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This article is written by Sanmathi Dayanand pursuing Certificate Course in Real Estate Laws from LawSikho.


Intangible assets are non-physical assets like trademarks, franchises, copyrights, goodwill, equities, patents, contracts, and securities (these are different from physical assets like land, equipment, etc.) that grant rights and privileges, and have value for the owner.

To determine the existence of an intangible asset a four-part test can be used as follows:  

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  1. Identifiable intangible asset. 
  2. Evidence of legal ownership of an intangible asset (documents that substantiate rights). 
  3. An intangible asset should be capable of being divisible and separate from the real estate and not from the business. 
  4. Legally transferable intangible asset.

Characteristics of intangible property are that it lacks physical existence and does not have intrinsic value.

Intellectual property (“IP”) includes trademarks, trade secrets, patents and copyrights, and IP issues play a role in real estate as it is considered an important asset. Buildings and property developments are usually given a unique name or title as part of the property’s address. Property can also have distinct and recognisable design features. The portfolio value of any property will be enhanced due to the value of the IP concerned. IP is the foundation for continuing profitability and market dominance of leading corporations in the world. 

The most widely used approaches to assessing intangible assets are based on income, market, or cost-relevant metrics. 

The article will cover the following topics: types of intangible assets in real estate, goodwill, valuation of intangible assets, brief valuation of intangible assets around the globe, and conclusion.

Types of intangible asset in real estate

The real estate market determines whether an intangible asset or IP is included or excluded in the sale price of a real estate property. Following are a few types of intangible assets or IP pertaining to real estate.

  • Trademark 

A trademark is a sign which is capable of distinguishing the services or goods of one enterprise/company from those of other enterprises/companies. Trademarks of company names are registered for protection for example the names and associated brand logos of developments like Trump Tower and Empire State Building are trademarks that are registered for services related to management and leasing of real estate.

Selection of a strong mark and clearance is so as to ensure that there are no pre-existing trademark rights for the same mark are important first steps towards the protection of the trademark for a building. To qualify a name for trademark protection it is required to ensure that the name chosen for registration is sufficiently distinctive. When a trademark is registered it is more attractive to purchasers and investors of the property.

  • Service mark

A service mark is a logo or a brand name that identifies the service provider. An owner of a product is identified by trademark whereas a provider of service is identified by a service mark. For example, in residential real estate projects wherein the promoter provides internet service for the residents of the project, the provider of service is identified by a service mark.

  • Domain name

Domain name/online identity is the online address of any establishment which leads to a page which the registrant of the domain name wants to be viewed by the general public when they visit their domain. Usually, companies use their business or trade name as their domain name, and domain names are IP rights.

  • Copyright

Copyright is an author’s right over their literary and artistic works. Books, music, paintings, sculpture, films, computer programs, databases, advertisements, maps, technical drawings, etc are the kind of works covered under copyright.

  1. Copyright in the building plans arises automatically. For instance, in Canada, generally, such copyright lasts for the life of the architect+ seventy years. Generally, the architect will own the copyright of the plan unless the plans are a part of some written assignment or the architect is an employee and the plans were within the scope of his/her employment. 
  2. Information on a multiple listing service is likely to contain copyrighted material, mostly photographs, artistic renderings, virtual tours, floor plans, architectural drawings, list price, and creative listing descriptions. If there is no written agreement to the contrary, the copyright is with the creator. For example, the copyright protection of any photograph of the property will remain with the creator in the absence of an agreement in writing. 
  • Trade secret

Trade secrets are IP rights on commercially sensitive and confidential information that is valuable and known to limited persons, which may be sold or licensed. The unauthorized acquisition, use, or disclosure of such confidential information in any manner which is contrary to honest commercial practices by others is considered an unfair practice and also a violation of the trade secret protection. Confidential information can be customer and marketing strategies, client lists, pricing strategies and policies, certain contracts, and other such competitively sensitive information. 

Non-disclosure agreements are entered into to ensure the party receiving confidential information does not disclose the same. However, trade secrets are valuable only until the secret/confidential information is maintained and hence reasonable steps are to be taken to keep such information a secret.

  • Design right 

An industrial design constitutes the ornamental aspect of an article. An industrial design may consist of 3D features like the shape of an article, or 2D features like patterns, lines, or colour. A building design should be novel and have an individual character in order to qualify as a registered design.

What is known as goodwill?

Goodwill (“GW”) is an economic term that denotes the difference between the market value of a company and material/ substance price, less any liabilities. Goodwill is also an intangible asset and includes customer relationships, reputation, market position, quality, and tradition. It cannot be seen/felt physically. It has value and can be transferred and sold. It brings profits to a purchaser in the future for his past efforts due to the reputation of the business.

Goodwill is defined in the Dictionary of Real Estate Appraisal (Appraisal Institute 2015) as an unidentifiable intangible asset arising as a result of reputation, name, customer loyalty, products, location, and similar factors not separately identified and is quantified. Goodwill is the amount by which the acquisition price exceeds the fair value of identified assets. 

Goodwill is an elusive characteristic of a going-concern and difficult to value in isolation as it is not specifically identified and it is decided by courts that the value of goodwill is reflected in a management fee.

