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The Latest Consultative Opinion on Payment on Goodwill in Commercial Tenancy

The Latest Consultative Opinion on Payment on Goodwill in Commercial Tenancy

Date: 13 august 2022


 


Goodwill is defined as the benefit of a business having a good reputation under its name and regular patronage. Tenants of commercial premises often make long-term investments in the rented space to maximize profit. Although the tenant's investments may not be legally protected, goodwill can be formed on them, and at the end of the lease, sold to the next tenant for the rights to take over the investments. Nevertheless, the goodwill price valuation might be complicated in some cases and that is where the problem lies. Recently, judges raised questions regarding the right to receive goodwill and its valuation, which are the following:

Q: Regarding the tenant’s right to obtain goodwill subject to note 2 of article 6 of the Landlord-Tenant Relations code enacted in 1997, in the case in which the tenant who has legitimately obtained the goodwill of a shop from its owner, takes action to vacate the property subject to the lease and goodwill, But then the property owner refuses to pay him the goodwill at a fair price; what would be the criterion in evaluating the goodwill in case of filing a lawsuit by the tenant demanding this right long time after the date of the breach of promise by the owner? Will it be determined based on the day of eviction or the day of payment to the tenant?

A: Firstly, regarding the lease of commercial properties subject to the Landlord-Tenant Relations code enacted in 1997, according to note 2 of Article 6 of this law, when vacating, goodwill must be paid at a fair price. And in determining the fair price, all the conventionally effective factors should be considered based on the current condition and situation of the property; so that if the goodwill of the property was to be transferred in the current situation, at what price would it be transferred.

secondly, if the goodwill is not paid at the fair price at the time of eviction, for any reason, the determined price shall be the same as it was at the time of eviction; and if there occurs a delay in payment despite the demand, the damage due to the decrease in the value of money can be claimed in compliance with Article 522 of the Procedure of General and Revolutionary Courts in Civil Affairs code enacted in 1379 (2000 AD).

 

Goodwill is defined as the benefit of a business having a good reputation under its name and regular patronage. Tenants of commercial premises often make long-term investments in the rented space to maximize profit. Although the tenant’s investments may not be legally protected, goodwill can be formed on them, and at the end of the lease, sold to the next tenant for the rights to take over the investments. Nevertheless, the goodwill price valuation might be complicated in some cases and that is where the problem lies.