Lease in General

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Scope and Definition

“Lease” under the FDRE lease proclamation 272/2003 has been define as “lease-hold system in which use right of urban land is transferred or held contractually (Art. 2(1). The 1960 Ethiopian civil code under article 2896 on its part defines lease as follows:

Hence the concept of the word “lease” which is employed in the above laws is one similar to what is coined in the common law as “Leased fee” which means an ownership interest held by a landlord with the rights of use and occupancy transferred by the lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease. And “leasehold” means the interest held by the lessee (the tenant or renter) through a lease transferring the rights of use and occupancy for a stated term under certain conditions.

Here the definition and scope of lease provided in the proclamation is different from the scope of the term defined in continental legal system. A typical definition of lease is one given by Planiol which states lease as: “A contract whereby one person engages himself to furnish to another person the temporary enjoyment of a thing for a price proportional to the time.”

The similarity one can find in all the above definitions is that firstly, lease right emanates from contractual agreements. Secondly, the right transferred to the lessee (tenant) is the use and occupancy of the property. Thirdly this interest is transferred for consideration- that the lessee must pay in the form of rent. And fourthly, in both systems lease right provides only personal rights to the lessee, not real rights for the lease right generally may not be sold or mortgaged. The basic difference one can observe from the definitions however Planiol’s definition of lease can encompass movable and immovable, for the word “thing” can connote both movable and immovable. In the common law as well as under the Lease proclamation no. 272/2003 leases are applied to real property or land. A systematic search and analysis of the civil code also shows that the code follows the common law approach.

Additional Reading

On the definition and scope of the term “lease” K.W. Ryan in his book An Introduction to the Civil Law, The law book co. of Australasia Pty Ltd, 1962, pp. 98 provides the following:

In Art. 1709 C.C.(in France), a lease is defined as a contract by which one party undertakes to let another to have the benefit of a thing for a certain time in exchange for a certain price which the other undertakes to pay him. The German definition is more restrictive. Art. 535 B.G.B. provides that by a lease the lessor is bound to allow the lessee the use of the leased thing during the term of the lease, and the lessee is bound to pay the lessor the agreed rent. It will be seen that a German lease (Miete) gives the lessee only the use of the thing. An agreement granting him the use of the thing and the enjoyment of its fruits is termed a Pacht, and is separately regulated in the B.G.B. The distinction between a Miete and a Pacht, between a lease according the bare use of property and one according the enjoyment of its fruits and profits is of Germanic origin. A further matter which appears from both definitions is that the term “lease” is used for agreements relating to the temporal use of movable as well as immovable property. This is in accord with the Roman, in which the object of locatio conduction rei could be property of any kind. The Civil law of letting is at the same time the law of hiring. Nevertheless, in both French and German law the distinction between a lease of immovables and the hiring of movables is far from unknown and it has been accentuated in the post-war emergency legislation.

Use and purpose of lease

Lease is another means of land holing system. Lease may be of private or public one. For both the state and private individuals lease is a means of income for it is also another form of land market. The income from land lease has significant part in the over all GDP of a country in general and in the real estate transaction income in particular. In the absence of an effective land taxation system, one of the means by which local governments increase revenues is through public land leasing. There is evidence that land leasing has been happening on a large scale. Some countries secure a particular place for lease purpose. For example, the city of Sydney, in Australia, is a good example. In Sydney the only means of land acquisition is lease. They call is ground lease for the state or municipality, as the case may be, transfer the ground land by way of lease. In other words, to collect rent from transfer of land by way of lease, states may reserve particular land for this purpose. On the other side of the coin, lease is a means of acquisition of land. In industry and agriculture lease is preferable since the business may not be long lasting. Some times it is easy, if not cheaper, to get land by way of lease rather than purchasing. Eve the procedure, for example in Ethiopia, is shorter and easier than land grant for land lease policy is more responsive to demand of land supply. From private lease point of view, those who could not afford to buy land from the land lords had the only choice of leasing land.

Lease of Houses/Tenancy

This is a place where we shall discuss about lease of housing. The housing that we are talking about may be residential or commercial. In countries where the real property market is flourished these are very common systems of conveying one’s house to another renter. Yet for public purpose and social welfare reasons most counties in the western world regulate the ceiling of rent that should be paid for a residential house. In Ethiopia, there are two systems of rental: private and public. The government owns a lot of urban houses after it nationalized them using Proc. 47/1975, a proclamation to provide for the ownership of urban land and extra houses. The Rental Agency administers these houses. It puts a regulated and mostly fixed rate of rent for its tenants. On the other hand, private owners of residential and commercial houses are at liberty to put the market price for rent. This is a contract that is totally controlled by the civil code. In this section a discussion will be made based on the civil code tenancy provisions (2896-3018).

