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Introduction
In the UK’s private rental market, assured shorthold tenancy (AST) agreements dominate as the standard legal framework for residential leases. These agreements typically outline terms for rent, tenancy duration, and conditions for renewal or termination. One increasingly discussed feature in tenancy agreements is the inclusion of an index-linked rent review clause, which ties annual rent increases to an inflation index such as the Consumer Prices Index (CPI), Consumer Prices Index including owner-occupiers’ housing costs (CPIH), Retail Prices Index (RPI), or Price Index of Private Rents (PIPR). This article explores the principle of incorporating such clauses into AST agreements, evaluates the pros and cons of using CPI, CPIH, RPI, and PIPR as the chosen index, and provides a reasoned recommendation on the most suitable index for landlords and tenants. Additional factors relevant to the discussion, such as market dynamics, tenant affordability, and regulatory considerations, are also addressed.
The Principle of Index-Linked Rent Review Clauses
An index-linked rent review clause in an AST agreement stipulates that rent increases at specified intervals (typically annually) based on the percentage change in a chosen inflation index.
For example, if a tenancy agreement specifies a rent of £1,000 per month and links increases to CPI, a reported CPI increase of 2% would raise the rent to £1,020. The primary purpose of such a clause is to provide a predictable, transparent, and objective mechanism for adjusting rent in line with economic conditions, avoiding arbitrary or contentious negotiations between landlords and tenants.
This approach contrasts with traditional rent review methods, where increases are either fixed (e.g., a set percentage annually) or determined by market rates, which can be subjective and lead to disputes. Index-linked clauses aim to balance the landlord’s need to maintain the real value of rental income against inflation with the tenant’s desire for predictable and fair rent adjustments. In the context of the UK’s private rental market, where demand often outstrips supply in high-pressure areas like London and the South East, such clauses can provide stability and clarity for both parties.
However, the effectiveness of an index-linked clause depends heavily on the choice of index, as each measures inflation differently and has unique implications for landlords and tenants. Below, we examine the four main indices—CPI, CPIH, RPI, and PIPR—commonly considered for this purpose, analyzing their advantages and disadvantages.
Evaluating Inflation Indices for Rent Review Clauses1. Consumer Prices Index (CPI)
Description: CPI is the UK’s primary measure of inflation, published monthly by the Office for National Statistics (ONS). It tracks the price changes of a fixed basket of goods and services, including food, transport, and utilities, but excludes housing costs like mortgage interest or rent.
Pros:
Widely Recognised: CPI is the headline inflation measure used by the Bank of England, making it familiar and credible to tenants and landlords.
Stability: CPI tends to be less volatile than other indices like RPI, providing predictable rent increases.
Alignment with Broader Economy: As it reflects general consumer price inflation, CPI ensures rent adjustments are broadly in line with tenants’ cost-of-living changes, excluding housing-specific costs.
Cons:
Excludes Housing Costs: CPI does not account for changes in housing costs, which may be a significant component of tenants’ expenses and landlords’ investment considerations. This could lead to rent increases that feel disconnected from the rental market’s dynamics.
Lower Increases: Historically, CPI has often been lower than RPI, potentially resulting in smaller rent increases that may not keep pace with landlords’ rising costs (e.g., maintenance or mortgage interest).
2. Consumer Prices Index Including Owner-Occupiers’ Housing Costs (CPIH)
Description: CPIH is an extension of CPI, incorporating owner-occupiers’ housing costs, such as mortgage interest payments and council tax. It is the ONS’s preferred measure of inflation for capturing a broader picture of household costs.
Pros:
Incorporates Housing Costs: By including housing-related expenses, CPIH better reflects the financial pressures tenants face, making it a more holistic measure for rent adjustments.
Official Status: As the ONS’s preferred inflation measure, CPIH carries significant credibility and is less likely to be contested by tenants.
Moderate Volatility: CPIH is generally less volatile than RPI, offering a balance between stability and relevance to housing costs.
Cons:
Complexity: CPIH is less widely understood than CPI, which may lead to confusion or disputes when explaining rent increases to tenants.
Still Excludes Rent: While CPIH includes owner-occupiers’ housing costs, it does not directly measure private rental prices, potentially misaligning with the rental market’s specific trends.
3. Retail Prices Index (RPI)
Description: RPI is an older measure of inflation, tracking a broader basket of goods and services, including housing costs like mortgage interest and council tax. Though no longer an official statistic, it is still used in some contracts and financial calculations.
Pros:
Higher Increases: RPI typically reports higher inflation rates than CPI or CPIH (e.g., 2-3% higher historically), which may benefit landlords seeking to maximise rental income.
Historical Familiarity: RPI has been used in contracts for decades, particularly in commercial leases, making it a familiar option for some landlords.
Cons:
Methodological Flaws: RPI is considered less accurate by the ONS due to its calculation method (e.g., the Carli formula), leading to its declassification as a national statistic in 2013.
Higher Volatility: RPI’s broader basket and methodology can result in larger fluctuations, potentially leading to unpredictable or unaffordable rent increases for tenants.
