From 4 May 2021 landlords, in common with others owed money by individuals living in England and Wales will need to consider the effect of debt moratoriums.

The new Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 come into force as from 4 May 2021 and will apply to most debts accrued before or after that date include arrears of rent.

Any person who is in debt can seek a debt moratorium from an approved debt advice provider. If the moratorium is granted it must be registered with a computer system that will be maintained on behalf of the Secretary of State. A moratorium is not something that is given freely. In order to obtain one a debtor must reasonably satisfy the debt advice provider that they will be able to pay their debts in full if they are given the breathing space created by a debt moratorium and also that they will be able to prevent their debt position getting worse during the moratorium. In other words, a moratorium is a more formal process of debt rescheduling with a statutory underpinning.

During a moratorium a debtor or tenant in arrears cannot be contacted to seek payment of the debt subject to the moratorium and cannot be asked to pay any part of that debt, any interest on it or any fee or cost created by it. They also cannot be served with a section 8 notice citing one of the three grounds for possession for arrears (grounds 8, 10 and 11) or the equivalent notices in Wales under the Renting Homes (Wales) Act 2016 (when it comes into force). A possession order cannot be sought against such a tenant for those same arrears and a possession order, if already obtained, cannot be enforced by a Bailiff or High Court Enforcement Officer (Sheriff). The regulations also state that no legal action in a court can be taken against a person on the strength of a moratorium debt. This would seem to protect licensees and non-Housing Act tenants too even though they don’t get the very explicit protection that the ban on section 8 notices gives. Interest and penalties that accrue in respect of a moratorium debt during the moratorium period cannot be sought and so are lost to the creditor.

However, this is not a free ride for defaulting tenants. 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. Failure to comply with the obligations of a debt moratorium, such as ongoing rent payment, permits a landlord to apply to the relevant debt advice organisation for cancellation of the moratorium and if they decline, to the courts to ask for the moratorium to be ended or to permit legal action for eviction on the grounds of arrears to progress. However, the main factor that will also lead to this not being offered in all that many cases is that there must be an overall ability to actually clear the debts. A moratorium is not there to simply delay the inevitable.

There are further moratorium provisions for people suffering a mental health crisis. These are far more powerful but require a certified mental health professional to confirm that the debtor is suffering a mental health crisis and that they need to be protected from their debts on a temporary basis while this is resolved.

As we emerge from the Covid-19 pandemic it is inevitable that there will be many tenants, and others, with substantial debts. In some of these cases a debt moratorium may be appropriate where the individual has a source of income, or will gain one, that can be used to pay the debts off if they are appropriately re-scheduled. It is likely that a significant number of landlords will find themselves with tenants seeking moratoriums on the basis that their rent arrears were incurred during a temporary reduction in income caused by Covid-19 and that they are now able to pay the rent and clear the debts on a scheduled basis.

As against these benefits for tenants it is likely that the fact that these regulations are forthcoming will motivate some landlords to issue notices and proceedings to try and remove tenants before they avail themselves of a moratorium. It may also drive the use of section 21 notices (at least until they are no longer available) as these will not be restricted by a debt moratorium.