General principles

Lease of immovable is a contract (Art. 2896) and hence the general rues of Contract in general (Arts. 1675-2026) may be applied whenever necessary, especially concerning formation and effect of contract, as indicated under Art. 1677. A combined reading of articles 1723 and 2898 reveals that a lease contract needs not to be made in writing. More over, articles 1571 and 2899 strengthen this fact by dictating that lease agreements made for more than five years and do not enter into registry may not affect third parties. Article 2946 stipulates that the municipality may prepare a model contract form for the lease of houses with in its jurisdiction. Yet it is not mandatory for the parties to follow it. It seems, the option is left to the contracting parties.

Lease provides an interest to the lessee, which may not be affected by any encumbrance made on the property or transfer of the property itself. Unless otherwise expressly agreed between the lessor and the lessee, a contract of lease may be set up against a third party who acquires the ownership or usufruct of the immovable given on lease after the delivery of the immovable to the lessee (art. 2932). The only exception is in case of expropriation where the state may take away the property for reasons of public benefits.

Concerning the duration of the lease agreement, the contract may be made for determinate or indeterminate period of time. In any case it may not be fixed for more than 60 years and any contract mad for more than 60 years shall deemed to have been made for 60 years (Art.2927).

Obligations of Lessor

Delivery of property and warranty of peaceful enjoyment

The lease imposes on the lessor various obligations all of which spring from a single principle: the lessor is bound to procure for the lessee the enjoyment of the premises for the duration of the lease. This principle is embodied in our civil code under articles 2900 (Delivery) and 2911(peaceful enjoyment of immovable). The lessor shall deliver the lessee the immovable given on lease and its accessories, in a state to serve for the use for which it is intended in terms of the contract or according to its nature (Art. 2900). The lessor has also the obligation to deliver the house in good condition or free of defect. As per article 2904(1) “where at the time of delivery, the thing has defects of such nature that its normal use is appreciably diminished, the lessee may demand the rescission of the contract.” Besides to the rescission of the contract, the lessor may also be subject to liability of payment of damages as envisaged under articles 2905-06. However, if the defect was apparent, means if the defect on which the lessee’s claim is based is apparent or where he knew or should have known of the defect on the making of the contract, he may not revoke the cancellation of contract and or payment of damages. Read article 2907. In other words, the lessee must first look in to the house and ensure whether it is suitable and ok. An exception to the apparent rule is provided in the next article 2908(1) which states: “Where the thing is in such a state as to constitute a serious danger to the life or health of the lessee or of those who reside with him or of his employees, the lessee may require the rescission of the contract even in a case of an apparent defect or of a defect of which the lessee knew at the time of the contract.” And sub article (2) emphasizes: “Any stipulation to the contrary shall be of no effect.”

Note: is a cracking on the wall which is visible apparent? What about a licking roof? Or noisy neighborhood? What about a wall that sends electric vibrations and currents?

Comment: generally speaking the lessor has the duty to inform all about the defects, if any. If one looks to what the lessee justifiably can anticipate, the responsibility of the lessor would be very far reaching. As a limitation of this responsibility, there is the duty of examination for the lessee.

It can be point out that in the extent that one might speak of a duty to inform, this is not as general as regarding the examination of duty for the lessee. It can therefore not be claimed that the lessor is obliged to inform the lessee of every default to his knowledge in order to escape responsibility. The lessor is especially responsible for defects which cannot be found through normal examination.

Art. 2911. The lessor shall warrant to the lessee the peaceful enjoyment of the immovable during the currency of the lease.

Peaceful enjoyment of the leased house is the main interest of the lessee. Our civil code (under articles 2912-2915) provides rules which guarantee this enjoyment. First point is that the lessor must refrain from any personal act which would interfere with the lessee’s enjoyment of the property. For example, the law provides that the lessor may not make alterations in the house without the consent of the lessee (art.2912) since it disturbs his peaceful enjoyment. Another one is that the lessor warrants that the lessee will not be disturbed by third parties who have legitimate claims on the leased property. This concept is envisaged under article 2913. The general point made in this article is that third party claimant of the leased property should made their claims against the lessor not the lessee. The lessee shall be entitled to reduction of rent in case of molestation by such party.

