Beware of Breathing Space – A Warning to Creditors

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England & Wales) Regulations 2020 came into force on 4th May 2021. The Regulations introduced two types of moratorium: the standard breathing space (which may last for up to 60 days) and the mental health crisis breathing space, which endures for the duration of mental health treatment, plus an additional 30 days.

A moratorium essentially freezes most debt enforcement action – hence giving the debtor ‘breathing space’. A debtor can only benefit from a standard breathing space once every 12 months, whereas mental health crisis breathing spaces are unlimited.

One year on from the commencement date, the courts are now being asked to adjudicate upon alleged breaches of the Regulations. The recent decision of His Hon Judge Dight CBE in Lees v Kaye [2022] EWHC 1151 (QB) acts as a stark warning to creditors.

The background

Lees and Kaye had been neighbours for several years. Following a dispute, Kaye was awarded damages for nuisance and harassment (plus costs), which were secured by way of charging orders over Lees’ long leasehold interest in her flat. An Order for Sale was made which required Lees to either pay the sum due to Kaye, or to deliver up possession of her flat to him, by 3rd April 2020.

Protracted proceedings followed, during which a breathing space was awarded to Lees. On 12th January 2022, Lees was granted a further mental health crisis breathing space, a mere day before a Writ of Possession was diarised to be executed in respect of her flat.

Kaye’s solicitor was of the view that Lees’ debt fell into an exception to the Regulations, and possession still went ahead on 13th January 2022. Lees’ leasehold interest was then ‘sold’ in March. Lees challenged these events.

The Court’s decision

His Hon Judge Dight CBE made the following key findings:

• The Secretary of State maintains an electronic register of matters relating to moratoriums under Regulation 35. ‘What is contained on the register is…a matter of record and should be taken at face value. There is no basis for going behind the register or for assuming that the correct procedure and process…has not been followed’.

• The final charging order should not have been enforced via possession and sale while a breathing space was in place: ‘while [a] charging order is preserved and remains as security for the underlying debt, the creditor is prevented from enforcing payment of the debt by seeking the remedies which would otherwise be available’.

• Debts which arise from an award of damages for personal injury are normally excluded from a breathing space (so they may still be enforced during it). The damages Lees was ordered to pay did not fall within this exclusion because they ‘were awarded in respect of distress and anxiety and other human emotions experienced by [Kaye] falling short of psychiatric harm’.

• Kaye would ‘have to identify and prove very exceptional circumstances to…deprive [Lees] of the protection which the Regulations are designed to confer on her’.

Kaye was found to have breached the Regulations, and both the eviction of Lees and the sale of her lease were deemed to be null and void.

This decision acts as a powerful reminder that debtors’ rights and protections should be taken seriously – if you have any concerns about the breathing space Regulations and how they may affect you, please do not hesitate to contact our team of experts for further assistance.

*Law is correct as at 30th May 2022

Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational purposes. You are respectfully reminded that it is not intended to be a substitute for specific legal advice and should not be relied upon as legal advice. No liability is accepted for any error or omission contained herein.