Small Businesses Challenge Network Rail as Sale Coincides With Rent Rises

Small business owners from across the country have spoken in Parliament to oppose expected rent increases, as landlord Network Rail prepares to sell off its nationwide commercial property portfolio to raise money for rail infrastructure improvements.

Network Rail says that the sale is necessary to finance improvements to the nation’s railways, and asserts that the terms of tenants’ lease agreements – including notice periods and rent – will not be affected.

The rail company is set to invite formal bids for its portfolio of 5,500 commercial premises in August 2018, aiming to raise £1.3-4bn for a 999 year lease.

Tenants of the commercial sites – mostly based in railway arches – are urging the government to block the planned sale to a private investor, amid fears that it will jeopardise the lower rent costs secured under current leases.

Tenants nationwide formed Guardians of the Arches campaign group to oppose the sale in 2017, after Network Rail raised some rent prices by 200% around the same time that plans to sell were announced.

Campaigners speculate that the dramatic increases are aimed at inflating property values ahead of the sale this autumn and will price many retailers out of business. They suggest that the sale either be prevented altogether, or else directed to local councils, to avoid profit-maximising rents.

Network Rail director defends rent reviews as “normal business activity”

Several Labour ministers – including party leader Jeremy Corbyn and shadow transport secretary Andy McDonald – have voiced support for the campaigners, opposing the sale of Network Rail’s estate in a letter to the Transport Secretary.

Meanwhile, Network Rail’s managing director of property David Biggs has defended the sale and denies that recent rent reviews have been used to inflate the portfolio’s value ahead of formal bidding.

Biggs maintains that: “As with all commercial property, rent reviews happen on a periodic basis as outlined in tenants’ leases as part of our normal business activity”.

As Network Rail is currently the UK’s largest landlord for small businesses, the sale will have major implications for commercial tenants across the country.

Potential buyers include Goldman Sachs and the Wellcome Trust, who made a joint offer earlier this year; equity group Terra Firma Capital, and a consortium bid from Blackstone — the largest real estate investment firm worldwide – and Telereal Trillium property group.

Hackney South and Shoreditch MP Meg Hillier insists that Network Rail’s financial “over commitment” is to blame for the sale, asserting that the deal is being used to make short-term profits to fill a £1.8bn gap in funds for new projects.

“[Network Rail] promised to build too many things on the railway and there isn’t enough money to do it,” Hillier said.

Campaigners propose London working rent and land trusts to combat rent hikes

The dispute has highlighted the concerns of commercial tenants – particularly in London – that they will no longer be able to run profitable businesses on their premises due to rent reviews.

Research from the New Economics Foundation indicates that rent hikes are increasingly pushing small businesses out of London and the East End in particular, with rent increases of up to 350% reported by tenants.

In March 2018, several businesses on Network Rail owned premises were given a two-week deadline to agree to new terms, with tenants now using legal arbitration proceedings to have rent levels fixed independently.

Speaking in Parliament, small London business owner Mirajul Choudhury discussed a 300% rent increase sought by Network Rail:

“We had discussions with [Network Rail] and they refused to cooperate. Their final conditions were a 250% increase backdated to 2016. That will put us out of business.”

The issue of escalating rent prices has led independent business representative East End Trades Guild to propose a London working rent to ensure affordable commercial premises for small businesses, with support voiced by the mayors of Hackney and Tower Hamlets.

The trade group proposes that councils convert ’empty asset’ spaces into affordable work premises to accommodate retailers being priced out of their current premises, and establish Small Business Community Land Trusts to permanently reserve land for the use of smaller businesses.