The Effect Of An RPI Increase On Ground Rent Clauses

Economists had predicted that the Retail Price Index (RPI) was set to increase by the end of the year. Since March 2021, as there has been a steep increase in the RPI and it seems to be continually rising.

RPI was seemingly steady between November 2020 and March 2020 with the highest percentage change being 1.5%. Contrast that with the latest figure for October 2021 which is a percentage increase of 6.0%.

rpi increases ground rentRPI increases and ground rent clauses

Such increases are particularly alarming for those homeowners who pay ground rent that is calculated linked to increases in RPI. The Competitions and Markets Authority (CMA) issued a report in early 2020 where they expressed concerns regarding RPI linked ground rent clauses. They stated:

“…we have significant reservations about RPI based increases to ground rent. Moreover, lease provisions imposing ground rent and providing for its escalation to be obscure and hard to understand.”

In addition, the recent dramatic increases demonstrate that RPI is uncertain and not always stable. This means that leasehold homeowners with RPI linked clauses could possibly be facing steep and unpredictable hikes to the ground rent over the years. This may lead to the ground rent rising to an unmanageable level. This could affect the present homeowner and also make the property less desirable to future buyers or lenders.

We have noted that some mortgage lenders have concerns about RPI linked clauses that escalate frequently, particularly where the starting level of the ground rent is more than 0.1% of the purchase price. It is also a well-known fact that more and more homeowners with onerous ground rent clauses are struggling to sell their properties for the same reason.

Onerous RPI linked ground rent clauses

Whilst RPI linked clauses are generally considered to be less onerous than doubling ground rent clauses, they are still onerous and create their own issues as referred to above. Therefore, we would suggest that homeowners exercise caution when considering whether to agree to a Deed of Variation converting their current ground rent clause to an RPI linked clause.

Your conveyancing solicitors should have advised you regarding the potential implications on saleability and marketability arising from an onerous ground rent provision.

Get in touch

If you have an RPI linked ground rent provision that you did not receive advice on and/or are concerned about, please get in touch with Sayra Dhillon (Associate), Tahmina Hussain (Paralegal) or another member of our Dispute Resolution team in DerbyLeicester or Nottingham on 0800 024 1976 or contact us via our online enquiry form.

Contact us