Underneath the Arches

21st September 2018

Network Rail Infrastructure Limited is one of the largest landlords in the county. It recently announced that it has finalised terms for the sale of most of its commercial estate, around 5,200 commercial properties, to Telereal Trillium and Blackstone Property Partners for £1.46 billion. The majority of these properties are converted railway arches.

Railway arches have long been a hotbed for small and emerging business of all kinds – including garages, taxi firms, bakeries, manufacturing, and storage units. Some have been occupied by the same business for decades, and in at least one case, by the same family business for over a hundred years. The arches have even made their mark on TV. Phil Mitchell has had a business ‘under the arches’ in ‘EastEnders’ for many years.

But are Phil Mitchell and his fellow tenants about to face a rent hike? This is the fear of a pressure group named ‘Guardians of the Arches’, who have had a lot of publicity in the national press recently. The ‘Guardians’ main concern appears to be that they will be priced out and face high rent rises. Network Rail for their part stress that the terms of the sale will include a ‘tenants’ charter’ guaranteeing tenants rights.

What this will contain, and how much legal force it will have, remains to be seen.

We would suggest however that concerned tenants already have a number of ways to protect their legal position under the existing law. There are a number of these, depending on the exact circumstances involved. The most important are probably the following:

  • Tenants whose leases are protected by the Landlord & Tenant Act 1954 (“the Act”) (who have ‘renewal rights’) will retain that protection, which includes the right to apply to court for a new lease. Tenants should check to see if they have these rights and should be very wary of giving them up;
  • Tenants with renewal rights who are near the end of their lease (or ‘holding over’ if the lease has expired) should consider serving a notice under Section 26 of the Act. This is how a tenant can obtain more time in the property and potentially a new lease;
  • If a landlord wants to remove a tenant who has renewal rights, they have to specify certain statutory grounds. The most common is that they want to redevelop the premises. Railway leases almost always contain redevelopment break clauses. Even so, a redevelopment break clause can be challenged in certain circumstances. A landlord triggering a redevelopment break clause is also likely to entitle a tenant to statutory compensation. A tenant who uses the statutory process tactically to their advantage may be able to obtain an additional surrender premium on top of this;
  • Tenants with renewal rights are entitled, at renewal, to contest the landlords’ proposed rent. This is effectively a rent review. Under Section 34 of the Act the new rent can go down, as well as up;
  • A normal rent review under a lease that has not yet expired may be ‘upwards only’ but it can still be challenged to limit to rent rise or keep it the same.

A forthcoming series of blogs on rent reviews will provide a complete guide to the rent review process, so watch this space.

If you have concerns about any of these issues as they relate to your commercial lease, contact us to see if we can help.

Michael Large is a solicitor at Colman Coyle with over ten years’ experience of the railway industry and lectures for the RICS on a number of subjects including rent reviews.

Please note that Colman Coyle has no affiliation to any of the companies or organisations named in this article.