“Hi Idy, I’m currently negotiating a new lease. The landlord has agreed not to increase the rent for the first 12 months, after which a rent review will take place. However, he proposes using the Retail Price Index (RPI) as the basis for any increase. From my past experience, it is more common to refer to the Consumer Price Index (CPI), with a cap of 7%. Is this still the general practice?”
This is indeed a very relevant topic for discussion. In recent years, with inflation showing significant volatility, it is all the more important for rent adjustments to be based on transparent and mutually agreed indices. Additionally, including a reasonable cap helps protect the interests of both landlords and tenants.
Should Be Used: RPI or CPI?
In the UK rental market, rent review clauses are commonly tied to inflation indices. The two most frequently referenced indicators are the Retail Price Index (RPI) and the Consumer Price Index (CPI). While both aim to reflect price movements, they differ significantly in terms of scope and volatility.
📌 Retail Price Index (RPI)
RPI is a comprehensive indicator that measures changes in household expenditures across a broad range of goods and services. A key distinction between RPI and CPI is that RPI includes housing-related costs, which CPI does not.
Housing-related components in RPI include:
Mortgage interest payments
House depreciation
Building insurance
Property-related transaction costs (e.g. legal fees, estate agent commissions)
Because RPI factors in elements tied closely to the real estate market, it tends to be more volatile—particularly during periods of fluctuating interest rates or property prices. This can lead to disproportionately high rent increases if not managed carefully.
📌 Consumer Price Index (CPI)
CPI is a more commonly adopted inflation measure, designed to track the price changes of a representative basket of goods and services typically consumed by households. Importantly, CPI excludes housing purchase costs and financial items, such as mortgage interest or investment charges.
CPI includes categories such as:
Food and non-alcoholic beverages
Clothing and footwear
Rent, utilities, and household services
Transport, recreation, healthcare, and communications
Excluded items: savings, investments, mortgage interest, and credit-related costs.
CPI provides a more stable and realistic reflection of everyday living costs and is generally perceived as fairer from a tenant’s perspective. This makes it a more predictable basis for rent reviews.
Historical Comparison: RPI vs CPI (2019–2024)
To better understand how these indices have performed over time, below is a summary of the annual average rates published by UK authorities from 2019 to 2024:
| Year | RPI (Retail Price Index) | CPI (Consumer Price Index) |
|---|---|---|
| 2019 | 2.6% | 1.8% |
| 2020 | 1.5% | 1.2% |
| 2021 | 4.1% | 4.7% |
| 2022 | 11.6% (pandemic peak) | 9.07% |
| 2023 | 9.7% | 7.3% |
| 2024 | 3.6% | 2.5% |
As shown, RPI spiked significantly in 2022, reaching a peak of 11.6% in the aftermath of the COVID-19 pandemic. While CPI also rose during the same period, its increases were more moderate. In 2024, CPI has returned to a relatively stable level of 2.5%, indicating a slowing inflation trend.
Why You Should Consider a Rent Increase Cap
Regardless of which index is ultimately adopted, we always recommend incorporating a rent increase cap within the tenancy agreement. This safeguards tenants from excessive rent hikes during periods of unusual inflation.
Sample include:
“Annual rent adjustments shall be made in accordance with the Consumer Price Index (CPI), subject to a maximum increase of 7%.”
or
“Annual rent shall be adjusted based on the Retail Price Index (RPI), with the increase capped at 7%.”
Such provisions strike a balance between allowing landlords to reflect real inflation while protecting tenants from extreme fluctuations. It is a win-win arrangement that fosters long-term rental stability.
Tips: Clear Terms and Open Dialogue Are Key
If a landlord insists on using RPI, tenants can still negotiate by proposing a cap on the increase or requesting a shift to CPI as the benchmark. The most important point is to ensure that all agreed terms are clearly documented in the tenancy agreement, with no ambiguity or room for misinterpretation.
Clear communication and thorough legal documentation are essential. It is highly recommended to have the lease terms professionally reviewed before signing to ensure your interests are fully protected.
If you have questions feel free to contact our team. We are here to provide professional guidance and support tailored to your needs.
