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Rent Review: RPI, CPI and RPIJ

Commonly over the past few years longer term agreements or those with rent review clauses have tended to review the rent in line with the Retail Prices Index (RPI).
RPI was previously a National Statistic prepared by the Office of National Statistics (ONS) and used by Government as a measure of price changes. However earlier this year it was downgraded so that it was no longer a national statistic. ONS has confirmed that they will continue to produce RPI figures for the time being. This means that for agreements which refer to this as the measure to be used for calculating any rent review there is no need to worry. The statistic is still produced and ascertainable so the clause can still be operated. Remember all parties are bound by the terms of the lease and the court will give all words a common-sense interpretation. This means that simply because RPI is no longer a national statistic there is no reason why it cannot still be used.

So what about the future? You can still use RPI. It still exists and can be readily determined (even if a little harder to find on the ONS website than previously). The issue is that some parties are uneasy about using a statistic which is not a nationally excepted measure of price increases. RPI does however include housing and mortgage costs. For this reason alone it may be said to be a more accurate prediction on how inflation has affected rents although some economists suggest such figures alone help to perpetuate inflation.
Certain other figures are referred to. In particular the Consumer Prices Index (CPI) which is also calculated having regard to a specified “basket” of items save it does not include housing and mortgage payments. Hence this has tended to be considerably lower. If you are acting for Landlords CPI is less likely to appeal as the percentages have historically been substantially lower than RPI.

We are due to get two new indices produced by ONS. Both are meant to give a “truer” reduced level of inflation which again a landlord may disagree with although both supposedly will include some reference to housing costs. The two are RPIJ and CPIH. The ‘J’ in RPIJ stands for Jevons, which is the formula that replaces the one that was found to not meet international standards. It is likely to be lower than RPI. CPIH is similar to CPI but includes owner-occupier housing costs. It seems clear one of these will become the preferred option for including in rent review clauses but time will tell. There will always be a pull between landlord and tenant to adopt whichever either side sees as the most advantageous to them.
It should be remembered that a rent review clause can contain whatever mechanism the parties agree. This could include agreed increases by fixed amounts or determination by an external party. The later whilst common in commercial leases has tended not to find favour with residential tenancies given the short time nature means parties want a formula which will not put them to expense.

The bottom line is as ever to remember whatever terms are placed in the tenancy are binding upon both parties unless they mutually agree to the contrary.

One Comment

  • Kenah Cryer 13th May 2013 at 8:53 am

    Many thanks for keeping ups up to date with RPI changes to RPIJ and CPIH – nice read for a monday morning and lovely to receive up to date information

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