The tyranny of good will payments

Recently, 66 shops at Jamia Mall in Nairobi's central business district (CBD) closed after the owners protested the "high good will" amount demanded by the landlord. The tenants of the mall, which majorly houses electronic shops, eateries, boutiques, said the landlord was demanding Sh1.25 million to renew their leases.

Media reports said the management of the mall had initially demanded a Sh1.8 million goodwill, but later reduced it to Sh1.25 million after the tenants complained.

The tenants said they paid Sh500,000 as goodwill 10 years ago when they rented the shops. They said the rent was Sh54,000 per month.

A spot check by this writer almost a week after the protests revealed that four shops were closed and the door padlocks were welded. The shops are said to belong to the traders' leaders.

But if you thought the problem only affects Nairobi, you are wrong. In July 2015, business-people in Nyeri Town blamed high rent and goodwill for the slow growth of the town.

Some of them said commercial building owners were asking for as much as Sh500,000 in goodwill and also demanding a deposit of up to six months for a space measuring 10 by 12 feet.

They said this had become a major hindrance to attracting investments in the town.

On average, the rent for a stall measuring 10 by 12 feet in Nyeri ranges from Sh20,000 to Sh30,000, depending on the location. The goodwill is between Sh100,000 and Sh500,000.

In Nairobi, owners of stalls in Metho House on Moi Avenue require Sh1.6 million as goodwill and a monthly rent of Sh90,000 and a two-month advance rent. The stalls are leased for five and nine months in advance.

Goodwill is defined as "the good reputation and good relationships that a company has with its customers, and how much these are worth if the company is sold".

An online search for shops to let in Nairobi CBD reveals how landlords, former tenants or agents are demanding exorbitant and shocking non-taxable good will amounts ranging from Sh1 million to Sh4 million.

Letting an office in Nairobi has become a lucrative business. You can expect to put down at least two months' rent as deposit, plus another two months' rent upfront and a hefty good will.

The amount depends on the shop's location, with those on CBD streets like Moi Avenue, Kenyatta Avenue, Tom Mboya, Haile Selassie being the highest.

This phenomenon is common within the informal commercial property market, especially shops in the various CBDs that deals in shoes, cloths and electronics.

Good will, although not in the law, is be paid by a new tenant, depending on the business. It is hinged on the fact that the new tenant is likely to benefit from the old tenant's reputation, traffic and business from the old tenant's business.

Good will is meant to compensate the previous business owner for the intangible established reputation in cases where the new owner is continuing with the same business.

According to Ephraim Murigo, the CEO of Urban Tenants Association of Kenya (UTAK), good will is illegal since it's not in the Kenyan law.

"Good will is corruption, just like the corruption that happens when one is looking for a job. People pay it unwillingly to get shops that are scarce," said Murigo.

Murigo advises tenants to ask for a receipt or a written agreement as evidence of payment, which they can use in a court of law if the landlord breaks the agreement.

"The court may give a ruling that the goodwill you paid will be your rent in advance, but only if you have proof that you paid good will," said Murigo.

Collins Kowuor, a former chairman of the Institution of Surveyors of Kenya, concurs with Murigo that good will is being misused by some landlords and tenants.

"Most property owners ask for good will on grounds that their commercial properties are based in prime locations where most customers pass through from or to work or other businesses," said Kowuor.