Network Rail sells railway arches to investors for £1.5bn

Worried tenants told they will be protected by ‘charter’ but it lacks promises on rent rises

Network Rail has sold thousands of railway arches to a pair of investors as part of a £1.5bn property deal but vowed that businesses working from the spaces, which have raised fears about rent rises, would be protected by a “tenants’ charter”.

Telereal Trillium and Blackstone Property Partners won the bidding for 5,200 properties, the majority of which are arches, the operator of Britain’s rail network said on Monday.

The £1.46bn sale proceeds will help fund railway upgrades, Network Rail said, bringing “major improvements for passengers and reducing the need for taxpayers to fund the railway”.

But the deal has sparked anxiety among tenants, which include independent shops, garages and craft breweries, amid concern that the new owners may impose unaffordable rents.

Guardians of the Arches, a campaign group of more than 300 tenants, has already complained of rent rises imposed by Network Rail in the run-up to the sale.

A spokesperson for the group said: “We continue to dispute whether selling off the whole estate in one job lot is the best way of supporting small businesses and the local economies which rely on them.”

The group had proposed alternatives such as local authorities buying smaller groups of arches. It is now calling for an independent body to carry out an audit of leases included in the sale and publish information about rents and how they are set.
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The shadow rail minister, Rachael Maskell, called on the transport secretary, Chris Grayling, to block the sale, which she said would “undermine the financial sustainability of the railway and damage small and medium-sized enterprises across the country”.

The Society of Independent Brewers also voiced concern about the potential impact on brewers producing craft beer underneath the arches. A spokesperson said: “We would hope that commercial landlords taking over these sites will support their new tenants and not hike prices overnight - something which could easily make viable, popular breweries face closure.”

Telereal and Blackstone, which will hold equal ownership stakes, have agreed to sign a charter governing their relationships with tenants. The charter includes promises to listen to their worries about rent reviews and engage with them in a timely fashion, but does not make any promises to curb rents.
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It promises the owners will consider “new structures to provide financial or other support” to tenants struggling to pay their bills.

But George Grant, owner of Clapham North Motors, said Network Rail had tried to impose a 350% rent increase on the garage – opened under a London railway arch by his 93-year-old father in 1960.

He said he believed the new owners would follow suit. “The way in which Network Rail have gone about this has been appalling,” said Grant. “I don’t believe for one moment that the people taking over are in it for us.”

The business was facing the 350% rise in the run-up to the sale until Network Rail relented and agreed to an increase of nearly double instead.

A further 1,800 properties were not included in the sale because Network Rail either needs to keep them to operate the railways or because they are part of the northern gateway redevelopment plan, under the auspices of Manchester city council.

Network Rail’s property estate, most of which is changing hands in the sale, brought in revenues of £304m last year, turning a profit of £81m.

But the company that oversees Britain’s rail infrastructure has been looking to offload the majority of the estate to raise funds. The sites are being sold on a 150-year lease, with Network Rail retaining the freehold to ensure it still has right of access for the future operation of the railway.

The Network Rail chairman, Sir Peter Hendy, said: “This deal is great news – for tenants it will mean significant commitment and investment, and for passengers and taxpayers it will mean massive, essential improvements without an extra burden on the public purse.”

David Biggs, the managing director of Network Rail Property, said: “We are proud to have fostered so many small, independent, diverse businesses and communities across the country, and we are confident that these will continue to thrive under the new owners.

“Ultimately our role is to run, improve and grow the railway, and managing these properties isn’t essential to that.”

The Department for Transport said: “Tenants’ rights have been safeguarded in this sale and all current agreements between Network Rail and tenants will be fully honoured.”