The Goodwill

Goodwill represents the set of conditions as a result of the business as a whole is worth more than the sum of the values of its individual parts (or worth less, if there is a badwill). Goodwill is thus the intangible value of a company that reflects its market position, brand recognition, customer network and reputation.

One of the factors that allows a company to generate such value may originate from the location of the places in which the main activity of a given business is carried out, allowing the company in question to define its competitive positioning and to build customer loyalty in relation to the premises where the activity is carried out.

One of the inherent risks associated with the valorisation of goodwill, in terms of the positioning of the premises, is the case in which such premises are leased. In fact, in the event that the premises, which over time have generated the so-called “commercial goodwill’, derive from a rental contract, this goodwill could potentially be lost if the lessor decides to withdraw from the contract.

To help in such an eventuality, there is a regulatory provision that protects the company that conducts the premises.

In fact, Article 34 of Law No. 392/1978 provides that if the termination of the relationship does not result from termination due to non-performance, cancellation, withdrawal or bankruptcy of the renter, the renter “shall be entitled to an indemnity equal to 18 months of the last rent paid (for hotel activities the indemnity is equal to 21 months)”. The indemnity thus determined doubles if – within one year from the release of the premises following the termination of the relationship (Court of Cassation, 28 March 2003, n.4701) – the property is used by anyone for the exercise of the same activity formerly exercised by the outgoing renter.

The indemnity for goodwill is therefore a sum of money that performs a restorative function to compensate for the inconveniences and costs that the owner/renter will have to face following the termination of the lease due to the loss of the goodwill that he has created with his activity.

In the present case, it will therefore be necessary to estimate, for the purposes of the valuation of the goodwill, the total amount of goodwill indemnity that would be due to the company considering the collection of monthly payments for each of the commercial leases in existence on the reference date of the valuation.