Perceived Unfairness: Tenants may view RPI-linked increases as excessive, especially if they outpace wage growth or CPI-based measures.
4. Price Index of Private Rents (PIPR)
Description: PIPR, published by the ONS, specifically measures changes in private rental prices across the UK. It is derived from actual rental data collected for the Index of Private Housing Rental Prices (IPHRP).
Pros:
Rental Market Relevance: PIPR directly reflects trends in the private rental market, making it highly relevant for rent review clauses in ASTs.
Granular Data: PIPR provides regional breakdowns, allowing landlords and tenants to align rent increases with local market conditions (e.g.,
higher increases in London vs. slower growth in rural areas).
Transparency: As it is based on actual rental transactions, PIPR is less abstract than CPI or RPI, potentially reducing disputes.
Cons:
Limited Familiarity: PIPR is less well-known than CPI or CPIH, which may require landlords to educate tenants (and property agents) about its use.
Regional Variability: While granular, PIPR’s regional focus may lead to significant variations in rent increases, which could be challenging in diverse portfolios or for tenants in high-growth areas.
Data Lag: PIPR data may not be as timely as CPI or CPIH, potentially delaying rent adjustments.
Additional Factors to Consider
Beyond the choice of index, several factors influence the suitability of index-linked rent review clauses in AST agreements:
Market Dynamics: The UK private rental market is highly localised, with demand and supply imbalances driving rent growth in cities like London and Bristol more than in rural areas.
An index like PIPR, which captures these variations, may be more appropriate than a national measure like CPI. However, in high-demand areas, landlords may prefer market-based reviews to maximise income, potentially making index-linked clauses less attractive.
Tenant Affordability: Rent increases tied to inflation must consider tenants’ ability to pay. For example, if wage growth lags behind RPI-linked increases, tenants may struggle, leading to higher turnover or arrears. CPI or CPIH, which often produce lower increases, may be more sustainable.
Regulatory Environment: Recent reforms, such as Scotland’s rent cap (September 2022–March 2025), highlight the potential for government intervention in rent increases. Index-linked clauses must comply with any future caps or regulations, particularly in England, where the Renters’ Rights Bill (2024) proposes abolishing Section 21 evictions and may introduce further rent controls.
Administrative Simplicity: Index-linked clauses reduce the need for subjective negotiations or costly market valuations, saving time and reducing disputes.
However, landlords must clearly communicate the chosen index and its implications to tenants at the outset to avoid misunderstandings.
Long-Term Tenancies: Index-linked clauses are particularly beneficial in longer tenancies, where predictable increases can foster stability. In short-term lets, market-based reviews may be more practical.
Recommendation: PIPR as the Preferred Index
After evaluating the pros and cons of each index and considering additional factors, PIPR is recommended as the most suitable index for index-linked rent review clauses in AST agreements.
The rationale for this recommendation is as follows:
Direct Relevance to the Rental Market: PIPR is specifically designed to measure private rental price changes, making it the most accurate reflection of the market conditions that affect landlords’ income and tenants’ housing costs. Unlike CPI or CPIH, which focus on broader consumer or housing costs, PIPR ensures rent increases align with actual rental trends.
Regional Sensitivity: PIPR’s regional data allows landlords to tailor rent increases to local market conditions, ensuring fairness and competitiveness.
For example, a landlord in London, where rents rose by 9.6% in the year to June 2025 (based on ONS data), can justify higher increases than in slower-growing regions like the North East (4.1%).
Fairness and Transparency: By using actual rental data, PIPR is less likely to be perceived as arbitrary or disconnected from the rental market. This transparency can reduce tenant disputes and improve trust.
Balance Between Stability and Growth: While PIPR may produce higher increases in high-demand areas, it avoids the methodological flaws and excessive volatility of RPI, offering a more balanced approach than CPI or CPIH, which may underestimate rental market pressures.
To implement a PIPR-linked clause effectively, landlords should:
Clearly define the clause in the AST, specifying the use of PIPR and the frequency of reviews (e.g., annually).
Use regional PIPR data where possible to reflect local conditions.
Include a cap or floor (e.g.,
0% minimum, 5% maximum) to protect both parties from extreme fluctuations.
Communicate the clause’s mechanics to tenants upfront to ensure understanding and agreement.
Conclusion
Index-linked rent review clauses offer a structured, transparent approach to adjusting rents in AST agreements, benefiting both landlords and tenants by reducing subjectivity and aligning increases with economic or market trends. Among the available indices—CPI, CPIH, RPI, and PIPR—PIPR stands out as the most suitable due to its direct relevance to the private rental market, regional granularity, and transparency.
However, landlords must consider tenant affordability, regulatory constraints, and market dynamics when implementing such clauses. By choosing PIPR and drafting clear, fair terms, landlords can ensure sustainable rent adjustments while fostering positive tenant relationships in the UK’s dynamic private rental market.
18 July 2025
Ken Johnstone MBA, BSc
Senior Partner, Johnstone Consulting LLP
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