The property market has been significantly challenges due to COVID-19 and there have been debts into the billions due to commercial and residential property rent not being paid. This is down to the lockdown impacts that have prevented trading activity and earning potential at both ends of the rental receipts of the market.
Now, as we open up, there have been concerns over the ability to paid rent arrears and creditors starting to chase these debts to keep their own businesses going. This has led to the introduction of ‘Breathing Space’ moratoriums and ‘Mental Health Crisis’ moratoriums under the Debt Respite Scheme Regulations 2020 that came into force on the 4th May 2021.
What do moratoriums do?
They restrict the creditor’s ability to take enforcement action in relation to a moratorium debt during the moratorium.
What does that mean?
Well, it means that if a landlord is seeking to take enforcement action to recover a debt from a tenant or guarantor but they have already obtained a moratorium, including for:
Imposed obligations on a landlord who has received a notification;
Effecting the ability of a landlord to take enforcement action;
Effecting the ability to serve a section 8 notice under the Housing Act 1988 when relying on rent arrears grounds, or take possession having served that same notice;
Effecting the debtor’s obligations to pay rent as it falls due;
The position of joint tenants where only one has obtained a moratorium and the position concerns guarantors;
Restrictions on contacting a tenant on debts;
How a creditor landlord can request cancellation or review of a moratorium; and
Consequences of the landlord breaching the moratorium.
Who can get a breathing space moratorium (BSM)?
An individual debtor that cannot, or is unlikely to be able to, repay their debts can get hold of a BSM.
A debt advice provider can assist with determining eligibility under reg 24(2) of the Debt Respite Regulations.
This cannot be applies to corporate entities, only individual debtors. That debtor must:
Live or usually reside in England or Wales
Owe a qualifying debt to a creditor
Not be subject to another insolvency regime
Not already benefit from a BSM or have had one in the prior 12-months
Not already benefit from a Mental Health Crisis Moratorium.
Who can apply for a Mental Health Crisis Moratorium?
A individual, not a corporate entity, that is struggling to deal with their finances and is currently receiving mental health crisis treatment can seek the help of a debt advice provider to get a MHCM. A person can apply on the individual’s behalf in circumstances where health of that individual is preventing them from doing so.
Duration of a BSM & MHCM?
A BSM lasts for up to 60-days.
A MHCM lasts for the duration of health treatment plus 30-days.
Are there debts that are excludes from these moratorium?
Yes, the are debts excluded under regulation 5(6), including business debts. Those debts incurred in connection with a business or trade carried on by the debtor where both:
The debtor, at the point of their application for a moratorium, and for the purposes of that business, is VAT registered, or a partner in a partnership with another person.
The debt relates solely to the business carried on by the debtor.
What can a landlord do when a moratorium ends?
Once the moratorium ends, the landlord can:
Start enforcement action for the debt subject to that moratorium
Contact the debtor about the debt, including demanding payment
Commence legal proceedings concerning the debt
Start applying interest, fees and penalties in relation to that debt (is provided under terms)
Backdate interest that would have otherwise applied during the moratorium
Debt Advice Provider?
Yes, there are many and most are charitable or non-profit organisations. Please, however, ensure that they are Financial Conduct Authority approved for debt advice that is regulated under the FSMA 2000.