A rent review enables the rent payable under a lease to be adjusted at intervals during the term. The lease will specify the method of that review.
Commercial leases are seeing a rise in rent reviews based on the Retail Prices Index (RPI) or Consumer Prices Index (CPI), which enable landlords to increase the rent payable in line with inflation rather than or in addition to open market rent reviews.
We have identified 5 main points to consider when agreeing to an RPI/CPI rent review in a commercial lease:
- Consider current inflation levels: reviews in line with RPI/CPI give potential for your rent to increase considerably in line with inflation, regardless of the property’s actual rental value at that time.
- Seek to include a cap on the amount the rent can increase by on each review date. This will provide some certainty on the maximum rent to be paid during the term of the lease. However, the landlord may only agree to a cap where a ‘collar’ is also agreed, which is where the review will also be subject to a minimum increase at each review. This means even if RPI/CPI reduces or doesn’t increase, the rent will still increase by the minimum amount specified.
- Ensure the drafting of any RPI/CPI rent review clause avoids unintended circumstances. It is common to include a worked example within the relevant clause for illustrative purposes to show how the parties intend the calculation to work.
- Consider the inclusion of a break clause prior to the RPI/CPI review date. This gives the option to terminate the lease where it is clear the rent will increase to an unaffordable level.
- RPI is due to be phased out by 2030, so any lease should stipulate an alternative mechanism to be agreed between the parties, in the event the RPI rent review provisions cannot be implemented. With leases being granted for terms beyond 2030 or leases which may be subject to renewals beyond that date, consideration should also be given as to whether an alternative index such as CPI should be referred to, instead of RPI.
The Hamlins Real Estate team has extensive expertise in negotiating RPI/CPI rent reviews in commercial leases and seeks to obtain the best outcome possible for every client. If you would like to find out how we can help you, please get in touch with Stephanie Brown or Ben Kilshaw.