What's the purpose of Goodwill on a commercial property?

Question

I'm not taking over the business, just the premises. There are no fixtures & fittings and so there seems to be no reason for me to pay a Goodwill. Can the leaseholder charge for intangible Goodwill?

In Layman's terms please

Answer 1

"Can the leaseholder charge for intangible Goodwill?"

In short, yes.
The seller can call it Donkey to get the buyer to pay the seller for nothing. It is up to the buyer to negotiate the price downwards.

Existing sales price of the premises is likely to include a profit element. The profit element implicit in the sales price, may be regarded as "Goodwill." by the buyer. (Never the owner.)

Over and above which, the seller explicitly proposes a second "Goodwill" in the hopes of raising the selling price further. This is the Second increment to the selling price.

Should this be the case, the seller is throwing you a curve with technical jargon. This is known as profiteering at the ignorance of the buyer.

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Disclaimer: This is not the full explanation of Goodwill.
What is "Goodwill" ?

The use of goodwill above is not the appropriate technical term.

In general, the amount of money paid over and above the value of the premise is the "premium" paid to acquire the property, otherwise loosely used as "Goodwill."

Cost to build, maintain and repair the premise. Say $50. What the sellers think they can fetch if they sold the premise, based on prevailing market prices. Say $200.

The seller makes a profit when the property is sold for more than the value to contruct and maintain it.

$200 (market value) - $50 (Cost to contruct and maintain)

$150 is regarded by the Seller as Profit;

$150 is the extra amount paid, over and above the cost of the building (1), regarded as "premium" or "Goodwill" by the Buyer.(2)

The Buyer would however, record the value of the premise as $200 since that was the cash amount paid.

Disclaimer: This is not the full explanation of Goodwill.

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Technical Jargon

Amount exceeding the value of the premises at prevailing market price, that a willing buyer (yourself) and a willing seller, (leaseholder) are able to exchange cash for premises at arms length transaction, is called a "Premium."

Alternatively, if the buyer is able to convince the seller that the premises lacking fixtures and fittings is worth less, when the market can fetch more, one has "negative goodwill" (called a Discount) arising from what may be considered as a discounted purchase.

Answer 2

The vendor is selling a business which has built up a reputation and this comes under the heading of Goodwill. If you do not want the business but only the premises then the Goodwill element is still in the business and this puts value on the business. The fact that you do not want this goodwill is irrelevant in the same way that when buying a Newspaper, you may only want the racing page and the football is of no interest to you. You cannot pay less for that paper and say take away the football pages.
Happy New Year and every success to you in this new venture of yours.

Answer 3

Ok, in layman's terms.

The price is the price, take it or leave it.

The faulty assumption you are making is that if "Goodwill" was not being charged, then the price would be lower. It wouldn't! That portion of the price that is being attributed to "Goodwill" would simply be attributed to something else.

There may be tax reasons for the seller wanting to attribute a portion of the price to "Goodwill" You may also have a reason to call a portion of the purchase price "Goodwill" Goodwill is an asset that can be depreciated over time and depending on your tax situation, you may want that.

The only question you really need to answer "is this a good deal for me"

Answer 4

Goodwill is like brand value; it is an intangible asset, in this case it is the locational advantage the property has for business purpose (may be a location with high traffic which may be good for a business, important junction etc.). A leaseholder can charge intangible goodwill but it has to be documented in the lease agreement (check the local laws)

Answer 5

NOT ANY MORE, THE IDEA OF "SUPPOSED GOODWILL" WENT OUT THE WINDOW YEARS AGO.

Answer 6

WHAT GOOD WILL ARE YOU TALKING ABOUT????