Rural Land Lease
Rural land lease can also be termed as agricultural land lease as known elsewhere. However, in Ethiopia, there is another form of lease of rural land for investment purpose. The purpose of this part of the discussion is to discuss briefly the types of rural land leases recognized by Federal and Regional rural land proclamations. For the purpose of clarity we shall use the Rural land Proclamations of the Federal (Proc. No. 456/2006), Oromia (Proc. No.130/2007), Amhara (Proc. No. 133/2006) and Tigray regions (Proc. No. 136/2007).
Lease is one form of land holding rights recognized by rural land proclamation. The Federal rural land administration and use proclamation No. 456/2006 in its definition of “holding rights”, among others, include lease as one form of right. Hence, rural farmers are allowed to lease or rent their land to any person who wishes to involve in the agricultural sector.
Types of Rural Land Lease Arrangements
The readings of the federal rural land proclamation and that of others reveal that there are three types of lease arrangements concerning rural land holding.
Leasing farm land to other farmers
Leasing farm land to investors
State lease land to investors
Leasing to fellow farmers
Farmers usually rent out their land to a fellow farmer on the basis of share cropping or on cash base. Studies show that the first one is prevalent. Farmers may rent their land to fellow farmers for different reasons, some of which may be need of cash money, lack of capacity to farm the land (because of old age, widow or divorcee woman, sickness, poorness, large area, temporary departure from the area etc.) The law makes a limitation as to the size of the land which should be rented, which is “a size sufficient for, the intended development in a manner that shall not displace them…” It means, at least, the farmer should not rent all his land or a significant part of which would left him with insufficient produce for his livelihood.
The second requirement seems that the farmers need to have a land holding certificate. As you shall see it in the next chapter, efforts are being made in every region to identify and register every plot of rural land so as to issue possession certificate to farmers. Hence, the practicality of this prerequisite is depending on the issuance of such certificates.
The third requirement is that consent of some interested person. The federal legislation needs the consent of other “members who have the right to use the land” (Art. 8(2)), while the Tigray needs the approval of a spouse (Art. 6(2). The Oromian one comes up with different approach, in that the rent is valid “if it is registered and approval by Oromia Agricultural and Rural development Bureau Art. 10(3).”
Although not mention in the Federal Proclamation, the maximum lease period is fixed in the regional proclamations. According to article 10(2) of the Oromian law, “duration of the agreement shall not be more than three years for those who apply traditional farming, and fifteen years for mechanized farming.” The Tigray legislation agrees with the three year period concerning the traditional farming mechanism but prescribes 20 years for the modern farming mechanism one (Art. 6(3).
Leasing to investors
The farmer may lease out his land to an investor, a licensed person who wishes to involve in agriculture. This kind of arrangement is made between the holders of the land and the investor only. Of course, the above requirements are also applied for this type of lease agreement. The difference between the first and this one is that the lessee in the first one is a fellow farmer, and here an investor. The question that can be raised is whether the investor can use the land for other investment purposes or not? The purpose of the law seems that to provide investors an opportunity to rent land for agriculture purpose. It is also against the interest of the farmer and the locality to use the farming land for other purposes. The other good reason is that since each farming plot shall be designated as farming land (according to land use regulations) it is highly improbable to change the land use right (agriculture) to other purposes, such as mining and etc.
The law also provides a mechanism that enables the landholder to develop his land jointly with the investor. Hence, without losing a substantial right, the farmer may be benefiting from the material and technology of the investor.
State lease of land to investors
The FDRE Constitution, under Art. 40(6), gives an opportunity for investors to get land in rural areas. Accordingly the government is obliged to “ensure the right of private investors to the use of land on the basis of payment arrangements established by law.” the Federal and Regional rural land legislations have also upheld this principle. The leased land may be for the purpose of agriculture, like big commercial agricultural lands, or for any other investment purposes (mining, quarry, industry.) The common type of such investment activity in Ethiopia is the horticulture investment wherein investors heavily lease rural land for the growing and collection of flowers and commercial fruits. As we shall see it later on, such investment is possible to mortgage.
