By Matthew Owen

Retail Prices Index (RPI) linked rent review clauses have become more common in recent years, adopted in residential long leases following a pushback against fixed ground rent increases and in commercial property leases as a welcome alternative to provide some rental growth.  With Covid19 likely to depress values particularly in the retail sector many landlords will be looking at RPI increases to create some assurance of steady rent increases.  However, this week could spell the end for RPI.

RPI is a measure of inflation utilised throughout the UK.   However, the ongoing Government consultation may mark the beginning of the end of the RPI liked rent review.

A House of Lords report into the RPI highlighted concerns with the way that the UK Statistics Authority (UKSA) calculate RPI, specifically that the divergence in the rates between RPI and Consumer Prices Index was resulting a difference of 1% per annum. The report contained the following proposals:

  • The publication of RPI should cease; and
  • During the period which the legislation is being negotiated RPI should be aligned with the Consumer Prices Index including owner occupiers’ housing costs (CPIH).

In response to the publication of this report, the Government announced a consultation with UKSA, which commenced on 11 March 2020, to review the proposed alignment with the CPIH and other technical matters concerning the implementation of the proposal.  The result of the review is due this week and it is likely that the RPI will be discontinued.

Clearly any changes to the way RPI is calculated would have wide-reaching consequences for property rents potentially reducing the increase in property rents by 1% annually.

Abolishing RPI will cause serious legal concerns potentially resulting  in some rent review clauses becoming redundant.  It is certainly not too early to try and do something about it.

While the implementation for the alignment of RPI with the CPIH index is targeted to take place between 2025 and 2030 it is important to ensure any index linked rent review clauses are drafted with the change in mind. Properly drafted leases should include the replacement of the index where RPI is abolished or a material change in the calculation of the index. Another complimentary approach where an alternative index is going to be adopted would be to introduce a “cap and collar”- which dictates the minimum and maximum increase, which would prevent Landlord losses in the event that RPI is significantly reduced.

Despite the RPI alignment causing apprehension in respect of existing leases, it may well be beneficial in new leases for alternative interest indices, such as CPIH, to be adopted to replace RPI for index-linked rent reviews.

With a first rent review in a commercial lease likely to be five years’ away it is worth paying some attention to the basis of review when negotiating your terms.

Matthew Owen is a solicitor in our Commercial Property team.  If you wish to discuss this article or any aspects of commercial property transactions you can contact Matthew by email or phone (0161 302 8399).  You can download a PDF of this article here.

By Matthew Owen

It may seem a lot longer than 10 weeks since you last went to your favourite pub, café and restaurant, but it could be months before you will be able to, or more importantly want to, frequent them again. Social distancing and staff kitted out in some form of PPE will not exactly enhance the social experience and joy of drinks and meals out.

The whole leisure industry is suffering terribly from the Lockdown and is likely to be more adversely affected than most as it is generally a discretionary customer spend and will be last out of Lockdown. Most sympathy must be reserved for the local independent operators.

Thankfully though, we  are starting to see tenative steps towards normality resuming.  This week sees some fast food operators and coffee chains re-opening for drive through customers. There seems to be, understandably, pent up demand, with long queues reported at many well know fried chicken outlets.

The Government is trying to assist the sector by introducing temporary permitted development rights pursuant to the Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2015.

“These rights permit restaurants, cafés and bars/pubs to operate a food takeaway service, without requiring a change to their planning permission. This will run to 23 March 2021, and as with many Coronavirus measures may well be extended.”

The “provision of takeaway food” includes any use within Class A5 and any use for the provision of hot or cold food prepared for collection or delivery to be consumed, reheated, or cooked by consumers off the premises.

There are some simple conditions that need to be observed, including the operator must inform the local authority of which premises are being used or will be used for the provision of takeaway food at any time until the deadline. The use class will revert back to its previous lawful use after 23 March 2021 or, if earlier, when the provision of takeaway food ends.

Important Legal Points to Bear in Mind

For tenants this might be a lifeline, in being able to adapt their businesses and keep custom, showing their customers that they are “open for business”. For many it might not be financially profitable but it might just be the life support the business needs to see it through. However from a legal point of view they should:-

  • Check their leases in relation to user clause. Often takeaway will not be a permitted use and consent from the landlord should be obtained
  • Try and persuade your Landlord to issue the consent in letter form rather than the delay and cost of a formal lease variation
  • Make sure to notify the local planners in writing

We would hope that landlords issue consents as required, albeit in mixed use buildings (ie with apartments above), there may be constraints on them issuing consents, or may be reasons of good estate management as to why they would not want to consent. Of course it is far better for landlords to have a functioning tenant.

Matthew Owen is a solicitor in our Commercial Property team. You can contact Matthew here.