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Calculating a CPI rent review

Posted by totofei on May 19, 2016
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The Consumer Price Index, or CPI as it is generally known as, is “a measure of the average change over time in the prices paid by households for a fixed basket of goods and services.”[1]

In Australia the CPI is measured every quarter ending 31 March, 30 June, 30 September and 31 December with the CPI number being publicly released the following month.

The CPI movement is often used as a method of reviewing rent in a commercial property lease and is touted as being the fairest method of review. However the biggest problem that I have come across with this method of review is that it is often calculated incorrectly which can result in an incorrect increase in rent being paid by a Tenant.

Tenants should take it upon themselves to check their lease for the correct method of calculating a rent review, and ensure that this is the method used by the landlord before paying any increase in the rent.

Some of the confusion comes from the wording within a lease on which CPI figure should be used.

Here is an example of a rent review clause within a lease:

The rent is to be adjusted by reference to the Consumer Price Index using the following formula –

AR = R X CPIB

CPIA

Where: “AR” means adjusted rent

“R” means rent before adjustment

“CPIB” means Consumer Price Index number for the quarter immediately preceding the CPI review

“CPIA” means Consumer Price Index number for the quarter immediately preceding the most recent earlier review date

If 1 March 2015 is the review date, then the CPI figure to be used is December 2014 as it is the CPI for the quarter immediately preceding the review date.

CPI figures are released by the Australian Bureau of Statistics around the end of the month after the CPI quarter (around the same time as your BAS is due!)

 

[1] www.abs.gov.au

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