Selected Readings from the Federal and Oromia Rural Land Proclamations
Transfer of Rural Land Use Right
Peasant farmers, semi pastoralist and pastoralist who are given holding certificates can lease to other farmers or investors land from their holding of a size sufficient for, the intended development in a manner that shall not displace them, for a period of time to be determined by rural land administration laws of regions based on particular local conditions,
The rural land lease agreement to be concluded in accordance with Sub-Article (1) of this Article shall secure the consent of all the members who have the right to use the land and be approved and registered by the competent authority,
A landholder may, using his land use right, undertake development activity jointly with an investor in accordance with the contract he concludes. Such contract shall be approved and registered by the competent authority.
An investor who has leased rural land may present his use right as collateral.
Art. 10. Renting of Private Holding
Without prejudice to Article 7(1) any peasant, pastoralist or semi pastoralist has the right to rent out up to half of his holding.
Duration of the agreement shall not be more than three years for those who apply traditional farming, and fifteen years for mechanized farming.
Land renting shall be valid before the law, if and only if it is registered and approval by Oromia Agricultural and Rural development Bureau. The agreements made prior to this Proclamation shall be treated according to this proclamation.
Necessary support shall be made to make the valuation of land for renting coincide with the prospective return from that land.
Any organ who rented rural land is obliged to apply proper preservation and conservation for the duration he holds the land.
Any agreement made on land renting shall bear the consent of all individuals who have rights on that land.
For any rented land, the land tax shall be paid by the name of the landholder.
Any land holder, having the right to use land, can make special agreement with any investor to develop his holding. The agreement shall be registered and approved by Agricultural and Rural development office in the vicinity.
Art. 11. Land Renting by Government
The government can rent out the land not held by the peasants or pastoralists or semi pastoralists.
The agreement to be made by Sub-Article 1 of this Article shall protect the benefits of the peasants, pastoralists or semi pastoralists.
The renting price of rural land by government shall be subject to revision as necessary.
The duration of the renting agreements shall be decided by the government.
Art. 12. Investment Land
In accordance with the existing investment law of the Region, any private investor shall have access to rural land and is obliged to conserve accordingly.
Private investors are obliged to plant indigenous trees at least on 2% of the given land.
The investment land shall be determined in the way that it shall protect the natural recourses of the surrounding.
Urban Land Lease
Today, in Ethiopia, lease is the “cardinal” and “exclusive” land-holding system to transfer urban land to users in accordance with the master plans of each urban area. Hence, unlike the housing sector, urban land is governed by a special legislation, namely, the Lease Holding of Urban Lands Proclamation No. 272/2002. And yet the civil code may be applied whenever necessary. The scope of application of the law is “to an urban land held by the permit system, or by lease-hold system or by other means prior” to the coming of the proclamation “as well as to an urban land permitted hereafter.”
The leasehold right is a right to use the land for fixed period of time against payment of agreed amount of money. The assumption is that any person who fulfills the requirements is entitled to get land by way of lease. Pursuant to article 4 of the urban landholding lease proclamation, an urban land shall be permitted to be held by lease:
in conformity with plan guidelines where such - a plan exists, or, where it does not exist, in conformity with the law which Region or City government makes, as the case maybe, and
on auction or through negotiation ;or
according to the decision of Region or City government.
The Amharic version of sub-c is different from the English one in that the former is applicable to urban dwelling houses. Means the regional government may approve directive which allows urban dwellers to get land for housing free of charge, without negotiation etc. This is said because in practice this is happening in all urban centers of the country. The lease regulation of the city of Addis Ababa and other regions clearly show that urban dwellers may get a fixed land for residential houses free of charge. This is one character this lease legal framework shares with the proc. 47/1975.
Once a person gets land by one of the three mechanisms, he/she is entitled to get leasehold title deed. This is a certificate that proves the lessee’s rights to the land. What kind of rights does this title deed provide? Once if a person buys the lease right s/he has the right to construct a building of different nature (residential, commercial, industrial) as per the agreement and the master plan. Hence the right of use and enjoyment is one right conferred on the lease right holder. Another right is that the lease right can be inherited, donated, or mortgaged provided that the beneficiary’s rights are limited by the period of the lease term. Finally, the lease can be sold or exchanged to any person. Article 13 of the proclamation provides the kinds of rights. As per sub-article 1 of this article “any lease holder may transfer, or undertake surety on (mortgage), his lease-hold; and he may also use it as a capital contribution to the amount of the lease payment he has made.”
