Retail Prices Index (RPI) Reform - Changes Due in 2030
If you are a landlord or tenant, you may have provisions in your lease(s) which are linked to the Retail Prices Index (RPI). The RPI is the oldest measure of inflation in the UK and is used widely across the economy and in financial contracts.
However, it has a number of shortcomings meaning that it has at times greatly overestimated, and at other times underestimated, the rate of inflation.
The UK Statistics Authority (UKSA) wish to bring the methods and data sources of the Consumer Prices Index, such as owner-occupiers’ housing costs, into the RPI. On 25 November 2020, the UK Government published their response to UKSA's consultation on such a reform. In their response, the Chancellor confirmed that the UKSA can implement changes to the RPI unilaterally after February 2030 (maturity date for the final index linked gilts).
Are the Changes Relevant to Your Premises Arrangements?
The RPI reform will be relevant to you leasehold premises arrangements where costs under your lease are linked to the RPI in some way - for example:
- You have an existing (or plan to enter into a new) leasehold arrangement as a landlord or tenant, which includes an RPI rent review clause and the lease contains rent review dates which fall after February 2030.
- You have a lease with a term which runs beyond 2030 and includes a service charge cap which linked to RPI.
Most leases with RPI clauses will have provisions in them which set out the steps to follow to agree which index should be used as an alternative where the RPI index changes or is brought to an end - you should ensure this process is properly followed and the new index documented in advance of February 2030.
How Can We Help?
If you are uncertain about whether your existing lease(s) will be impacted by these changes, we would be happy to review your lease(s) and confirm what (if any) RPI provisions they contain and what steps (if any) you should take to address the anticipated change in the RPI in the future.
We can also ensure that any new lease arrangement you may be entering into which is linked to the RPI is future proofed in respect of a change in the index.
Please note that we cannot advise on which alternative index would be appropriate, you should contact a specialist healthcare surveyor who can advise you accordingly.