What Do You Know About a Shop Goodwill Settlement Agreement?
A goodwill settlement agreement is one of the recognized types of settlement contracts used for the transfer or settlement of goodwill rights related to a commercial property. A goodwill settlement agreement is a valid and legally binding contract that evidences the transfer of goodwill rights from the original owner to the tenant. In addition, this type of agreement may also be used when the goodwill right is transferred from the first tenant to a second tenant. The relevant conditions are explained below.
The use of goodwill settlement agreements became common following the enactment of the Law on Relations Between Landlord and Tenant in 1977 and was later revised in 1997. Under the revised law, both the tenant and the subsequent tenant were granted the right to request that the owner of the commercial property use a settlement agreement for the transfer of goodwill. As a result, the owner became legally obligated to formally execute a goodwill settlement agreement.
Key Legal Considerations in Disputes Related to Goodwill Settlement Agreements
Is the Transfer of Goodwill Legal?
Historically, the transfer of goodwill has faced significant legal challenges and has often been deemed unlawful. However, these issues were resolved following the enactment of the Law on Landlord and Tenant Relations in 1977. This law provides that matters relating to goodwill are governed by the parties’ agreement. Therefore, if the landlord and tenant agree on the transfer of goodwill, such a transfer is legally permissible. Accordingly, even if the original lease agreement does not expressly provide for the transfer of goodwill, the parties may still transfer this right through a goodwill settlement agreement by mutual consent.
A Simple Definition of the Right of Goodwill
Goodwill refers to a sum of money paid by the tenant to the owner of a commercial property at the beginning of the lease term under the title of goodwill. Upon termination and vacating the property, this amount must be returned to the tenant in an amount equal to the property’s current market value. This right is commonly referred to as the goodwill right.
A Simple Definition of the Right of Trade and Occupation
This right arises when a person has conducted business in a shop or commercial premises for a long period and has established a reputation, credibility, and customer trust. Under such circumstances, the tenant acquires the right of trade and occupation. In some cases, this right is also addressed within goodwill settlement agreements. Although the rights of goodwill, trade, and occupation are often mentioned together, they are legally distinct.
Differences Between the Right of Goodwill and the Right of Trade and Occupation
The legal basis of each right differs. The right of goodwill is governed by the Law on Landlord and Tenant Relations enacted in 1997, while the right of trade and occupation is governed by the law enacted in 1977.
The goodwill right is paid to the property owner at the beginning of the lease term. In contrast, the right of trade and occupation arises during the course of the lease as a result of the tenant’s business activities and customer development over time.
The value of the right of trade and occupation is determined by court-appointed experts at the time the property is vacated, whereas the amount of goodwill is specified at the beginning of the lease agreement.
The right of goodwill may be waived by agreement between the parties, while the right of trade and occupation cannot be waived in advance since it does not yet exist at the outset of the lease.
The right of trade and occupation cannot be seized, whereas the right of goodwill may be subject to judicial seizure.
If a tenant breaches the lease during the lease term, the goodwill right is not extinguished. However, in the case of the right of trade and occupation, certain violations, such as a change of business activity or unauthorized transfer, may result in the loss of this right.
The Role of the Second Tenant in Goodwill Settlement Agreements
A tenant who holds the goodwill right of a shop may decide to transfer it to a child, an heir, or another individual, or may choose to sell it to a third party. In such cases, a goodwill transfer settlement agreement must be executed. For this purpose, the original property owner must be notified, and upon proper notice, the owner may be required to appear at a notary public’s office to execute a formal settlement agreement transferring the goodwill right to the intended recipient.
Frequently Asked Questions About Shop Goodwill Settlement Agreements
A shop goodwill settlement agreement is a legal contract used to transfer the goodwill rights of a commercial property between the owner and tenant or between the first and second tenant. This agreement formally documents the transfer of goodwill and the parties' obligations.
Yes. Under the Law on Landlord and Tenant Relations enacted in 1977 and amended in 1997, the transfer of goodwill is lawful if it is based on the agreement of the parties. Even if the original lease does not address transfer, a goodwill settlement agreement may still be used.
The goodwill right is the sum paid by the tenant to the landlord at the commencement of a commercial lease. Upon vacating the property, the owner shall return this amount to the tenant, based on its current value.
The right of trade and occupation arises after years of business activity in a commercial property and is based on reputation and customer relationships. Unlike goodwill, it develops over time and has a different legal basis. Goodwill is paid at the start of the lease and is subject to waiver and seizure, whereas the right of trade and occupation generally is not.
Yes. A tenant may transfer goodwill to a child, heir, or another individual. In such cases, the property owner must be informed, and a formal settlement agreement must be executed at a notary's office to complete the transfer. What is a shop goodwill settlement agreement?
Is the transfer of goodwill legal?
What is the goodwill right?
What is the right of trade and occupation, and how does it differ from goodwill?
Can a tenant transfer goodwill to another person?