It must be noted that this right shall be enjoyed so long as some form of construction/activity has been taken place; in other words bare land is not subject to all the above rights. This point is also understandable from the reading of Article 12 and Article 13(2) (3) of the proclamation. Article 12 requires the leasehold possessor to “begin to use the land for the prescribed activity or service within the period of time set…” The time set for commencement of activities may vary from 18-30 months as the case may be as emphasized in different municipal regulations. The second point is that the concept of real estate that we discuss in the beginning, that land constitutes the ground and the building, is reemphasized once again under article 13. This article in short says that mortgaging a use right of land includes a building constructed on it and the accessories thereto, and conversely the mortgage of a building and its accessories includes the use right of the land. Similarly, sub 3 of same article says that land right and the construction upon it are inseparable in that during default of payment both rights should be transferred to the creditor.
As one can clearly observes that leasehold right provides all the rights and privileges that private land can do. The only difference is the degree of security and restriction. Concerning this point, Farvacque and Mc Auslan give interesting explanation:
Essentially, the crux of the legal difference between freehold and leasehold is that the freeholder (private owner) is bound by the laws of the land and nothing else. Whereas the leaseholder is bound, in addition, by the terms of the lease laid down by the landlord. The leaseholder is then less free and unrestricted in his or her use of land than is the freeholder (p.199.)
As we shall discuss below even private ownership is not an absolute one, it is subject to different limitations, such as town plan, public interest, environment etc. The clear difference between the private ownership of land and the leasehold right is the time element, in that the latter is limited by time as we shall discuss it later on. The limitation in time may create some how insecurity on the lessee and as a result inhibits the lessee from making further investments. On the other hand it can be said that for those lease agreements taking longer years, such as 99 or 70 years, people may not be inhibited from making additional investments.
As part of the public/private land ownership debate, many people argue in favour and against the system from leasehold point of view. Those who argue in favour of public ownership of land claim that the urban land lease holding arrangement is beneficial as practiced in many countries including China. Nega Woldegebriel (Who are Benefiting? The Urban Land Lease Policy, Case study of Addis Ababa, Lund, Sweden, 2005 pp. 10-11,12) forwards the following argument.
Leasehold tenure-ship and its implication
Land tenure could be expressed as the possession and use of land by individuals or groups for limited or unlimited period of time. According to Oxford dictionary (1998), tenure is defined as the condition or form of right or title, under which real property is held. Ethiopia has endorsed different tenure systems.
In theory, public leasehold does appear to be a compromise because the system allows the state to remain as the landowner and lease the development. The use rights of land go to private individuals. However, in practice, it does not matter who the landowner could be. It could be the government or private landlords who have real control over land but what matters would be depending on how lease conditions are constructed (Bourassa and Hung Hong 2003).
Chen (1990) has pointed the comparison of the land policies of China and western countries. He has stated out that,
What distinguishes the private ownership and public ownership over land is their differing point of departure. In the west, where land has long been privately owned, the state exerts control by regulation: in China, where the point of departure is state ownership, similar results are achieved in a more proprietary manner- through the use of leasing contracts.
What is being reflected by Chen (1990) sounds quite right for countries in transaction. What was discovered one among the most reasonable route to the transaction into a vibrant land and housing market has been the adoption of a public leasehold policy. This option could be regarded as a transitory alternative to the building of a well functioning market economy. This is what Ethiopia is trying to achieve. In particular a shift of land holding from strict public ownership to semi-private or to full private would bring social unrest. It needs to consider the steps performed a country like China where there was a profound communist regime and a country with a highest population of the world. Moreover, China’s experience in this regard is often cited as one of the best practices in stimulating the urban land and housing sector along the free market lines. Thus, Tung Pi Chen’s conclusion in this case is an additional testimony to the success story.
As Knaap et.al. (2003) have described regarding the separation of use rights and land ownership.
In the current property rights regime, use rights for specified period (eg 40 to 70years) can be obtained from the state through the up-front payment of land use fees. The fees are determined by the location, type and density of the proposed development. This separation of land ownership and use rights allows the trading of land use rights while maintaining state ownership of land.
