With inflation presently running at a thirty-year high, rent review clauses providing for an increase in line with the RPI Index are likely to come into increased focus.
Rent review based on RPI indexation is not as popular here as it is on the continent. The usual basis of review remains the open market rent to be assessed by reference to a set of express assumptions and disregards included in the rent review clause. This often sees the respective valuation surveyors of the parties locking horns with a view to seeking to achieve a compromise palatable to both parties. Where however instead of this formula you have a review linked either purely to the RPI Index or a formula involving a mix of open market rent and RPI, how the wording is interpreted, becomes paramount.
Where the formula is a mixed one, or one based purely on RPI, there may be ambiguity in its wording resulting in unintended consequences. With inflation escalating at an alarming rate this could mean business tenants having to stomach much higher increases than they would have had expected when entering into the lease. If the formula includes a cap (maximum increase figure) and a collar (minimum increase) then this is likely to have a moderating effect. In the absence of this or if the wording permits an interpretation in favour of compounding of the RPI increase over successive review periods, the outcome could be very painful for the tenant.
Obviously tenants considering taking new leases will wish to think carefully before agreeing to RPI based rent review provisions. Landlords on the other hand may find RPI indexation much more appealing than in the past. Clearly, the drafting will require extreme care in order to reduce ambiguity and unintended consequences.
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