Here is an overview of new rules coming into force in May 2021 which change the way letting agents and landlords can deal with tenants in debt.

The impact of the Covid-19 pandemic has brought the issue of rent arrears sharply into focus over the last year. Many tenants have struggled to pay rent and this has had knock-on financial consequences for letting agents and landlords without the necessary protections in place.

In a bid to provide further protection for consumers in debt, the Government recently set out the details of its new Debt Respite Scheme, which comes into force on May 4 2021.

The new system, which is also known as ‘breathing space’, aims to help people who find themselves in any kind of debt. It will apply to the rental sector and therefore offer protection to tenants who find themselves in arrears.

With just a few months to prepare for the introduction of the new law, below we have put together an overview of everything letting agents need to know…

What are the new regulations?

The official name of the new legislation is The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium)(England and Wales) Regulations 2020.

As suggested, the regulations provide protection for individuals struggling with certain debts, as well as those suffering a mental health crisis. The main protection offered is to stop creditors, the person(s) owed the money, or anyone who acts on their behalf from chasing those in debt for outstanding payments.

The full Government guidance can be viewed here and the National Residential Landlords Association (NRLA) has also published its own guidance.

How does the Debt Respite Scheme work?

Anyone in problem debt, such as rent arrears, can apply for a standard breathing space from a debt advice provider (a local authority or person approved by the Financial Conduct Authority to give such advice).

It is that provider that will assess the individual’s eligibility and, when satisfied, will put them forward to the Secretary of State who will initiate a period of breathing space.

The standard period can last for up to 60 days and provides the individual with legal protections from creditor actions, including:

  • Making contact in relation to the debt owed;
  • Adding late payment fees or interest to the debt during the period of the breathing space;
  • Serving a Section 8 eviction notice or issue any other type of demand letter for the rent arrears;
  • Issuing any legal proceedings that include the debt; and
  • Progressing any existing court proceedings during the period in question.

Anyone applying for breathing space can only do so once in a 12-month rolling period. During a period of breathing space the tenant would be required to meet all of their existing liabilities, such as rent payments that fall due during the period of breathing space. If they fail to do so, their protections could be revoked.

Individuals won’t be eligible for breathing space if they are already subject to a Debt Relief Order, IVA, interim order or an undischarged bankrupt.

Breathing space will be reviewed between day 25 and day 35 by the debt advice provider and will be cancelled if the individual fails to meet their obligations (e.g. fails to pay rent unless it is unfair or unreasonable to be expected to do so) or an alternative debt solution has been arranged.

Moreover, from May there will be the option for tenants to be given a mental health crisis breathing space if they are receiving recognised mental health crisis treatment. The mental health crisis breathing space will last as long as the individual’s treatment is ongoing, plus an additional 30 days.

What do the new rules mean for letting agents and landlords?

As outlined above, if letting agents or landlords are notified of a breathing space relating to a debt they are owed, all action must stop immediately.

Furthermore, if a landlord sells a debt to another creditor – i.e. a buy-to-let property with sitting tenants in arrears – which is then issued breathing space, the new creditor must be notified and their details shared with the debt adviser.

According to the Government, if this is not done as soon as possible, the original creditor will be liable for any losses the new creditor incurs as a result.

The NRLA has reminded landlords that their debts aren’t covered by breathing space rules. This means they would still be required to repay their buy-to-let mortgage in the event their tenant has breathing space.

Agents and landlords are able to communicate with tenants about issues not related to the debt, such as health and safety checks, arranging repairs or inspections.

Meanwhile, if the tenant who has breathing space wants to discuss their debt with a landlord or agent, they are permitted to answer enquiries/questions.

For agents or landlords with rent guarantee or legal expense cover in place with HomeLet or Let Alliance, the new regulations will not adversely affect this protection. In the event that you need to claim on your policy, a period of breathing space would not stop your claim from being honoured and payments would not be withheld during that period.

With the new regulations coming into force in just a few months’ time, it’s important for letting agents to get to grips with what they mean for the arrears process right away.

What’s more, it’s vital that you communicate the details of the new law to your landlords so they can prepare accordingly.