The Beginning of the End for May, Home Buyers

The controversial May Real Estate case that has been finally adjudicated by the Cassation Court in favour of the buyers has now moved to execution stage, but the controversy continues.

On Thursday November 12, 2015 the home buyers’ representatives, District officials and the Police showed up in the May Real Estate compound located around Menelik II Avenue, Kazanchis, with a court order to do an inventory of the 24 apartment units. The court had issued the order to be passed to the home buyers but the attempt failed as May’s managements asked for the order to be addressed directly to it.

May Real Estate comprises three G+10 blocks of condominiums that have 114 apartment units. The case brought against it by 24 home buyers has been in progress for the last six years and seemed to take another long stride as May’s General Manager and major shareholder, Yoseph Mebrahatu, declared his intention to go to constitutional inquiry. He reached this claim of decision on the basis of transgression of his constitutional rights in the interpretation of laws and processes the Cassation and lower courts had followed

“La luta contina” (the struggle continues), he said to Fortune at the end of the High Court’s decision, which he and his contenders appealed against to the Supreme Court.  He still is standing his ground.

For Yoseph this goes beyond a simple business engagement as he grew up in the area where May Real Estate is located today. He therefore has a connection of familial heritage and memories of his early childhood in a workshop with his brothers Daniel and Biniyam Mebrahatu of Dan Techocraft and Gabby Investments. Later, he moved to the United States where he lived for 18 years and earned a MSc in Architectural Engineering Technology from the Southern Institute of Technology while working. He returned to Ethiopia in 1998.

Establishing May Construction, he worked in Hawassa and Meqele, constructing houses for individuals.  For him, being a real estate developer and contractor employed to provide professionals services for residential construction is quite different.

“I stopped being a contractor since 1999.” said Yoseph. “In 2002 I shifted my business to real estate development,” he added.

The Ethiopian legislation, enacted over 60 years ago, does not have clear distinction between the two. This fact is a source of major contradictions in this case.

In the first month of 2007, May Real Estate Development Plc, offered to sell, and signed a contract that read, “contract for the sale and purchase of real estate developed condominium unit”, with 114 people.

Throughout the proceedings on the case that was based on this contract, the courts consistently ruled that the contract was for construction services and not for sale. May insisted that the contract object is what is written and not an agreement to construct houses, a different engagement, the GM explained, but not distinctively covered under a law.  The different layers of courts evoked Article 2876 of the Civil Code that reads “ a contract whereby one of the parties undertakes to deliver to the other party house, a flat or another building which does not yet exist, is a contract of work and labour relating to immovable and not a contract of sale.”

The courts of law in this process has considered the contractual agreement as an overlapped, mixed and at times as standalone contract of sale and contract of construction.

In the view of an an independent lawyer with significant experience in cases related to real estate, the legal argument should be based on the philosophy behind the law. The whole essence of the contract is two staged, constructing and sales. Transfer is out of the discretion of these parties. The whole essence of developer includes two main tasks develop and sell. Construction is included in the development and this is followed by the sale. Once a future contract is entered into, the seller is duty bound to sell the end product, unless the buyer opts otherwise, he says.

The draft proclamation on Residential Housing Development & Transaction however, defines “real estate developer” to mean any person who, by engaging in real estate  development activities, makes available on sale or lease, buildings constructed with his own financial resources or with funds raised from clients through legitimate means or through loan agreement with clients. A “client” in the other hand is described as any person for whom a house  is constructed for residential or commercial purpose in his name by a real estate developer, or who has entered into contract for buying or renting a part of such constructed houses, or includes any recipient in whose name a transfer is effected by legitimate means.

The rights and obligations involved in this engagement indicates that they are entitled to more than a completed building for sale, argued Kumelachew Dagne, one of the two lawyers representing the home buyers, adding that the buyers had a say in some changes to be made and the agreement goes into specificities which do not fall under a sale contract. “The contract extends beyond paying and getting the house, but special privileges and interests were attached to it, giving them a final say in the output of the contract”

Home buyers’ arguments, in line with the court’s rulings further emphasise that irrespective of the wording of the contract, the contents and intentions of the contract prevail. And in such cases when the parties disagree it is the duty of the courts to decide the matter referring to general laws.

The expert lawyer agreed.

“That is the whole purpose of courts, to interpret terms and conditions of contracts that lead to controversies,” he asserted.

This is a point where May Real Estate’s lawyer, Solomon Gebermicheal finds a violation of the constitutional right to freedom of contract by the courts ruling.

“Under principle of contract of law, when terms are unclear or undefined or controversial, the contract automatically should be deemed null and void” he counter argued.

Article 1714 of the Civil Code prescribes that the object must be defined and in case it is not, where the obligation of the parties cannot be ascertained with sufficient precision, then the contract shall be of no effect.

At this point what the future holds is a potential conflict of law between the precedent set by the Cassation ruling and the direction set by the draft proclamation that clearly defines the role of real estate developer as “agreement of sale or lease” and not of construction works.

The draft has been in the public domain for discussion since February 2015.

What worries everyone involved is not only the for and against arguments in the ruling but enforceability of the orders given by the court.

The Supreme Court order upheld by the Cassation Bench reads “ May Real Estate should hand over the apartment units to the buyers in a condition they are currently in,” without addressing the issue of the unpaid amount by the buyers. The Cassation Bench in turn, reserved the right of the latter to ask for the unpaid amount in another case as per the law.

“It sounds like a nationalization decree we knew back in the days of the military regime under the guise of socialism,” Yoseph reiterated. “What makes this one worse is the fact that it is not for public good but for the interest of individuals”

May Real Estate has a a Title Certificate for Condominium House and a lease title deed for 5000sqm of land.  It also has proportions for each of the 114 apartment units from Addis Abeba City Government’s Land Development & Management Bureau Tenure Administration Transitional Period Service Project Office.

Kmelachew also has his worries that things might not be business as usual in execution of rulings, due to gaps in the rulings, and articulation of the rulings.

“There is a high chance that we might be forced to come back to court for further litigation, at the risk of res judicata” (principle of law that prohibits courts from seeing a case on the same issues presented and adjudicated by respective courts of law), he told Fortune.

The other problem is the lack of clear legal formalities for transferring title deeds and certificates of usufruct right of land – the right to use it without alteration, in cases such as the condominiums.

Yoseph thinks the policy level engagement of the government, though slow to catch up with fast changing and developing sectors is okay, giving recognition to so many efforts, like integrating a proportion title deed to individually certify apartment units, different from the traditional land title deeds. He thinks this has contributed much to the real estate sector and the Draft Residential Housing Development & Transaction Proclamation. He, however, thinks the media and the general attitude of the public including courts are yet to be brought in line.

At no point in the process did any of the courts asked for expert witness or made on site visit to assess the circumstantial situation despite the repeated appeals of the real estate developer.

May’s General Manager recommends that the government and other stakeholders use this opportune moment to clear this fog that hovers on the sector and individual buyers’ interests.

“As far as I am concerned,  I will no longer be engaged in this sector, or any other new sector where predictability is low and the risk high,” he stated, saying goodbye to real estate development which is so close to his heart and which he believes he has high potential to further contribute to.

In October 2015, 76.3pc of the apartment units were occupied by owners and lessees, while the other individuals have to wait and see what will happen on December 21, 2015 the day the High Court’s ninth Bench will set the way forward for certain.


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