Transaction costs – including seven-figure spending on legal advisers – for Network Rail’s railway arches sell-off grew 75% because of a two-year delay in the process, the spending watchdog reported today.
The National Audit Office today reported that total costs of the £1.46bn sale came to £35m – around 2.4% of the proceeds.
That figure included paying £8.8m to Clifford Chance and Eversheds for legal advice and joint work on legal documents during the sale process, before the transaction was completed in February 2019.
The sale involved 5,261 rental spaces across England and Wales, mostly converted railway arches and the majority situated in London.
The sale was launched in November 2017, six months after it was originally expected to be completed, with transaction costs initially expected to be limited to £20m. But the choice of leasehold structure and inclusion of an additional round in the sale process increased the cost of external advisers, today’s report stated.
The NAO said: ‘The sale took two years longer than expected and transaction costs exceeded those estimated at the outset.
‘Reasons for the delay included: the decision-making process between Network Rail, the Department [of Transport] and HM Treasury in relation to the sale structure and accounting treatment; and selection of the properties for sale.’
The report notes that the transaction was managed and executed professionally and generated a large amount of market interest, generating substantial interest from investors and strong competitive tension between bidders.
But the long-term value for money will depend on how Network Rail manages its ongoing relationship with leaseholders and the impact of the sale on tenants and local economies, the NAO concluded.
The report says the new owners have set out initiatives to support tenants, but these intentions are not legally binding and the support was only negotiated in the final stages of the sale process.
Network Rail and the Department of Transport considered selling the freehold of the portfolio, with legislation to ensure it maintained access rights, but legal advice obtained in May 2016 judged that this would be ineffective.
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.'