Knaap and his colleagues have point out three advantages, which the Chinese government has achieved. First, market mechanisms could help and guide the allocation of land resources; second, land use fees would provide local government with a new resource of revenues, and third, by retaining state ownership, social and political conflict would be minimize.
Theoretically, leasehold would bring social, economical and environmental benefits. All would agree with the idea of the economic advantage of land.
Economists frequently refer to land along with labour, capital, and management as one of the basic factors of production. Land as property has legal connotations and could be described as individuals or groups have been exercise rights of ownership and use they hold in land. And from stand point of the average investors, land must be purchased or leased like other capital goods, so land could be described as capital.
(Raleigh Barlowe 1958)
….Where land is state owned, the mere advantage of the local governments is, they can reserve land for housing construction and infrastructure developments. In addition, the purpose of land lease would be reserving land for residential uses with no cost. Otherwise the high cost of land would affect the low and middle income groups. For instance in Canberra Australia, among all purposes of land leasing, reserves land for buildings, foreign embassies and other public infrastructure appears to be most achievable (Bourassa and Hung Hong 2003).
As we try to touch it in the preceding part, lease is different from private ownership because its enjoyment right is limited in time. Unlike rural land, urban land is granted to urban dwellers and investors on the bases of restriction. In the current property right situation, use rights are provided for a specific period (it could be for 15 or 99 years) obtained from the landowner who shall be the state through ground rent payment. Therefore the landownership and use rights are separated and make the state out of full control over the land. Article 6 of the proclamation provides different periods of years for different types ground leases.
Art. 6: Period of Lease
1) The, period of lease shall vary depending on the level of urban development and sector of development activity or the type of service and shall have the ceiling of:
- a) In any town:
up to 99 years for housing (personal and leasable), science, technology; research ,and study, government office, non-profit-, making philanthropist organization, religious institution; ,
up to 15 years for urban agriculture;
as per government agreement for diplomatic missions and international organizations;
(b) In Addis Ababa and in a town designated as of the grade of Addis Ababa:
up to 90 years for education, health, culture, sports;
up to 60 years for industry;
up to 50 years for commerce;
up to 50,years for others.
(c) In other towns not designated as of the Grade of Addis Ababa;
up to 99 years for education, health, culture, sports;
up to 80 years for industry;
up to 70yem for commerce;
up to70 years for others.
Students are invited to make more research on what the law means by cities designated as grade of Addis Ababa. It is also a good research area to investigate the different lease regulations issued by the city of Addis Ababa and other regions concerning the ceiling of the lease period and manner of payment, area of land allowed free of charge for residential areas and etc.
Now the next logical question is what will happen after the expiry of the period of the lease agreement? Should the lease continue or be terminated? What will happen to the improvements made to the land? Think about it and compare your guess with what we shall discuss below.
Renewal and Termination of lease permit
Lease holding right may be terminated for good reasons; the state has no right to revoke this right whenever it wishes. Like any contractual agreement the expiry of the lease contract may be a reason for termination of the lease hold right. However, unlike lease of housing, the lessee has a better position. The municipality may not take back the land whether before or upon the expiry of the lease agreement unless the land is needed for public interest based works.
The lease hold possessor has the right to request for renewal of the period of lease agreement, 10 to 2 years before the final day of the agreement.
Art.7: Renewal of Period of Lease
1) Period of lease may, upon the termination thereof, be renewed for the lease-hold possessor as per the agreement to be reached, unless the urban land is wanted for public interest. Where the lease period is not renewed upon termination on account of the land being wanted for public interest however, compensation shall not be paid to the lease-hold possessor.
2) Period of lease shall be renewed for the lease-hold possessor in pursuance with the stipulations of Sub-Article (1) of this Article if only he has applied in ,writing to the appropriate body, to that effect within 10 years and not exceeding2 years before the termination of the period of lease.
3) The appropriate body must notify to the applicant in writing its decision within 1 year after the application has been lodged with it. It shall be deemed as though it has agreed to the renewal if it fails to do so within I year after the receipt of the application
One can clearly see that renewal is the rule. The lease holder must apply as early as possible to secure his/her rights. The municipality is given a maximum of one year to notify its decision to the lessee. The assumption is that unless the ground is needed for more socially advantageous activities (for public interest) the municipality shall renew the agreement. It must also be noted that the terms of agreement especially the rent and manner of payment as well as other conditions shall be based on current conditions. In other words, the renewed lease agreement may not contain similar particulars as that of the expired one.
