Capital Goods Leasing Business

8/19/2019 Capital Goods Leasing Business

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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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L.V.') .).

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

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Capital Goods Leasing Business