How will changes to RPI impact commercial property leases?

RPI is still the preferred way to calculate commercial property rent increases. But things are about to change. Let’s find out more.

While the government, the media and most people regard the Consumer Prices Index (CPI) as the principal measure of inflation in the UK, the commercial property sector still uses the old RPI system. This is because RPI is generally around 1% higher than CPI, giving landlords an inherent hedge against inflation.

However, from 2030, the methodology used to calculate RPI is going to change, and while that may seem a long time in the future, if you’re working with commercial property leases that go beyond 2030, it could affect how much you pay.

In this article, we’ll look at the changes stated to happen, and what you need to consider if you operate in commercial property. With an experienced property solicitor in your corner, you’ll get the best advice and protection for your interests.

Changes to RPI

RPI is currently calculated as the average change in costs of specific goods and services with mortgage interest payments included. It is published by the Office for National Statistics (ONS).

However, it was withdrawn as a national statistic in 2013 as the formulas behind it does not conform to international standards. In a bid to get RPI back in vogue, the UK Statistics Authority (UKSA) will change how RPI is calculated from February 2030. It will now be aligned with CPIH, which is the CPI figure with the change in housing costs added. We don’t know yet whether the ONS will continue to publish RPI after this change.

Implications to commercial real estate

If you’re a landlord or a tenant with contracts on property extending past 2030, this seemingly small change could have a dramatic impact. CPIH generally tracks lower than RPI, typically by around 1%. Therefore, any commercial rents linked to the new measure would lead to lower increases than would have previously been imposed by landlords.

However, it’s likely that your contract doesn’t make provisions for RPI suddenly disappearing or specify a replacement. So, in a sense, it’s all up for grabs after 2030. Landlords will want to safeguard their rent increases and use a higher measure, while tenants will be happy to do the opposite. It’s clear that there will be an increase in disputes over contracts where no provision is made for a change in RPI.

Time to call your solicitor

Whether you’re a landlord or tenant, if you’re in this situation with an RPI-linked commercial property contract extending beyond 2030, you must speak to your property solicitor. Your solicitor will be able to go through the agreement, explain your options and, if necessary, take action.

Perhaps you’ll be able to replace RPI with a new measurement, such as CPIH +1% or +2%. Alternatively, your contract could have a dispute resolution clause that will point you in the right direction. Whatever you need, your solicitor will give you the best advice and protect your interests in any dispute.

Don’t delay, and don’t leave it to chance. If you’re concerned with your commercial property rental increases post-2030, talk to an experienced property solicitor as soon as possible.

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