The value of goodwill depends on the mutual agreement between seller and purchaser. Accounting method available to determine the quantum of goodwill by ‘number of years’ purchase of average profits’. Under this method, the past profits of a no. of years are totalled up and the average is found out. The average profit is then multiplied by a certain number of years to arrive at the goodwill(GW). The number of years is with reference to excess profits which will continue in the future expected number of years. Accounting method available to determine the quantum of goodwill by capitalisation method where the value of the business is ascertained based on actual profits, which is capitalised at a predetermined rate. For example, cinema halls charge goodwill for opening eating places within the premises, builders charge goodwill for shops in the vicinity of residential areas as the purchaser gets access to a large consumer group, hospitals charge goodwill for the opening of chemist shops within the hospital premises as the chemist will get an assured supply of customers. The hospital needs to be compensated for the benefit being availed of the chemist by virtue of the location in the hospital premises.

Some of the factors which influence the determination of GW are; location, historic significance, reputation. For example, if a business is located at a prime place (central business district), resulting in good sales or economies, the value of goodwill will be correspondingly increased/higher than in any other place (outskirts of the city). Also, if a place has historic significance, its goodwill will also be correspondingly higher. The quality and quantity of people who live in the surrounding areas increase the goodwill. Large companies’ presence in the vicinity of a certain property will enhance the value/goodwill of the property. Also, if a company has a good reputation for the quality of its products and other business aspects, the value of its goodwill will be higher. 

Valuation of intangible assets

The valuation procedure is bringing together the legal concept of property and the economic concept of value.

1. Purpose of valuation

A company/business/firm is evaluated for various reasons like accounting, business-related, and real estate purposes like the following: 

  1. For a transaction purpose like mergers and acquisition, demergers, contributions, disposals, transformations, securitization.
  2. For litigation (example: to compute the damages that are awarded in an infringement lawsuit).
  3. For arbitration or such other similar proceedings. 
  4. For bankruptcy (valuation is required by the court to properly dispose of the assets and to pay back creditors).
  5. When there is a change in the equity-like issue of shares, convertible bonds, warrants. 
  6. For internal purposes like financial reporting.

2. Value Concepts

There are 4 main value concepts:

  1. Owner value: It is a proprietor’s view of value and price is determined in negotiated deals 
  2. Market value: this concept is mainly on the assumption that if a comparable property is valued at a particular price then the subject property will be valued at a similar price.
  3. Tax value:  includes investment value, liquidation value, and going concern value.
  4. Fair value: this concept is to be equitable to all parties. A transaction between vendor and purchaser is brought together in a legally binding manner and is not in an open market. 

3. Methods for the valuation of intangibles

Acceptable methods of the valuation of identifiable intangible assets and intellectual property fall into three broad categories:

  • Market based

It is difficult to determine the market value of an IP as they are generally not developed to be sold and those sold are tiny parts of large transactions wherein all details are kept confidential. The other factors which limit the usefulness of market based valuation are different negotiating skills, graphs of economy, and special purchases.

  • Cost based

This method evaluates the cost to create or the cost to replace, but it ignores the maintenance of IP and the changes due to the time value of money (One rupee in your pocket today is worth more than one rupee next year or the year after).

  • Based on estimates of past and future economic benefits

This valuation method can be described in 4 parts:

  1. Capitalisation of historic profits: The value of IPR is arrived at by multiplying the maintainable historic profitability of the asset by a multiple that has been assessed after scoring the relative strength of the IPR.  For example, a multiple is arrived at after assessing a particular brand with factors such as leadership, stability, market share, internationality, trend of profitability, marketing and advertising support, and protection. The shortcomings of this method are that it does not factor in the future.
  2. Gross profit differential methods: This method relates to trademark and brand valuation. It is the difference between the margin of a patented/branded product and a generic/unbranded product.  The difficulties of this method are finding unbranded equivalents for a brand and identifying their prices.
  3. Excess profits methods: This method establishes a benchmark by the current value of net tangible assets employed for an estimated rate of return to calculate the profits that are required in order to induce investors to invest in such net tangible assets.  Any return which is in addition to those profits required in order to induce investment is considered to be excess return attributable to IPR. The shortcomings of this method are that it does not easily adjust to the alternative use of an asset.
  4. Relief from royalty method: This method considers what the purchaser can afford or how much the purchaser is willing to pay for the licence.  It is then capitalised to reflect the risk and return relationship of investing in such assets.

Valuation is more of an art than a science and is an interdisciplinary study of law, economics, finance, accounting, and investment. We shouldn’t adopt valuation by so-called industry/sector norms in ignorance of the fundamental theoretical framework of valuation.

Brief valuation of intangible assets around the globe

It is critical to evaluate intangible assets, however, the current accounting standards make it difficult to capture such valuations in financial statements. The valuation of intangible influences/assets does not have a defined concrete list of items nor does it have an established concrete clear process.

In most US jurisdictions intangible assets are not taxable as a part of the real estate assessment. In Germany, the final list of special intangible influences depends on an expert, who defines and evaluates them. In Great Britain the Red Book (RICS) is the basic document for valuation. In Slovakia, intangible influences are part of price regulation mostly in the field of methods of location differentiation. Twenty-one factors of intangible effects for constructions and twenty-two factors for lands have been defined in Slovakia. The most detailed processes and definitions for valuation of intangible assets abroad are in international valuation standards (IVS), where the issue is solved only at the general level without any determined/concrete list of intangible special influences.


In today’s economy, it is important to capture the value that is provided by intangible assets in enterprise/business valuation. It is critical to identify and value intangible assets in an active management framework as well as in investing and quantitative modelling strategies that require adjustments in comparability and which rely upon financial statement data.

Analysts need to ensure more reliable valuation results by expanding their data range sources and techniques which are used for valuation and also need to develop methodologies that are suitable for such valuation of intangible assets. Such methods of valuation provide new perspectives on the cost, market, and income approaches. There is an absence of basic consensus in the valuation of intangible assets and the same requires uniformity.


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