Proposed changes to the methodology for calculating the Retail Prices Index (RPI) may lead to lower than expected rent increases for Landlords in the future.

The government and the UK Statistics Authority recently published their response to a consultation on reforming the RPI calculation. The proposals seek to bring the RPI more closely in line with the Consumer Prices Index (CPI), for consistency in inflation statistics. 

The CPI often results in a lower measure of inflation than the RPI and has been approximately 1% lower per year on average than the RPI over the past decade. However, the proposed changes are not expected to take effect until February 2030 – so there is still plenty of time to plan for the changes.

How will this affect Landlords?

The RPI is often a measure used in leases to calculate rental increases, as well as increases to service charge caps and other payments due. If the methodology for calculating the RPI is changed in 2030 to align it with the CPI, this will likely result in smaller rent increases than expected where rent reviews are determined on the basis of RPI.

Given the current trend towards shorter term leases, the changes will not be of immediate concern to most Landlords. However, in the longer term the news will be less welcome to Landlords looking to secure a greater return by using RPI.

In the meantime, any long term contracts or leases with RPI reviews on or after February 2030 should be reviewed to consider the impact the proposed changes may have. In particular, the drafting should be reviewed to see if it allows for the preservation of the original method of calculation, even if the RPI materially changes, or allows a substitution of the calculation method.

Going forwards, when entering into new rent review clauses, thought should be given to whether linking increases to the RPI will still represent the best means of review after February 2030.