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Network Rail failed to consider the impact that the sale of thousands of commercial properties in converted railway arches would have on small business tenants, Whitehall’s spending watchdog has reported. The National Audit Office (NAO) found that tenants were offered no legal guarantees on the amount of rent they would be expected to pay to new private owners but were informed that they could expect rises of up to 54% over the next three to four years.
Network Rail signed off on the deal in September 2018, which saw thousands of properties sold off to two investors as part of the vast property deal, sparking anxiety amongst tenants who operated businesses such as independent shops, craft breweries and garages in 5,261 properties London. The government-owned company, which is the owner and manager of the majority of the UK’s rail network, had valued the property portfolio at £1.17bn before the sale but the final figure was substantially higher.
The government insists that the rights of tenants have been protected, but the campaigners have warned that some small business owners could be priced out. The NAO said that the Network Rail had “not explicitly” considered key issues such as tenant protection and community regeneration in the course of the sale.
Prior to the sale, Network Rail collected £83m each year in rent for the properties with proceeds used to covering funding shortfalls and to reduce borrowing by the transport department, the report said. It confirmed that the new owners have set out initiatives to support existing tenants, but that these were not legally binding. Auditors recommended that any government department which plans to sell assets should monitor whether new owners fully comply with commitments made as part of their final bid and ensure that they are held to account.
Leni Jones, director of Guardians of the Arches which represents tenants of the railway arches, responded to the report by saying: “[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 added.
Head of the NAO, Amyas Morse, 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.”
In response, 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.”
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