Guidance from letting agencies will be crucial in helping the rental sector adapt to the government’s new Debt Respite Scheme, also known as Breathing Space, according to PayProp.
Introduced on May 4 2021, Breathing Space regulations can block letting agents and landlords from chasing rent arrears and charging late fees.
The legislation intends to provide consumers in escalating debt with increased protection from creditors such as letting agents and landlords.
Tenants in arrears can be given a standard Breathing Space, which protects them from creditor action for up to 60 days, or a mental health crisis Breathing Space, which is available to people for as long as they are receiving mental health treatment, plus 30 days.
“Letting agencies must make sure they don’t ask tenants to pay debts during a Breathing Space or they could be reported to the Insolvency Service or a redress scheme,” says Neil Cobbold, Chief Sales Officer at PayProp.
“It’s vital that agencies are aware of how the legislation works and have the systems in place to be able to comply seamlessly in the event tenants are granted a Breathing Space.”
Helping landlords to understand the new rules
Letting agencies will play a key role in educating landlords about the Debt Respite Scheme, helping them to manage arrears while staying compliant.
Cobbold says that if landlords are made aware of the legislation, it will be easier for agents to explain to them why tenants aren’t being chased for unpaid rent during a Breathing Space.
“Agents can help landlords to understand what they can and can’t contact tenants about during a Breathing Space, what is expected of the tenant during the period, how long it lasts and what happens after it ends.”
“As well as making sure their own record-keeping is up to scratch, agents will also need to encourage landlords to keep accurate records,” he adds.
If an agent is contacted by a debt adviser about a tenant in arrears who has been granted a Breathing Space, they may be required to provide a record of the renter’s debts, as well as evidence of their previous requests for payment.
A comprehensive automated rental payment system can allow letting agencies to accurately monitor missed payments and accrued debt totals, making it easier to provide reports to debt advisers.
If necessary, agents can use these reports to demonstrate to the adviser that a tenant is not meeting their rent obligations during a Breathing Space, potentially resulting in its cancellation at the midway review.
How can arrears be managed before a Breathing Space?
For as long as a tenant in arrears is provided with a Breathing Space, agents will not be able to chase unpaid rent and must comply with the regulations – and neither landlords nor agents have a say in whether or not a Breathing Space is awarded.
However, by working with landlords and tenants to recover missed rent payments at the earliest opportunity, agencies can aim to correct arrears before a Breathing Space is granted.
“When letting agents and landlords are unable to chase unpaid rent for a prolonged period, it has serious consequences for their cashflow,” Cobbold continues.
“With another barrier to recovering missed payments now in place, it’s more crucial than ever for agents to have the necessary tools and processes to manage and reduce rent arrears from the outset of a tenancy.”
“This includes automating rent reminders, keeping digital records of all activity and if necessary, communicating effectively with all stakeholders to agree repayment plans,” concludes Cobbold.