of goodwill.....in Kenya!

If you have attempted to rent/lease a shop or a stall or a room in a busy town, you are in the know of what is called ‘goodwill.

 

In shops in Nakuru (Back street) some ask for upto 150k for Goodwill. In Nairobi Goodwill of a stall which is probably 3m by 3m can by upto 250k. But for the bigger shops you are looking for something in the region of 800k.

 

For me in simple terms, goodwill is ‘ the value of a name or a brand’.

If most business in Kenya trading in such establishments don’t have a brand (they are all selling wares from CHINA or INDIA), then where does the goodwill come from?

I have recently visited a construction site in Nyeri town enquiring to rent a shop once they are complete. The rent was 8k a month which I thought was very fair. But the goodwill was 80k? What for you ask me?

Why do we need to pay goodwill for a ‘not yet finished’ building?

 

I can now see why people who are moving away from a stall or a shop ask for goodwill. It is just like a mortgage, if you borrowed 1m for your house, you cannot then sell it for less than 1M as you would make a loss. In the same way, the person ‘selling’ the stall needs to gain back the goodwill they paid for upfront. And in Kenyan style, they will try ask for more than they paid just because they can. Therefore the goodwill figures are just going to go up and up and up! I don’t agree with the trend, but I understand.

 

In most cases the goodwill is not even paid to the landlord. When I was in Nakuru talking to the guy whom I thought was the landlord, he told me that I had to get a tenant before I can move. In my ignorant self, I could not understand why I had to do this.

 

I thought I was going to sign a fixed term contract after which I would extend the lease or choose to leave if I wished to. Well, that is not how it happens. Basically the guy who has the lease, is in the background somewhere. He probably pays a rent of 10k but he sublease and probably charges triple the rent. I know this is illegal clearly, but there is no one interested in hearing this out! Once you step into the lease, they still want you to pay goodwill which may include deposit and they might also want you to take over the fixtures. If you are not interested in paying for the fixtures, they aren’t interested in you. this is what happens when the supply of housing is low and when most of the business activities happens in towns in Kenya.

 

Oh yeah, the goodwill isn’t refundable (although some of them say it is deposit) and in real terms it is just a cash outflow that you cannot expense and you cannot expect anything in return for.

 

Anyway, if you went to business school or have taken business classes, I strongly advise that you forget the definition of goodwill if you are interested in leasing a business property in Kenya.