served’ i.e. today or tomorrow. Therefore landlords may wish to consider re-serving any notices that were sent out in the post on Thursday or Friday to avoid a potential technical challenge at court on this basis.

Conclusion

Our clients will need to ensure they have systems in place to ensure they cease sending letters chasing the debts during the period when any type of breathing space is in operation. You must apply all the breathing space protections for a debtor after you’re notified about a breathing space. If you do not, any action you take is null and void and you may be liable for the debtor’s costs.

How Capsticks can help

We remain well placed to continue to help you deal with cases swiftly and are in regular contact with your local courts to keep a finger on the pulse of any differing practices they are adopting.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Chris Skinner or Michael Owen to find out more about how Capsticks can help.