Commercial Goodwill and Its Legal Status After Death
Commercial goodwill is a tenant’s right acquired by paying a certain amount to the owner of a commercial property at the time of concluding a lease agreement. Through payment of this amount, the tenant becomes the holder of the goodwill right and is entitled to use the commercial property accordingly. It should be noted that goodwill applies exclusively to commercial properties; residential properties, as well as movable assets, are not subject to goodwill. This right has been established by the legislature to protect tenants of commercial properties and is intended primarily for their benefit.
In commercial property, two distinct rights are recognized: ownership of the property and the goodwill right. Each of these rights has economic value and may be transferred. However, the purchase of goodwill does not constitute ownership of the property itself. Upon termination of the lease and payment of the goodwill value to the tenant, the property must be vacated. The value of goodwill is determined in accordance with the agreement of the parties and applicable legal provisions. If the owner seeks to have the property evacuated by paying goodwill, the current market value of the goodwill shall apply.
Legal Status of Goodwill After the Death of the Owner or Tenant
Types of Goodwill
- Transfer of Goodwill Through an Informal Agreement: When the owner of a commercial property and the tenant enter into a lease agreement informally or verbally, the transfer of goodwill is documented through ordinary written instruments or handwritten agreements between the parties. This method is commonly practiced in traditional marketplaces.
- Transfer of Goodwill Through an Official Deed: If the lease agreement is formally executed and registered with a notary, all rights stipulated in the agreement, including the goodwill rights, may be officially transferred to the tenant.
- Actual Goodwill: In some cases, owners of commercial units or shopping centers transfer only the goodwill right, which relates to the property’s facilities and characteristics and is independent of the tenant’s business activity. This amount is typically received from the tenant upon termination of the lease.
- Virtual Goodwill: Virtual goodwill arises from the tenant’s efforts and results in the property’s commercial reputation and goodwill. This type of goodwill is also referred to as the right of business, profession, and trade.
Purchase and Sale of Goodwill
As noted, commercial properties involve both ownership rights and goodwill rights, each of which has economic value and may be transferred.
The owner of a commercial property holds ownership over both the physical property and its benefits and retains all related rights.
The right of goodwill is among these rights, and the owner may transfer it independently of transferring ownership of the property itself.
A person who acquires goodwill becomes the holder of the benefits derived from the property. Except in cases specified by law, the owner may not prevent the tenant from making lawful use of the property.
Status of Goodwill After Death
Like other rights, such as easement rights, goodwill rights are transferred to the heirs upon the holder’s death. No individual may prevent the heirs from exercising their rights of goodwill. Transfer of goodwill to heirs is lawful, and upon issuance of a certificate of inheritance, the heirs become entitled to the goodwill either by mutual agreement or in proportion to their statutory shares.
If an individual wishes to transfer goodwill to their child during their lifetime, the lease agreement must permit transfer to third parties, or the owner’s consent must be obtained. The heirs may also transfer their goodwill shares among themselves. Even if the lease agreement prohibits transfer to third parties, such transfers among heirs are not considered transfers to third parties. Therefore, each heir may transfer their share to other heirs, and all heirs shall have equal rights to use the goodwill.
If one of the heirs transfers the goodwill without the owner’s knowledge and without informing the other heirs, the owner may file a court claim seeking to invalidate the transfer.
Evacuation of Property Subject to Goodwill
If a commercial property is leased to a tenant, the owner may not evict the tenant before the lease term expires or the lease is terminated, even if no goodwill amount has been received. Evacuation of a property subject to goodwill occurs only upon expiration of the lease term or lawful termination of the lease agreement.
In cases of violation by the tenant or goodwill holder, the goodwill right may be entirely forfeited in accordance with the Law on Relations Between Landlord and Tenant.
Frequently Asked Questions Regarding Goodwill and Its Status After Death
Goodwill is a tenant’s right acquired by paying an amount to the owner of a commercial property at the time of leasing. It permits the tenant to use the commercial property. This right applies only to commercial properties and not to residential or movable assets.
Goodwill is divided into actual goodwill and virtual goodwill. Actual goodwill relates to the facilities and characteristics of the property, while virtual goodwill arises from the tenant’s business efforts and commercial reputation.
Goodwill may be transferred through either an informal agreement or an official deed. In official deeds, all contractual rights, including goodwill, are legally transferable.
Goodwill is transferred to the heirs, who may use it in accordance with their legal shares or by mutual agreement. This transfer is lawful and cannot be obstructed by others.
After obtaining a certificate of inheritance, heirs may divide the goodwill among themselves or transfer their shares to other heirs. Such transfers are not considered transfers to third parties.
The goodwill holder may transfer the goodwill without transferring ownership of the property. The buyer becomes entitled to the benefits of the property, and the owner may not unlawfully interfere.
Evacuation is permitted only upon expiration or lawful termination of the lease. The owner may not evict the tenant prior to that, even if no goodwill amount has been paid. In case of tenant violations, the goodwill right may be forfeited by law.
No. Goodwill applies exclusively to commercial properties and does not extend to residential properties or movable assets.
Yes. Provided that the lease agreement allows such transfer or the owner’s consent is obtained, the tenant may transfer goodwill to their child. What is goodwill, and what is its purpose?
What types of goodwill exist?
How is goodwill transferred?
What happens to goodwill after the death of the owner or tenant?
How can heirs manage goodwill rights?
How is goodwill bought and sold?
How is a property subject to goodwill evacuated?
Does goodwill apply to residential properties?
Can goodwill be transferred to a child?
