InsightsInsight - Commercial Dispute Resolution, Dispute Resolution - POSTED: February 23 2021
Moratorium debt and the implications for landlords
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It has been a fast-paced 12 months for residential landlords who have had to adapt to the obstacles posed by Coronavirus.
Now they must brace themselves for a further potential complication – debt moratoriums.
The Debt Respite Scheme
From 04 May 2021, debt moratoriums can be applied for by any individual who is in debt, including tenants who are in rent arrears, under the government’s new Debt Respite Scheme.
The objective of the moratorium is to essentially restructure the individual’s debt on the basis that, given the opportunity to repay in a structured way, they will be able to settle their debts at the same time as preventing any further sums from being owed.
An individual must apply for a debt moratorium from an approved debt advice provider in order to be granted one. If granted, it has the following effects:
- The moratorium is registered on a computer system maintained on behalf of the Secretary of State.
- The debtor cannot be contacted in relation to paying the whole or any part of the debt, any interest or any other fee related to it.
- If the debtor is a tenant, they cannot be served a section 8 notice (fault notice) on any of the three possession grounds relating to arrears (grounds 8, 10 and 11).
- Where a notice has already been served prior to the moratorium being granted, no legal action can be taken for possession on the above grounds.
- If a possession order has already been obtained, it cannot be enforced.
- Any interest or fees accrued during the moratorium period cannot be sought, even when the moratorium period ends.
- Non-Housing Act tenancies and licensees also seem to be protected, as the regulations state that no legal action in a court cannot be taken against a person on the strength of a moratorium debt.
As is clear from the above, a debt moratorium therefore carries some weight.
What landlords should remember
However, while landlords and creditors cannot prevent an application and grant of a moratorium, there are a few key points to keep in mind:
- The tenant/debtor will only be granted a debt moratorium if they can demonstrate that it will assist in paying their existing debts, while preventing them from incurring fresh debts. If a debtor cannot show an ability to pay off all their debts, the moratorium should not be granted.
- Section 21 notices (no-fault notices) can still be served (bearing mind the continuing extended six-month notice requirement), as can section 8 notices on grounds other than those relating to arrears.
- An absolute requirement is that a tenant must continue to pay their rent. Failure to do so permits the landlord to apply for cancellation of the moratorium. If the debt agency refuses, an application to the Court can also be made to cancel the moratorium or to permit eviction action to commence based on the arrears.
The Regulations also allow for moratoriums to be granted for those suffering from a mental health crisis. These requires certification from a professional that the individual is suffering from a mental health condition. Once granted, they will be much more powerful and difficult to challenge; aiming to provide the individual with relief from their debts to aid their personal situation.
On the face of it, debt moratoriums may benefit both parties by providing a roadmap for debts to be settled without the need for notices, court proceedings and ultimately evictions. Due to Coronavirus, it is likely that they will be widely used.
Landlords should be aware of these changes and be prepared for their introduction.
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