Network Rail regulation and performance

02.05.19

£1.46bn railway arches sale ‘overlooked’ tenants and businesses, says NAO

Network Rail’s £1.46bn sale of railway arches “overlooked” small firms and businesses operating in the arches, the National Audit Office (NAO) has found.

The sale saw 5,261 commercial properties sold to US firm Telereal Trillium and Blackstone in a 150-year lease last year, and the NAO’s report found that not only did Network Rail pursue the government’s official policy, the sale was also “value for money.”

But Whitehall’s spending watchdog raised concerns that the impact on tenants was not an explicit priority for the sale, and were “was only considered late” in the process.

The report said that tenants were given no legal guarantees on the amount of rent they pay from the new owners, and buyers were told to expect a 54% rental increase over the next three or four years.

Campaigners have warned that firms could be put out of business by a hike in rent prices, but the government has said all tenant’s rights have been protected.

Network Rail had a conservative valuation of £950m for keeping the portfolio in public ownership, and sold the property on a 150-year lease rather than freehold sale – which meant it did not prejudice the safe and sustainable management of railway infrastructure.

Leni Jones, who is the director of Guardians of the Arches, said the NAO’s report “confirms that tenants’ interests were only considered during the sale process because we forced Network Rail and the government to listen.”

“That was a major dereliction of duty by both Network Rail and the government. If the new owners try to impose further crippling rent increases at the scale suggested by Network Rail, they can expect organised opposition.”

The NAO report said that Network Rail had “not explicitly” considered issues such as tenant protection or community regeneration during the sale, and whilst the new owners have adopted a new charter to guide this, it has no legal basis.

Amyas Morse, head of the NAO, said: “Network Rail achieved value for money in terms of the price paid and the achievement of its main objective of obtaining access rights to ensure the continued operations and safety of the railway.”

“However, it is concerning that tenants as stakeholders did not form part of the aims of the sale and that they were only fully considered late in the process.”

Amongst its recommendations, the NAO said the Treasury and selling department should consider the potential impact of the disposal on wider government policy deal, and says the government should engage with policy leads from other departments when necessary.

David Biggs, managing director at Network Rail Property, said: “Our role is to safely run, improve and grow the railway for everyone that relies on it.

“The sale has enabled us to deliver a number of schemes, while at the same time tenants and communities will benefit from investment in the estate by the new owner.”

Image credit - Mike Quinn

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