ADVICE: Rent arrears and the new ‘breathing space’ debt scheme

The government has shown concern during the pandemic about people with debts they cannot immediately repay, but ©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - ADVICE: Rent arrears and the new ‘breathing space’ debt scheme | LandlordZONE.

ADVICE: Rent arrears and the new ‘breathing space’ debt scheme

The government has shown concern during the pandemic about people with debts they cannot immediately repay, but how does it work asks Tom Entwistle.

As the country continues on the way to recovery from the pandemic crisis, and is moving back to something like normality, many people are experiencing long-term debt problems.

As a way forward the government has introduced legislation designed to alleviate the pressure on these people and help them recover their debt fee position.

The were passed last November to help those people through the crisis who are in serious debt. It becomes effective from 4th May 2021.

This situation could easily apply to landlords as to tenants, but it is something landlords and agents should be aware of should their tenants fall into this category.

There is some sensitivity around this matter as landlords and agents are not allowed to initiate conversations about an individual’s private affairs such their debt situation, but it is perfectly acceptable to respond if the tenant raises the matter.

It is also acceptable where, discussing other matters such as repairs, damages or rent arrears where this naturally leads to the tenants claiming that debt is the real issue. Advice can be offered and a knowledge of the various debt services can be useful.

Correct channels

This legislation covers all forms of debt, not just rent arrears but in order for a debtor to qualify for a debt ‘breathing space’ they must go through the correct channels, that is a FCA approved debt advisor, private advisory service, or a local authority debt advisory service.

The decision to offer a breathing space rests with the debt advisor though there are some mandatory eligibility requirements set in the legislation which are not open to discussion or negotiation.

Condition one is that the debtor can maintain the current repayment amounts as they fall due, though they are not in a position to address the existing arrears amount. The idea is that after the breathing space the existing debts will not be any larger that at the commencement of the breathing space.

Interest charges

The breathing space period will be reviewed at regular intervals and can be revoked if the debtor fails to maintain the current payments. No interest or late payment charges can be applied to the debts during the breathing space.

Condition two is that during the breathing space the advisor works with the debtor to plan a longer-term way of getting out of debt. The breathing space is designed to take the stress off the debtor in the short term, giving them the space to think, to plan and to act to reduce their debt position. During this period landlords and agents are not allowed to contact the debtor about debt repayments.

Landlords and agents are being warned in this regard not to send out letters or even standard letters that inadvertently make demands which go against the principle of the breathing space, adding more unnecessary stress for the debtor.

The “standard” breathing space lasts for some 60 days and during this time not only must the landlord or agent refrain from making demands, they are prevented from initiating eviction proceedings under Section 8 of the Housing Act 1988. Any proceedings under way at the time of the grant of a breathing space must be notified to the court. A section 21 application, unless it is motivated because of a debt, may succeed.

Only one breathing space is allowed within any 12-month period.

Landlords and agents are advised to consult with the debt advisor to make sure the whole of the debt is included in the arrangement.

In the case of a mental health debt breathing space, the request for this must originate from the mental health professional treating the individual. Unfortunately for the landlord intermediate payments during the mental health crisis would be suspended, but it is expected that mental health breathing space grants will be quite rare.

Read more about rent arrears.

©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - ADVICE: Rent arrears and the new ‘breathing space’ debt scheme | LandlordZONE.

Source : Landlord Zone More   

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Deposit warning: Landlord narrowly avoids £83,760 fine after failing to protect

Given that the deposit protection rules were introduced in 2004, most landlords are aware of them by ©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Deposit warning: Landlord narrowly avoids £83,760 fine after failing to protect | LandlordZONE.

Deposit warning: Landlord narrowly avoids £83,760 fine after failing to protect

Given that the deposit protection rules were introduced in 2004, most landlords are aware of them by now, but people still fall foul of the rules, says Tom Entwistle.

The legislation introduced by the Housing Act 2004 gives tenants and their lawyers something of an incentive to ‘catch out’ landlords who don’t comply with the rules. They can get compensation which is a multiple of the deposit paid, depending on the severity of the breach of the rules.

The tenant can claim and the judge can award anything from one to three times the original deposit in compensation for the tenant.

The Rules:

  • Landlords or their agents must protect the deposit in an approved deposit protection scheme at the right time, i.e., within 30 days of taking it.
  • The landlord / agent must serve on the tenant certain “prescribed information” – as set out in the legislation including details about the property, the deposit paid and how it is being held. This information must be served on the tenant and whoever provided the deposit.

Despite the rules being reasonably clear and simple landlords occasionally get taken to court over breaches of the legislation and receive quite heavy fines because of it.

What many people fail to realise is that where tenancies have been renewed and the deposit has not been legally protected, the fines can multiply. It is not uncommon for tenancies to be renewed several times over a period of years, so fines can be payable for each and every breach when the deposit has not been protected.

Howard v Dalton

Such was the story in the case of Howard v Dalton (2019), and this was rather an extreme example of multiple fines adding to an exceptionally large amount.

Ms Howard was the tenant of Mr Dalton and entered into a tenancy agreement in 2007 paying an initial deposit of £900. On signing the agreement, she paid a further £845, obtaining a receipt which said “deposit remainer”.

Ms Howard was a long-term tenant entering into a further seven tenancies over a period of years.

The deposit was not protected by the landlord and neither was the prescribed information served on the tenant. The deposit was not protected until 2014 and the prescribed information was never served.

Ordinarily, had the deposit been protected on the first tenancy and the information provided there would have been no requirement to re-protect or re-serve the notice on the subsequent tenancies.

The landlord was vulnerable to a claim.

Sure enough, Ms Howard brought a claim for compensation and the claim was defended by Mr Dalton. The surprise for the landlord was the amount of the claim.

Ms Howard’s claim included fines for 8 tenancies and for failing to protect a deposit of £1745. She claimed that the failure to protect and the failure to serve the notice amounted to 16 separate offences all subject to a fine of 3 times the deposit amounting to £83,760.

The district judge went along with the claim. It was held that there had been two breaches (failure to protect and failure to provide prescribed information) for each of the eight tenancies, so 16 breaches in all. The court awarded the tenant compensation amounting to three times the deposit of £1745 for each breach, making a total of £83,760.

The landlord, perhaps picking himself up off the floor, appealed.

Appeal court decision

It was a fact that the 2007 tenancy deposit had not been protected until 2014, there was no argument over that. The fact that no deposit had been protected meant that no prescribed information, a key requirement, could have legally been served.

The court identified that within S.214 Housing Act 2004 was provided a claim for damages for either a breach of s.213(3) or s.213(6) – it could be one (failure to protect) or two (failure to serve) it could not be both. The penalty was therefore to be one fine per tenancy.

Fortunately for Mr Dalton, Ms Howard had failed to mention in here pre-action correspondence that the eight tenancies involved would be relied on at the trial when claiming compensation. 

Mr Dalton raised this point at the appeal trail, and the judge agreed it was a valid limitation. The judge also applied the 6 years statute of limitations rule which reduced the number of tenancies under consideration to four. Furthermore, the judge decided that the second payment of £845 was in fact a rent in advance payment.

Further still, the judge reduced the fine multiple from three to two times the deposit, not giving any reason for this but these fines are at the court’s discretion, making a total fine and the compensation figure that Ms Howard was to receive at £7,200.

While this fine was much less that it could have been, it is still a substantial amount and a warning to landlords and agents to take great care over deposits. Courts will come down heavily on landlords who blatantly breach the deposit rules, but clearly they are reluctant to impose fines which are so high they would cause unnecessary suffering and distress.

Read more about deposits.

©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Deposit warning: Landlord narrowly avoids £83,760 fine after failing to protect | LandlordZONE.

Source : Landlord Zone More   

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