CPI (Consumer Price Index) Rent Review in Commercial Leases

When negotiating or signing a commercial lease, one of the most important clauses to understand is the rent review provision. Among the different methods, a CPI (Consumer Price Index) rent review has become increasingly common. It links the rent directly to inflation, offering clarity and efficiency, but it also carries risks that both tenants and landlords should carefully consider.

In this guide, we'll explain what a CPI rent review is, how it works, the benefits and drawbacks, and what you should watch out for before signing a lease.

Table of Contents

What is a CPI Rent Review in a Commercial Lease?

A CPI rent review is a clause in a commercial lease that automatically increases the rent in line with the Consumer Price Index (CPI), which tracks inflation.

Instead of relying on a market rent assessment, the rent is adjusted using a clear formula. This makes the process transparent and less time-consuming, but tenants should be aware that most CPI rent reviews are "upwards only," meaning rent can rise but not fall.

How Does a CPI Rent Review Work?

A CPI rent review works by linking the rent to inflation. On the review date stated in the lease, the rent is recalculated based on the percentage change in the CPI since the last review.

For example, if inflation rises by 3%, the rent will also increase by 3%. Many leases also include caps and collars to control how much the rent can rise or fall in one review period.

Here's how it typically operates:

1. Lease Provision

The commercial lease agreement will contain a rent review clause setting out exactly how and when the rent can be increased. This provides clarity for both tenant and landlord from the outset.

2. Inflation-Linked

Instead of assessing the rental value by comparing similar properties (as with an open market rent review), the rent is adjusted directly by reference to the Consumer Price Index.

3. Review Date

The lease will set specific dates during the term when the CPI rent review will take place. These could be annual, every few years, or at another agreed frequency.

4. Calculation

The rent is increased in line with the percentage change in the CPI between the two review dates. This ensures that the rent tracks inflation over time.

5. Upwards Only

Most CPI rent reviews are "upwards only", which means the rent can rise with inflation but will not reduce, even if the CPI falls.

Key Considerations for Tenants

For tenants, a CPI rent review can provide clarity but also carries risks, especially during times of high inflation. Here are some points to keep in mind:

Inflationary Risk

Since the rent is tied directly to inflation, tenants may face steep rent increases during inflation spikes, even if the property's market value has not risen.

Negotiate Caps

To protect against excessive increases, tenants should seek to negotiate a cap, a maximum limit on how much the rent can rise at each review.

Consider Collars

Landlords may only agree to a cap if a collar is also included. A collar sets a minimum level of increase, ensuring the landlord's rent continues to grow even during low inflation periods.

Understand the Upwards-Only Nature

Be aware that most CPI reviews only move rent upwards. Even if inflation drops or becomes negative, your rent will not decrease under an upwards-only clause.

Key Considerations for Landlords

For landlords, CPI rent reviews offer a valuable way to preserve the real value of rental income over time.

Inflation Protection

By linking rent to CPI, landlords ensure that the rent keeps pace with inflation. This means the rental income retains its purchasing power rather than being eroded over time.

Reduced Uncertainty

Compared with open market rent reviews, CPI-linked rent adjustments are quick, formula-based, and transparent. This avoids disputes and costly negotiations about what the "market rent" should be.

Hybrid Clauses

Some landlords prefer a hybrid rent review clause, which combines CPI indexation with a market rent review. In practice, this might mean the rent is adjusted to whichever is higher, the market rent or the CPI-linked rent. This approach can maximise returns and protect against both inflation and market fluctuations.

Advantages of CPI Rent Reviews

• Transparency: Rent increases are based on published inflation data.
• Predictability: Both parties can anticipate changes and plan accordingly.
• Saves Time and Cost: Avoids lengthy disputes about market rental value.
• Inflation Protection: Landlords maintain rental value despite rising costs.

Disadvantages of CPI Rent Reviews

• Inflationary Pressure: Tenants may face steep rent rises during high inflation periods.
• Upwards-Only Limitation: Rent rarely decreases, even if inflation falls.
• Less Flexibility: Rent may not reflect the actual property market value.

Can a CPI Rent Review Reduce Rent If Inflation Falls?

In most cases, no. CPI rent reviews are typically written as upwards-only clauses, meaning rent can only increase or stay the same, but not decrease, even if inflation drops. Tenants should review their lease carefully and seek legal advice to understand whether this provision applies.

Why Do Landlords Prefer CPI Rent Reviews?

Landlords often prefer CPI rent reviews because they offer inflation protection. Linking rent to CPI ensures that the rental income keeps its real value over time, even as the cost of living increases.

This method also reduces uncertainty compared to open market rent reviews, as it avoids lengthy negotiations or disputes over what the market rent should be.

Is a CPI Rent Review Right for You?

Whether a CPI rent review is the right choice depends on your role and circumstances.

• For landlords, it offers stability and ensures rent keeps pace with the economy.
• For tenants, it can provide transparency, but without proper negotiation (caps, collars, or hybrid clauses), it can result in unaffordable rent increases.

The best step you can take is to consult with an experienced commercial lease solicitor, who can review the rent review clause and advise on whether it truly protects your long-term interests.

Should I Get Legal Advice Before Agreeing to a CPI Rent Review?

Yes. Commercial lease solicitors can review the rent review clause and explain its long-term financial impact. They can help tenants negotiate caps and collars for fairer terms, or advise landlords on whether a hybrid rent review clause (using the higher of CPI or market rent) may be more beneficial. Getting advice upfront helps avoid disputes later on.

Conclusion

A CPI rent review in a commercial lease provides a structured and inflation-linked method for adjusting rent, offering predictability for both landlords and tenants. However, the details of the lease, such as the presence of caps, collars, and upwards-only provisions, can significantly affect how fair and sustainable the arrangement is.

For tenants, the key is to negotiate terms that protect against sudden inflationary spikes. For landlords, CPI reviews help secure rental income that keeps pace with rising costs.

Because these clauses can have long-term financial consequences, both parties should seek tailored advice from specialist commercial lease solicitors before entering into or renewing a lease.

At Moeen & Co. Solicitors, our team of expert commercial lease solicitors can help you understand and negotiate rent review clauses, including CPI and RPI-linked reviews, market rent reviews, and more.

Whether you're a landlord seeking to protect rental income or a tenant aiming to avoid unfair increases, we'll provide clear, practical advice tailored to your needs.

Need advice on your CPI rent review? Contact our commercial lease solicitors today at 0203 959 7755 for advice on CPI clauses, caps, and collars.