This clearly also has implications for letting agents dealing with tenants in arrears, and the industry should note their obligations and the potential ramifications of not meeting them.
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 their 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 person is receiving treatment for their mental health crisis, 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 space’ 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 government guidance available here, 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, simply generating a tenant’s arrears report containing all of the debts owed by that tenant.
Given the levels of debts tenants have built up over the past year since the pandemic began, it would be wise to invest in a system that can accurately track and manage arrears.
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 also 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 being informed.
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 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 licenced by Rent Smart.
What action should I take now?
In the run-up to May, 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.
To overcome that, some automated rental payment systems can monitor tenant arrears and keep 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.
Finally, if you want to read more about the new law, guidance is available on the government website and through Propertymark.
*Neil Cobbold is Chief Sales Officer at PayProp