This new piece of legislation was approved by Parliament in October 2020 to give breathing space to anyone committed to addressing their debt through a Financial Conduct Authority (FCA)-authorised debt advisor or the tenant’s local authority. During this period, the person in debt cannot be chased for repayment or charged interest and fees on what they owe.
This has implications for letting agents dealing with tenants in arrears. Propertymark Industry Supplier PayProp outlines why the industry should avail themselves of possible solutions that can help them overcome the ramifications of not meeting their obligations under the new law.
What are the details?
It’s important to understand the different types of debt moratoriums covered by the legislation and the fact that your tenants could be affected by either. A standard ‘breathing space’ can be instigated once every 12 months by an FCA-authorised debt advisor or the tenant’s local authority, giving the tenant legal protections from creditor action for up to 60 days. This includes pausing enforcement actions from creditors while freezing most interest and charges on the debt.
The second is a mental health crisis ‘breathing space’. This is only available if a tenant is receiving mental health crisis treatment and lasts as long as the treatment, plus 30 days. This version also has stronger debt protection measures and there are no limits to how many times such a ‘breathing space’ can be triggered.
How could this affect my business?
While it’s clear that both types of ‘breathing spaces’ pause repayments and prevent additional debt from piling up, this new law also has implications for tenant communications. It’s important to ensure that anything you do send the tenant during their ‘breathing space’ can’t be read as asking them to pay their debts.
According to the UK Government guidance, creditors may only contact an indebted tenant during their ‘breathing space‘:
- about anything not related to the breathing space debt, like ongoing liabilities or a debt that is not covered by the legislation
- if the debtor asks you to talk about a breathing space debt or a debt solution
- to respond to a query or complaint the debtor sent you
- about any action or legal proceedings allowed by a court or tribunal
- if you or your agent are required to do so under the Consumer Credit Act 1974 or by the FCA Handbook
However, you are allowed to contact the tenant’s debt advisor about any amounts owed or to discuss a debt solution.
What are my obligations?
If you’re contacted by a debt advisor about ‘breathing space’ for a tenant in arrears, you may be expected to provide a record of any debts the tenant owes. This could involve searching old records, spreadsheets or bank statements – or, if you have a bank-integrated rental platform like PayProp, simply generating a tenant’s arrears report containing all of the tenancy debts of that tenant.
Given the levels of debts tenants have built up over the past year since the pandemic began, investing in a system like PayProp, which accurately tracks and manages arrears would be an excellent PropTech purchase. The alternative is to spend time that you may simply not have as a busy agent, collating evidence of missed payments for every tenant protected by a ‘breathing space’.
It is further important to note that tenants do have pre-existing obligations during a ‘breathing space’ period. They must continue to pay a lease or rental agreement for their primary residence, although this must not include any payments for rent arrears accrued up to the start of the breathing space. A tenant that does not pay rent during a standard ‘breathing space’ is at risk of having their ‘breathing space’ cancelled, as debt advisors are asked to consider payment of ongoing liabilities during the midway review of the moratorium. A review of the ‘breathing space’ can also be requested within 20 days of your being informed of it.
There are also implications for any existing legal proceedings, with the onus on the creditor to tell the court or tribunal in writing as soon as they have been notified that a tenant has been granted ‘breathing space’.
What if my business does not comply?
When in non-compliance of the rules, an agent may incur a warning from a debt advisor and be reminded of what they can and cannot do during a ‘breathing space’. Continuing to chase debts from a tenant during their ‘breathing space’ could further see complaints being made to you or directly to the Insolvency Service – a branch of the Department for Business, Energy and Industrial Strategy. The Insolvency Service can pass the complaint on to an oversight or industry body, or alternatively an ombudsman such as The Property Ombudsman or The Property Redress Scheme. In extreme circumstances, the ombudsman could ban an agent from legally transacting as a letting agent.
According to UK Government guidance, “repeated breaches of the regulations can be considered by your regulator”. While letting agents in England are not currently regulated, this could be a risk to Welsh agents, as they are required to be licensed by Rent Smart.
What action should I take now?
In the run-up to May 2021, it’s key to have accurate records of any debt your tenants owe, as well as evidence to back up the requests for payment if you are contacted by a tenant’s debt advisor. While manual record-keeping can work, it can take a lot of time away from other vital tasks. Alternatively, PayProp can automate this difficult job by monitoring and managing tenant arrears while keeping a complete and accurate list of missed payments and accrued debt totals, making reporting debts to advisors as simple as running a report.
It’s also important to explain these legal changes to your landlords, as agents could be in the difficult position of having to explain why their tenant – who may have missed multiple rent payments – can’t be chased for arrears when a ‘breathing space’ is implemented.
For more information about the new law, guidance is available on the Government website and in Propertymark's Debt Respite Scheme news article.
