The Debt Respite Scheme came into force on 4th May 2021, providing debtors with the ability to apply for ‘breathing space’ from their creditors.
Quick heads-up: what is the Debt Respite Scheme?
The Debt Respite Scheme was introduced by the government to give any individual in debt the right to apply for ‘breathing space’ from their creditors. The Scheme doesn’t wipe any debts or arrears, it just gives the individual a period of respite.
An individual can apply for a 60-day ‘standard breathing space’ or a ‘mental health crisis breathing space’. The latter can be in place for as long as the mental health crisis remains, plus 30 days.
Individuals needing a breathing space must apply to a debt adviser, who then manages communication with all creditors.
So, does the ‘breathing space’ apply to service charges?
In a word: yes.
The Debt Respite Scheme will apply to service charges and also ground rent arrears.
These are caught under the ‘mortgage or rent arrears’ line in the list of qualifying debts. Not all debts are covered by the Scheme (a full list of qualifying debts can be found here) but the majority of unsecured personal debts do qualify.
Joint debts are also included, even if only one person had applied for a breathing space.
Note that the leaseholder may have applied for breathing space because of a different debt (for example a personal loan or a utility bill debt) but the breathing space is then applied to all their qualifying debts including service charge or ground rent arrears.
The breathing space will affect any arrears accumulated before the Scheme came into force on 4th May. Any new arrears incurred during a breathing space will not count as qualifying debts and you can pursue payment of these in the normal way.
What do I need to do if one of our leaseholders has a ‘breathing space’?
As the creditor, you will be notified if one of your leaseholders has applied for a breathing space. If you receive a breathing space notification you must record it, identify the arrears owed to you and immediately inform your solicitors or debt recovery team. If legal proceedings are already underway, you (or your solicitors) must also notify the FTT or County Court.
While the breathing space is in place, you (and your solicitors) may not:
- Contact the leaseholder about the arrears
- Apply any fees, interest or charges etc to the breathing space debts
- Start or progress any legal proceedings
- Enforce any judgment for payment, or
- Take possession of the leaseholder’s property.
Swift action is needed to ensure that any existing legal proceedings and court action can be put on hold.
Debtors are however expected to pay any ongoing liabilities during the breathing space. So, for example, if you demand service charges quarterly and a payment becomes due during the breathing space, you are still able to issue this demand.
Brady Solicitors’ advice for freeholders, managing agents and their RMCs
Many questions remain as to how the Debt Respite Scheme will work in practice, and what the level of take-up will be. As with all developments in the service charge arrears recovery space, the team at Brady Solicitors will be monitoring closely to ensure we can bring you up-to-date advice and information.
In the meantime, it is essential that you put in place compliant and effective procedures to ensure you are ready if you are notified that one of your leaseholders has a breathing space application accepted:
- Your first step must be to review your processes to ensure you can capture and record any notifications of a breathing space application including what type it is (ie: a ‘standard breathing space’ or a ‘mental health crisis breathing space), as this will have an impact on the likely end date.
- Ensure your team know what to do next, and who to inform (solicitors, courts etc).
- Bring your credit control team up to speed with the Debt Respite Scheme, so they understand the importance of ceasing all action relating to qualifying debts, including stopping any automated payment reminders that might be scheduled.
- Ensure that your systems can record the end date for a standard breathing space so you know when to reinstate your arrears recovery processes.
- Remember that you can stay in contact with a breathing space leaseholder on other matters and you can continue to issue new service charge and ground rent demands during a breathing space but bear in mind the risk of waiver of the right to forfeit if you have already instructed solicitors.
For practical, expert help on how to manage the Debt Respite Scheme provisions please do get in touch.
From training for your credit control teams through to advice on leaseholder communications, Brady Solicitors would be happy to help.
Further reading: click here for full details of the Debt Respite Scheme on gov.uk