On the other hand, the lessee is not warranted for illegitimate claims and molestations made by a third party. In such a case the lessee may take action in his own name against such third parties (Art. 2914(2)). The third point is that the lessor shall pay the burdens and taxes charging the immovable (Art. 2915).

Note: which of the following is warranted by the lessor

A third party brings a possessory action against the lessee/tenant.
A neighborhood hooligans disturbing the lessee
A third party brings an action against the lessee for tort based damages which is caused by the fall of a brick from a fence.

Repairs

A house let needs a periodic repair and maintenance for its enjoyment and habitability. The lessor shall maintain the immovable in good condition and make therein during the currency of the lease such repairs as are necessary and are not repairs incumbent upon the lessee (2916). Basically, the duty to repair a house leased may be determined by the contract of lease. Hence, based on the contractual agreements both the lessor and the lessee are duty bound to repair the house (Read Arts. 2916, 2919, 2953). In the absence of such a clause in their contract, however, the code comes up with a solution under article 2954.

Art. 2954. - 2. Which repairs are incumbent upon lessee.

1) The repairs which in the contract of lease are placed at the charge of the lessee shall be deemed to be repairs incumbent upon him.

(2) Unless otherwise agreed, repairs necessary to the doors, windows, floorboards, tiling, taps and water drains shall be deemed to he repairs incumbent upon the lessee.

(3) The works of cleaning and maintenance which become necessary by the enjoyment of the thing shall also he deemed to be repairs incumbent upon the lessee.

Art. 2955. - Old age or force majeure.

(1) No repairs which are deemed to be incumbent upon the lessee shall be at the charge of the lessee where they are occasioned only by old age or force majeure.

(2) The contract of lease may derogate such rule by an express stipulation

When the type of repair is at the charge of the lessor and because of their urgent nature cannot be repaired without delay by the lessor, the lessee may repair them at his cost and may retain the cost from the rent (read art. 2920).

Obligations of the Lessee

Necessary Care

The lessee can do nothing which diminishes the usefulness or agreeableness of the premise let. To emphasize this point the code under article 2921 underlines two things, first that the lessee should use the property with “care” and for the “purpose” it is intended to be used. Secondly, the lessee may not make alterations in the immovable or its mode of exploitation that would extend beyond the period of lease. In particular, the lessee is duty bound to furnish the house in a way that suits its nature and purpose (read art. 2949).

Another point worth mentioning here is the duty of concern for neighbors. The lessee shall have the consideration which is due to the other persons who dwell in the house a part of which has been given to him or lease (art. 2948(1)). So this applies to co-tenants who share same building or premises. But, what about neighbors? The general rules on ownership under property laws may be applied here mutatis mutandis, and one provision of such nature is article 1225 which forbids abuse of ownership in a way that causes nuisance or damage to neighbors. This may happen by sending smoke, soot, unpleasant smell, noise or vibration in excess of good neighborhood.

Examples: Comment

A lessee who leased a residential house used it for a grocery
A lessee above two story apartment uses firewood to cook his food. The apartment was not including traditional
A lessee emits high volume sounds from his tape recorder during party hours of mid night.

Payment of Rent

A lease is made generally for consideration and receiving rent is an important benefit to the lessor. Hence payment of rent is second important obligation of the lessee. The time and amount of rent shall b decided by the free agreement of the parties in their agreements (Arts. 2923, 2950). As we try to mention above the ceiling of rent in many countries today is fixed and control for economic, social and moral reasons. Our code simply adopts the principle of freedom of contract and allows the parties to decide about the amount.

What are the pros and cons of controlling rent ceilings?

Additional Reading

Most countries in Europe have controlled the ceiling of rent of urban residential houses. This is in an attempt to control the unreasonable high prices of lease prices and also to ensure the right to housing. The International Covenant on Economic, Social and Cultural Rights recognizes the right of all individuals to an adequate standards of living, including adequate food, clothing, and housing (Article 11). General comment 4 stresses that “housing” includes adequate privacy, space, security, lighting, and basic infrastructure-all at a reasonable cost. Ratifying parties are required to report their housing policies and their success in meeting housing needs every four years. Should affordable housing be a basic right that every society assures its citizens? Following are related excerpts of such nature.

John Sprankling, Raymond Coletta and M.C. Mirow, (2006) Global Issues in Property Law, American casebook series, Thomvson West. Pp61-63