Real Estate

Network Rail failed railway arch tenants in £1.5bn sale, say MPs


Network Rail failed to act in the interests of tenants and the taxpayer when it sold off £1.5bn of railway arches, sacrificing an important asset for short-term gain, according to MPs.

A critical report from the public accounts committee has found that the controversial sale of thousands of arches will also mean future tenants have fewer rights – and existing tenants no longer have an option to extend their leases.

The committee criticised Network Rail and the Department for Transport for not engaging properly with tenants, mainly small business owners, until far too late in the sale process.

The PAC chair, Meg Hillier, said: “Ultimately, government took a short-term decision to sell a profitable asset to plug a funding gap. We remain unconvinced that the sale represents the best value for the public and the public-sector finances in the long term.”

It said tenants suffered great uncertainty and only limited, non-binding commitments were obtained from the new owners, the Arch Company, backed by Blackstone and Telereal Trillium, to protect tenants’ interests.

An earlier National Audit Office report had been critical of how tenants were treated, although it otherwise found that the sale of 5,261 commercial rental spaces on a 150-year leasehold basis to the private consortium was “well conducted” and value for money.

MPs noted it would lose Network Rail at least £80m – potentially £160m – a year in rental income. It could also lead to significant costs for the taxpayer should the rail infrastructure manager need to repurchase space for engineering works or upgrades in the future.

The sale makes the new owners the biggest landlord to small businesses in the UK, at the heart of urban communities across England and Wales. Hillier said: “This is another case of government failing to see the big picture. It did not recognise the potential of the arches to further its industrial strategy and support small and medium-sized enterprises.”

The committee called on the DfT and Network Rail to set out what protection, if any, it could offer the tenants.

Leni Jones, the director of Guardians of the Arches, an organisation representing the former Network Rail tenants, welcomed the report but said: “We fear these measures may not be enough to protect some small businesses which are on the brink of imminent closure.” She said that urgent changes were needed to ensure tenants’ rights were protected.

Network Rail was made to sell its property assets in 2015 by the then chancellor, George Osborne, as part of a funding settlement after exceeding its budget on overrunning railway upgrades.



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