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When Inflation Indexing Goes Badly You Could Pay $100 Million in Rent

From sun rays to rent raise.
Photographer: Chris McGrath/Getty Images

Woden Park is a parcel of pastoral agricultural land spread over nearly 40 acres in the Vale of Glamorgan near Cardiff.

It is also the basis of an interesting legal case between the solar company which rented the site and the landowner. At issue is the amount of rent due from Monsolar  IQ Ltd. to landlord Woden Park Ltd. and the mathematics that govern it – in particular, the algebraic equation intended to increase the annual rent payments in line with inflation. The whole saga, recently brought to an end in the England and Wales Court of Appeal, demonstrates the perils of lazy inflation indexing — or perhaps more accurately, an object lesson in not relying on the internet (or, for that matter, most lawyers) to draft financial formulae in contracts.

In this particular contract (a lease for a term of 25 years), Monsolar agreed to pay annual rent to Woden Park that would increase every year according to inflation as measured by the Retail Price Index, or RPI, one of the two main consumer price indices produced by the U.K.’s Office for National Statistics. The initial amount was set at £15,000 ($20,691) and was governed by a formula for future increases.

That formula, apparently constructed by the landlord himself from examples ‘available on the internet,’ looks something like this: