Railway arches sale overlooked tenants, says spending watchdog

Union Yard, Southwark, London Image copyright Network Rail
Image caption Network Rail's former properties are home to a wide variety of businesses

Network Rail only considered tenants of its arches "late in the process" when it sold its commercial property portfolio, the spending watchdog says.

The National Audit Office (NAO) said the £1.46bn generated by the deal in September was "more than expected".

But it said that tenants got no legal guarantees on the amount of rent they pay from the new owners.

The government says all tenants' rights have been protected - but campaigners warned firms could be priced out.

Leni Jones, 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," she said.

Ms Jones added: "If [the new owners] try to impose further crippling rent increases at the scale suggested by Network Rail, they can expect organised opposition."

According to the NAO, Network Rail valued the portfolio at £1.17bn prior to the sale, but a competitive bidding process meant it fetched more.

It said the track operator also sold the property on a leasehold basis, so it could continue to safely maintain the UK's railway infrastructure.

But the NAO also said that Network Rail had "not explicitly" considered issues such as tenant protection or community regeneration during the sale.

And while the new owners - Blackstone Group and Telereal Trillium - have adopted a charter to guide their dealings with tenants, it has no legal basis.

Amyas Morse, head of the NAO, said: "Network Rail achieved value for money in terms of the price paid... 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."

Blackstone and Telereal have taken on Network Rail's existing lease agreements, meaning tenants' contractual obligations are unchanged.

But National Rail has always set rents based on market conditions and the new owners plan to continue this practice.

Prior to the sale, Network Rail suggested buyers could expect a 54% rise in rent over the next three to four years.

'Kill the vitality'

Ms Jones said this was what arches tenants "feared the most".

"We are the backbone of our communities, driving local economic development and bringing variety and vitality to urban neighbourhoods all over the country. Big rent increases will kill that vitality stone dead."

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."

A spokesperson for the Department of Transport said: "The rights of all tenants have been protected and all current agreements fully honoured. A charter commits the new owner to engage in an open and honest manner with their tenants and the community, as well as work with long-standing small business tenants to resolve financial pressures."

More on this story