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}ARIT GAZETA
ATIC REPUBLIC OF ETHIOPIA
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Year No. 27
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CONTENTS
P ro clamatio n No.1 03 /19 98
C ap ital Goods L easin g Busin ess
Proclamation.. Page 71
PRO CLA MA nO N N O.1 03/1998
CA PITA L G OO DS LEA SING BU SIN ESS
PRO CLA MA nO N
W HEREAS, for those investors who have the de:
know ledge and profession to participate in various inv
ment activities but could not act due to lack of capital
n ecessary to create an en ab lin g en viro nm en t fo r th e establ
men t o f alte rn ativ e source s o f fin an cin g;
W HEREA S, it is believed that lessors of capital gc
. Uv 1< U U lI >ULU llUI l1 S,
W HE REA S, the existing law s concerning capital g
in g busin es s a re fo und in comp le te ;
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(b) the agreement shall be a full pay-out and non-
cance lab le agreement;
(c) the lessee may, by mutual agreement, have an
option to buy or return the capital goods to the
les so r o n th e te rm in atio n o f th e lea se a gre emen t
(d) a statem ent that the lessee undertakes to insure
an d m aintain th e cap ital g oo ds.
2) In the case of an operating lease agreement:
(a) the cap ital go od s leased sh all rem ain th e p ro perty
of the lessor to whom the lessee shall return on
the term ination of the agreement\ unless
otherwise the parties agree that the lease be
fu rth er ren ewed o r th e le ase d c ap ital good be
purc ha sed by th e lesse e;
(b) the lessee or the lessor shall have the right to
cancel the agreem ent provided that. the party
causing dam~ge to the other by early ter-
m ination of the agreem ent shall pay com pen-
sation;
(c) a statement that the lessor undertakes to insure
an d m ain tain th e cap ital g oo ds.
3) In the case of a hire-purchase agreem ent:
(a) an equal percentage ofthe ow nership, w ith each
in stallm en t p ayment, shall be tran sferred to th e
lessee and , u pon effectin g o f th e .last paymen t,
the ownership of the capital goods shall
au tomatic ally b e tra nsferred to th e lesse e;
(b) the p~rties shall provide, in the agreement, for
the manner by which ownership rights and
c1aims arising form the agreement shall be
settled betw een the lessor and the lessee in case
of early term ination of the lease agreem ent by
e ither par ty ;
(c) a statem ent that the lessee undertakes to insure
and-main ta in th e cap ita l g oods.
6. D efaults in Paym ent of Rent and O thers
I) W here the lessee defaults in the payment of the rent,
or commits another fault which may breach the
agreem ent, the lessor shall grant him a period of 30
days for rem edying the d~fault so far as the default
may b e remed ied .
2) W here the lessee does not remedy the default within
th e p erio d s pe cifie d in sub-A rticle (1 ) o f th is A rticle,
the lessor m ay rescind the agreem ent, repossess the
leased capital go od s an d claim related d am ag es.
3) W here the lessee defaults in the paym ent of the rent,
the lessor m ay recover accrued unpaid rent together
with interest and damages, whether the default is
rem edied or n ot.
7. D efects on the Leased C apital G ood
I) The lessor may not warrant against a defect which
was made known to the lessee on the making of the
agreement.
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2) The lessor shall make good any damage which the
lessee has suffered ow ing to the defect of the capital
goods w here the lessor knew or should have know n
of the defect on delivering the capital goods to the
le ssee and fa iled to in fo rm th e la tter a cc ord in gly .
3) Unless otherwise provided in the lease agreement,
the lessor shall not be liable for defects in and for
unfitness for intended use of the capital goods
h~
purchases in conform ity with the specifications
g iv en b y th e lessee.
4) The lessor has the right to rescind the agreement,
w ith p rio r n otice, and to repo ssess th e leased cap ital
goods, where the lessee does not make use of the
c ap ita l g oods in a cc ord an ce w ith th e le ase ag reemen t
or accepted norm or usage and such use entails risk
o f irrep arab le dam age to th e cap ital g ood s leased .
8. Bankruptcy
I) The obligations and conditions of the agreement
shall continue w ith an organ legally subrogated to
the judicially bankrupt lessor as long as the lessee
performs his obligations in accordance with the
te rm s o f th e lea se ag reemen t.
2) The lessor shall not lose his ownership right on the
capital goods leased eventhough the lessee is
j ud ic ia lly bankrupt.
9. Damages
I) W here the agreement is rescinded by the lessee, and
the lessee does not deliver the capital goods after
h av ing b een giv en d ue n otice to su rrend er th e cap ital
goods to the lessor, the lessor has the right to
repossess the leased capital goods im mediately and
c la im damages .
2) Where the lessor suffers any damage owing to
defau lt o n th e part o f th e lessee p rior to th e tran sfer of
th e leased cap ital g oo ds from the lesso r to th e lessee,
the latter shall m ake good such dam age to the form er
so long as the lessor acted in good faith and costs
were incurred by him for purchase of the capital
goods at the request of the lessee.
3) Where, in the case of financial lease or operating
lease ag reem en t, th e lessee fails to return th e cap ital
goods on the expiry of the agreem ent, the lessor has
the right to repossess the leased capital goods and
claim related dam ages unless otherw ise provided in
the agreement.
10 . T rans fe r o f R ig ht
The lessor has the unilateral right to assign his rights
under the lease agreem ent to third parties, but w ithout
in frig em en t of the lessee's rig ht to th e q uiet en jo ym ent
o f th e cap ital g oo ds leased .
11. C laim by T hird P arties
I) Any action by a third party claiming a right on the
cap ital g ood s sh all b e bro ugh t ag ain st th e lessor.
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8/19/2019 Capital Goods Leasing Business
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5t h
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16. D epreciation Allow ance and Incom e Tax
I) In case of financial lease or operating lease.
depreciation allow ance for capital goods shall he
deductible from the rental incom e received hy the
lessor, as legal ow ner of the leased capital goods.
H ow ever, depreciation allow ance shall he for the
benefit of the lessee in case of a hire-purchase
agreement.
2) The rent received by ithe lessor through the lease
ag reem ent sh aH b e treated as in come.
3) Rent paid by the lessee shall be treated as an
operating expense of the lessee and is deductihle
from his incom e for the purpose of taxation.
17.
Power s and Dutie s a t th e M in istry
The M in istry sh all:
I) reg ister lease ag reem en ts;
2) take appropriate measures in order to ensure the
return of the leased capital goods to the lessor.
where the lessee has the obligation to return the
leased capital goods to the lessor but fails to return
it and may order the police to facilitate the
execution;
3) issue other directives required for the implemen-
ta tion o f th is P roclamation.
18. A pp lica bility of O th er L aw s
Unless otherwise expressly provided by this
P ro clam atio n, the relev an t p ro vision s o f th e C iv il C od e
and the Commercial Code shall apply to lease
agreement.
19. E ffec tive Date
This P ro clam atio n shall en ter in to force as o f th e
5th
day
of M arch, 1998.
D one at A ddis A baba, this
5th
day of M arch, 1998.
NEGASO G IDADA (DR.)
PR ESID EN T O F m E FED ERA L D EM OC RA TIC
REPUBLIC OF ETHIOPIA