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Propcos e-briefing: RPI rent review clauses

    • Real estate sector

    24-01-2013

    A review on possible amendments to the Retail Prices Index (RPI) by the National Statistician has concluded that there should be no major changes to the method by which the index is compiled as there is significant benefit to users in maintaining continuity of the current formula.

    This will be welcome news to property investors whose leases contain RPI rent review clauses.  Major changes in the RPI could have led to lower than anticipated rent increases for landlords.  Disputes with tenants and delays in implementing rent reviews could have arisen where the landlord wanted to exercise any provisions in the rent review clause allowing for a new index to be substituted (had RPI all but disappeared) or for the RPI figures to be adjusted (if there were substantial changes in the method of calculating RPI).

    Instead of abolishing or amending RPI, a new index based on an international standard will be published from March 2013.  This will be known as RPIJ.  The J stands for Jervons (the formula used to calculate the new index).  As this will most likely produce a lower rate of increase, it is not recommended that this index be used in rent review clauses.

    For more information or advice please contact:

    Michael Callaghan
    Principal Associate
    Tel: 0845 497 0928
    michaelcallaghan@eversheds.com

     

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