The impact of the Breathing Space on Possession Claims
The Debt Respite Scheme (Breathing Space) is now fairly familiar to most of us. In brief, the Breathing Space prevents creditors, including landlords and mortgage lenders, from taking action against debtors who are not able to pay. There are 2 types of breathing space: a standard breathing space and a mental health crisis breathing space.
A standard Breathing Space gives debtors legal protections from creditor action for up to 60 days.
A mental health crisis Breathing Space is available to a debtor who is receiving mental health crisis treatment. If an Approved Mental Health Professional certifies a debtor is in mental health crisis treatment, they can apply for the mental health crisis Breathing Space, which lasts as long as the debtor’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts). Therefore, indefinitely, potentially for the rest of the debtor’s life.
A debtor can have one standard Breathing Space a year, but there is no limit in relation to the mental health crisis Breathing Space.
That much is clear. What happens, however, to the claims for possession based on rent arears, which were issued prior to the tenant applying successfully for Breathing Space? And moreover, what happens to the enforcement of possession orders obtained prior to the tenant going into breathing space? That was not entirely clear, however it has become a little more so after having been faced with these situations in practice.
We learned first-hand, when acting for residential landlords, very recently.
- The first situation was the following. Acting for the Landlord, we served a Notice pursuant to Section 8 of the Housing Act 1988, requesting possession due to rent arears, which were very significant. In this particular case, they were actually more than 6 months. There were no problems with the service of the notice, and upon its expiry we duly issued a claim in the County Court at Newcastle upon Tyne. After the inevitable wait, the claim was listed for an attended final hearing on a day in January 2022.
We attended on the day and time of the hearing, suited and booted. The tenant was there, accompanied by a solicitor who provided an assistance service at the court for such cases, and of course we are grateful that this possibility exists for tenants who risk losing their homes. Exactly 10 minutes before going into the hearing, the tenant came and informed us that his application for Breathing Space (that we knew nothing about) had been successful and he has 60 days protection. He received confirmation of this shortly before the hearing and showed us the email.
This was something that we could not have foreseen. The creditors are not informed at all prior to the application being successful, their views are not sought. There had been no indication whatsoever that he would apply for Breathing Space. The email shown to us did not contain a list of the debts covered by the breathing space. So there was no way to tell whether the rent arears we in there. Unfortunately, it did not matter in the end.
When the time came, we were called to the Hearing Room, in front of the Judge. We made submissions, then the tenant waved his email and the case just stopped there. It was like a magic wand.
There was an argument to be had that a possession order could still have been made, but the enforcement stayed until the expiry of the 60 days of Breathing Space. After all, the rent arears being more than 2 months, we were dealing with a mandatory ground for possession. Furthermore, there was not (still isn’t) any prospect whatsoever of the tenant paying his rent. That argument was had and lost.
The hearing was adjourned to the next available date after the expiry of the 60 days Breathing Space. The Judge informed us openly that this was the first possession claim in front of him which was faced with this situation. So we learned that Breathing Space trumps mandatory grounds for possession, and it’s not limited at enforcing court judgments, as it frustrates the court process in its entirety.
Will this tenant pay his arears to date, plus the two extra months of Breathing Space? In this particular case, there is no likelihood of that. So the result of the Breathing Space break will be an even higher debt for the tenant, and a landlord who is kept out of his property while his tenant lives there free of rent. Still, we are seeing it as a set-back, not a loss.
- The second situation we had was with a possession order obtained before an application for Breathing Space was even made by the tenant. However, an application was successfully made when actual enforcement by bailiffs was scheduled. Of course, the eviction got stopped in its tracks. Nothing is gained by the tenants, though, they still have to leave. If they do not vacate, it will be a matter of resuming enforcement.
- There is a third scenario. The tenant applied successfully for a Breathing Space in June 2021, due to expire at the end of August 2021. He did not tell the Landlord, who had already served a valid notice seeking possession for rent arears sometime in May 2021. The debt adviser didn’t tell the Landlord either. None the wiser, in complete good faith, the Landlord issued a possession claim in July 2021.
When the claim was served on the tenant, he wrote to the Court to say that he was in Breathing Space when the claim was issued, and the claim should be struck out. This was his only defence to the claim. By the time the claim popped back in the Court system to be listed, in January 2022, the Breathing Space had long expired. What will the Court do? That remains to be seen. If I may offer a personal view (informed of course by my previous experience), as the Breathing Space has the result of adjourning or staying a claim until the time expires, there is no reason for it to not proceed now, even if it was issued when the break was in place. I await with a degree of trepidation the decision on this. I will make sure to share what I learn.
The difficulty we faced in all these three situations was that the Breathing Space came out of the blue. No indication was given to the Creditors, no warning at all, not by the debtor and not by the debt adviser who dealt with the application.
It is impossible to predict that it will happen. I cannot think of a reason why the debt adviser who is dealing with the Breathing Space application should not notify the creditors that this was being pursued. After all, one assumes the debt adviser knows who the creditors are and how much they are owed, since it appears that the Breathing Space break applies to a certain list of debts contained in the debtor’s application. Which we have never seen actually, it wasn’t attached to any of the emails we were shown. Yet, creditors are not informed and this is anomalous.
In the meantime, we should warn our landlord clients, as a matter of course, that the tenants may (or may not) apply for Breathing Space and that they can be forced to allow the tenants to live in the properties for free for the rest of their lives (in a mental health crisis scenario for instance).
The only good news is that the Breathing Space only affects possessions which are sought based on rent arears or other monetary failures. It does not affect the possessions sought based on the grounds in section 21 of the Housing Act 1988, the so called “no fault evictions”. So if the Landlord has all the paperwork in order, and is not too fond of recovering rent arears, the way to go is by section 21 Notice, which will give them the property back, but will not deal with the money aspect. Even so, enforcement will potentially become an issue if tenants refuse to leave.
I suspect that such situations will become very frequent, which makes the Breathing Space scheme very successful indeed. The negative impact on the letting market however is going to be significant, and the extent of this impact is still to be ascertained.
For many Landlords, the rental income is something they rely on, month by month, to support their families, and I have even seen some whose only income was the rent from a second house. We are seeing more and more Landlords who are reluctant to let their properties, as they are becoming more and more aware that they can in extreme cases lose the use of their properties indefinitely, while still having to, for instance, pay for building insurance, repairs, or mortgage.
The time is approaching when landlords will prefer to keep their properties empty, rather than have a stranger living in them for free and using lots of utilities – also for free. Potentially for many, many years.
At the moment, the Breathing Space Scheme seems to be a short-term solution that will create a long term housing crisis.