This approach is also well known in different countries. The reason behind protecting the lease hold possessor is that because of the investments already made on the ground. People may build residential houses, commercial, agricultural, industrial and so on buildings on the ground, and it would be unjust and unfair if the government is going to take back the land just to sale it to another person. This would create insecurity upon lease holders which would again discourage them from making additional investments on the ground land they leased. It is also categorically against the interest of the state for demolition and reconstructing of structures is expensive one. Secondly, people will not build good buildings for fear of losing them.
Art. 15. Termination of Lease-hold and Payment of Compensation
1) The lease-hold of urban land shall be terminated:
where the lease-hold possessor has failed to use the land in accordance with Sub-Article (1) of Article 12;
where it is decided to use the land for a public interest; or
where the period of lease is not renewed
The lease proclamation provides three basic reasons for the termination of the contract. It seems the first and third reasons are happening on account of the failure of the lease-hold possessor him self. Because, failure to commence the activity on the ground within the agreed time and in accordance with the plan and failure to request renewal of the lease agreement are impugned on the lease-holder himself. The second reason is however, accountable to the state, and as a result the lease-hold possessor shall be “paid commensurate compensation” for his lose of the property. In case of the first and third cases however there is no any compensation to be paid.
Expropriation of leasehold right and Compensation
As we shall dealt it with, when discussing expropriation at the last part of this material, expropriation is one means of land acquisition for the state. It is a procedure whereby the state takes away private owned land property for public interest without the consent of the owner and against payment of fair amount of compensation. The subject of expropriation is not only privately owned land and building but also leased land. The lease proclamation gives hints of such possibilities under articles 7(1), 15 (1) (b), and 16. Expropriation of leasehold land may be effected during the expiry of the lease agreement (7(1)), or before the expiry of the agreement as can be inferred from Article 15 (1) (b), and 16 (1). According to article 7, the state may refuse renewal and take back the land when the land is needed for public purpose. The law also emphases that in such case compensation is not to be paid. Hence we can argue that the taking back of the land doesn’t amount to expropriation. Only leasehold right which is active is compensable. Do you think it is just to deny compensation for the property constructed?
Art 16: Clearance of Urban Land
The appropriate body may clear and take over an urban land which it decides it is necessary to commit for a public interest by issuing clearance order in writing to the concerned person. It shall also publicize the order through other alternative means.
The point is that where a leasehold right has been taken away by the state for good reasons/public interest (such as to build hospital, roads, schools, etc), the state must compensate the leasehold possessor for the property on the land and the remaining lease rent. Regulation No.135/2007 that provides for “The Payment of Compensation for Property Situated on Landholdings Expropriated for Public Purposes,” under article 13 provides the formula. Now concerning compensation for buildings the amount of compensation should be calculated by taking the following in to consideration:
cost of construction ( current value) .
cost of permanent improvement on land
the amount refundable money for the remaining term lease contract
The leasehold possessor is going to be refunded if he had made full or prior payments the rent.
The fact that lease hold right is a secured one and can give protection to the holder is even more clear when one looks to sub article 2 of article 16 which concerns squatting. That illegal settlers (squatters) may be evicted from the land they hold with out any payment of compensation.
Lease of land in Ethiopia, as we discuss, can be classified in to housing, urban land (ground land lease) and rural (agricultural) land lease. Since buildings are privately owned lease or rent of houses is based on freedom of contract than some social policy, as favored by many western countries. The ceiling of the rent is not fixed and the agreement can be terminated upon expiry of the agreement, it doesn’t give the lessee the sole right to continue the lease. Rural farmers have been given a hereditary lifetime possession right to the land which includes right to use, inherit, donate and rent or lease. Rural farmers may lease their holding to a fellow farmer or to an investor. The government may also lease part of its holdings in rural areas to investors who wish to engage in agriculture or other areas of investments. The urban lease system is a complex one and a source of huge income to municipalities. The government compromises the policy of state ownership of land by introducing the lease system to hold land in urban areas. It is believed that this will allowed Ethiopia to develop a real estate market in the absence of land ownership. The role of the State as landowner is thus effectively restricted to the allocation of undeveloped land.