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INDEMNITY FOR LOSS OF GOODWILL IN COMMERCIAL LEASES

  • 03/06/2022
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In leases of immovable property for uses other than residential use, in the event of termination of the lease the tenant is entitled to compensation for loss of goodwill.

Since, in fact, the recognizability of a business is also linked to the physical place where the activity takes place, the law recognises a particular protection to the entrepreneur in case of termination of the lease of the premises used for the exercise of the activity.

The aim is to preserve the tenant's business activity in the event that the landlord intends to terminate the rental agreement.

In the rental context, goodwill can be defined as the value, in terms of the ability to establish relations with the public and attract customers, brought by the entrepreneur to the business when it is started.

Goodwill in this sense should be distinguished from the commercial goodwill relevant at the time of the transfer of a business: the latter refers to the value of the business asset as such and to the profitability of the business in terms of economic profit.

In which cases is the indemnity granted and what is the nature of the tenant's right?

Law 392/1978, concerning the leasing of urban non-housing properties, regulates the indemnity for loss of goodwill in article 34 (most recently amended by the “Release Italy" decree, l.d. 133/2014).

The properties for which the indemnity is recognized are those in which the following activities are carried out:


* industrial activities;

* commercial activities;

* craft activities of tourist interest, such as travel and tourism agencies; sports and recreational facilities, tourist boards and other tourism promotion bodies and the like;

* hotel activities;

* theatrical activities;

* self-employed activities, provided that they are carried out on a habitual and professional basis.


The indemnity is payable only in the case of activities involving direct contact with the public and hence a regular relationship with customers.

The indemnity consists in the payment of a sum equal to 18 months of the last rent paid. The monthly payments are 21 in case of hotel business.

The tenant is entitled to a further indemnity (for a total of 36/42 monthly payments, always commensurate with the last rent paid) if the property is used for the exercise of an activity similar to the one previously carried out by the tenant and pertaining to the same table of goods, when the new activity is started within one year from the cessation of the previous one.

By express provision of the law, the indemnity is not due in the following cases:

* termination for default of the tenant;

* cancellation/termination of the tenant;

* if the tenant is subject to bankruptcy proceedings, composition with creditors, receivership and compulsory liquidation.


In the case of contracts (also for non-housing use) for which an annual rent of more than € 250,000 is agreed, and which do not relate to premises classified as being of historical interest following a regional or municipal measure, the parties may contractually agree terms and conditions that derogate from Law 392/1978, provided that such contracts are evidenced in writing.

In other words, when the annual rent exceeds the limit of € 250,000, the parties may exclude recognition of the indemnity.


CASE LAW OF THE COURT OF CASSATION


The jurisprudence of the Court of Cassation has affirmed some important principles regarding the indemnity of goodwill:


* in order for the right to exist, it is not sufficient that the leased property is simply open to the public: the final consumer must have direct and significant contact with the tenant or his business;

* the tenant may dispose of the right, and thus waive the indemnity, provided that the waiver is made after the right has arisen (and thus after the conclusion of the lease) and is not prior.


With reference to the latter point, in judgment 15373/2018 the Court held that the admissibility of the tenant's waiver of the loss of goodwill must be assessed on a case-by-case basis, having regard to the contractual balance established between the parties, leaning towards the availability of the right to indemnity only if it is not detectable, in practice, an undue advantage of the landlord pursuant to Article 79 of Law 392/1978 (Agreements contrary to the law). By granting compensation for loss of goodwill, the law protects the tenant by strengthening his contractual position towards the landlord.

Moreover, the payment of the indemnity is a necessary condition for the actual release of the property, also following an eviction for finite tenancy: the tenant may legitimately remain in the premises, paying an occupancy indemnity equal to the rent previously paid, until he obtains the payment of the loss of goodwill indemnity.


In the event that the parties do not spontaneously reach an agreement, the law (Legislative Decree 28/2010) provides for a mandatory attempt at mediation also for disputes concerning tenancy contracts.

Mediation is unarguably a quicker and less costly means of finding an agreement satisfactory to both parties than court proceedings.

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