Lease system in Ethiopia: A brief Analysis and Reform Proposal

Abstract

The Ethiopian civil code defines lease under the civil code, Article 2896(1) as “ a contract whereby one of the parties, the lessor, undertakes to ensure to the other party, the lessee, the use and enjoyment of an immovable, for a specified time and for a consideration fixed in kind or otherwise.[1] Black’s law dictionary also defines lease as conveyance of land or tenements to a person for life, for a certain period of time or at will in exchange for rent or other kinds of payments. Lease is a legal agreement in which the ownership of property remains with the Lessor, but the right of use and possession is temporarily transferred to the Leasee.

In Ethiopia Urban land is owned by the government and individuals get to acquire land use through lease. Ethiopia adopted the lease system in the lease proclamation no 80/1993 following the fall of the drug system and the coming to power of the Ethiopian people’s revolutionary Democratic front. The new government although adopting a free market philosophy in most aspects it reserved the ownership of Urban Land to the states and the people. The Constitution in 1995 further solidified this idea on article 40(3) by exclusively vesting the right of ownership of rural and Urban Land in the states and the people of Ethiopia.[2]

This short article shall discuss legal elements of lease, rights and responsibilities of parties of a lease, lease challenges and reform proposals.

Rights and Responsibilities Under Ethiopia’s Urban Land Lease Law

Lease in Ethiopia is a legal system where individuals or organizations gain the right to use land for a specific period, while the government remains the owner. This system is majorly guided by Proclamation No. 721/2011, which provides rules for how urban land should be leased, used, transferred, and managed. Both parties, the lessor (the government) and the lessee (the land user) have specific rights and responsibilities under this law.

The lessee has the legal right to use the land for the purpose stated in the lease agreement, such as building a house, shop, or factory. According to Article 21(1) of the Proclamation, the lessee must begin using the land for its intended purpose within the time limit given in the contract.

The lessee is also allowed to transfer, rent, or use the lease right as collateral to secure a loan. However, this is only allowed if the conditions set by the law are met. For example, under Article 24(1), if the lessee wants to transfer the lease before completing construction, permission is required from the appropriate authority.

At the same time, the lessee has major responsibilities. According to Article 20(2), they must pay at least 10% of the lease price upfront, and the rest in equal annual installments over the contract period. If they fail to pay rent for more than three years, the land may be repossessed by the government (Article 20(6). The lessee is also responsible for starting and completing construction on time. Article 22(1) states that if the lessee does not begin construction during the period specified in the lease, the government can cancel the lease. Furthermore, all repairs and maintenance must be handled by the lessee, there is no legal duty for the lessor to help with this.

The lessor, typically represented by municipal land offices or urban land authorities, has the job of managing and supervising leased lands. Under Article 16(5), the lessor must ensure that lessees follow their contract terms, including timely development and correct land use.

The government also has the power to take back land if the lease is violated. Under Article 25(1)(a), the lease can be terminated if the lessee fails to comply with obligations such as construction, rent payment, or proper use. In cases where land is needed for public projects like roads or hospitals, the government can terminate the lease for public interest as stated in Article 25(1)(b). However, the lessee must receive compensation for any legal improvements they make, such as buildings or fences.

Although the term “quiet enjoyment” is not used directly in the Proclamation, the idea is reflected in the legal protection of the lessee’s use rights. Once a lessee follows the rules, pays the rent and uses the land properly, they have the right to use the land without disturbance.

The rent system is clearly explained in Article 20. After paying at least 10% as a down payment, the lessee pays the rest over the lease period. If they delay payment, interest is added based on the Commercial Bank of Ethiopia’s lending rate. Also, Article 20(6) allows the government to terminate the lease if the lessee fails to pay for three years in a row.

All construction, maintenance, and repairs must be done by the lessee. Article 25(5) says that when a lease is terminated, the lessee must remove buildings unless the land is needed for public interest and compensation is offered.

The law permits renting and transferring lease rights, but with rules. Under Article 24(1), a lessee may transfer or rent the lease to another person, but only if the building is completed or permission is granted beforehand. The new person taking over the lease must also agree to follow all the original terms, including rent and land use.

Legal Challenges in Lease Systems

A central legal issue is the vagueness of lease terms, especially in informal and customary lease agreements. Many contracts lack clarity on duration, renewal, termination, and rights of the parties. This often results in disputes, particularly 0in urban settings where lease demand is high. Under Articles 2886–2979 of the Ethiopian Civil Code, lease contracts are governed by general provisions, but their practical application is hindered when parties either rely on oral agreements or omit essential terms.

Lease rights are often difficult to enforce due to court backlogs, procedural delays, and high litigation costs. Parties frequently experience prolonged legal battles over rent defaults, evictions, or contract breaches. In Ethiopia, the lack of specialized judicial or administrative bodies for lease-related matters aggravates this issue. As Muradu Abdo notes in his analysis of land and property rights enforcement, ordinary courts are often not equipped to handle lease disputes efficiently.

Tenants and lessees often face threats of eviction, especially in the absence of written contracts or formal registration. Under the Urban Lands Lease Proclamation No. 721/2011, land is held through lease arrangements with specified terms. However, many urban and peri-urban occupants lack documentation of their rights, making them vulnerable to arbitrary removal or non-renewal of leases. This insecurity is particularly harmful in contexts where long-term residence or investment depends on stable landholding.

Reform Proposals to Address Lease System Challenges in Ethiopia

To address ambiguities and incomplete terms in lease agreements, especially those that are oral or customary in nature, a practical solution is the adoption of standardized model lease contracts. These contracts should be prepared and approved by local or regional authorities and made mandatory or strongly encouraged for public use. Such templates would ensure clarity on critical terms such as duration, renewal, and termination. Provide balanced protection for both lessors and lessees.

To remedy enforcement issues and access to justice, specialized tenancy tribunals or municipal lease boards should be established. These bodies would use streamlined, cost-effective procedures for resolving lease disputes. Reduce case backlog in ordinary courts operate locally to enhance accessibility and expedite decisions, particularly in urban centers where lease conflicts are frequent.

To address urban land hoarding and artificial scarcity, government policy should impose use-it-or-lose-it rules that require land development within a reasonable time. Tax idle leasehold lands or impose penalties for speculative holding without use.

Lastly, to overcome fragmented governance in lease administration, clarify and streamline institutional roles among federal, regional, and municipal actors. Create inter-agency coordination bodies or task forces to harmonize lease policy implementation.

Reference(S):

[1]Civil Code of the Empire of Ethiopia, Proclamation No 165 of 1960, art 2896(1).

[2] Constitution of the Federal Democratic Republic of Ethiopia, 1995, art 40(3).