Pay Penalty, Convert Lease Hold, or Cease Business

Oct 26 , 2025. By NAHOM AYELE ( FORTUNE STAFF WRITER )

In commercial corridors once busy with informal trade, from Bethel to Ayat, the clang of rolling shutters has been replaced by silence. Nearly 3,000 small shops have been shut since last September, sealed by district authorities enforcing the city’s 2011 lease law that forbids the use of residential properties for commercial purposes. Traders now operate in legal limbo, some hawking goods from balconies, others forced into complete inactivity, reports Nahom Ayele, Fortune Staff Writer.

The clang of metal shutters has gone silent on Addis Abeba’s commercial corridors across Bethel, Alem Bank, Salite Mihiret, Ayat, and Qality neighbourhoods for a few weeks now. Storefronts that once overflowed with produce and merchandise displayed notices stamped by each District's Land Development Bureau.

The signs - “This place is closed” - do not advertise grand reopenings, seasonal sales or fresh inventory. They accuse traders running small businesses in buildings registered for residential use and warn that businesses may resume only after owners pay steep penalties and convert their leases.

On a narrow balcony near Alem Bank Gabriel Church, Solomon Debalke, 32, sat among baskets of red peppers, cloves and grain while watching the street below. Ten days earlier, local officials from Kolfe Qeranyo District arrived, marked his six-year-old shop and sealed its rolling door. They informed him that the building, which houses 10 stores owned by the property owner, was zoned for residential use and, therefore, ineligible for retail use.

“The landlord was told to convert it to commercial use and pay a huge fine in millions,” Solomon recalled. “But, he can’t afford it.”

The closures have remained down ever since, forcing Solomon to hawk merchandise from the balcony lest the stock spoil or customers forget him. However, he continued to pay his five employees, even as rats chewed through bagged cereals inside the locked shop.

“We can't work. Our goods are spoiling," he told Fortune. "How will we pay the rent if we can’t sell?”

Already, he estimated his losses at close to 100,000 Br over the past week. Law-enforcement officers now warn balcony vendors to stop.

“If this continues, I don’t know what else I’ll do,” he said.

The crackdown began last September, when the city’s Land Development Bureau launched inspections across all 11 Districts to enforce the 2011 land lease law. It demands that land be used strictly as described on the lease agreement. A plot designated residential cannot house a shop, nor can commercial property serve as a private dwelling. However, bars replace living rooms, while noisy shops replace quiet homes. For years, the city tried “to manage these cases quietly,” but zoning violations multiplied.

“People live where they should be doing business, and others do business in houses meant for living," said Zerihun Bikila, director of the city's Lease Monitoring & Land Transfer. "This creates many problems.”

He argued that the latest campaign is “not about punishment but about restoring order.”

Inspections identified 2,969 houses operating without valid service licenses. Close to 2,581 owners have begun paying fees, generating 343 million Br for the city Administration, part of the 2.4 billion Br officials hope to raise from the crackdown. According to Zerihun, measures begin with public awareness, proceeding to legal notices, and end in legal action, including seizure and sealing, only after noncompliance.

Property owners may continue to live in residential units if they pay a one percent penalty on the current lease value. Alternatively, they can switch the lease category to mixed use, provided that the change meets with city plans. Those who pursue conversion are required to pay 31pc of the adjustment cost within eight months, and the balance over 20 years.

“The purpose of this isn't to take people’s money but to enforce the law,” Zerihun insisted.

Essential services, such as food shops, pharmacies, banks, and health institutions, are exempt from closure. However, Zerihun acknowledged that confusion in enforcement persisted.

“Some property owners and tenants blame each other," he said. "Many didn’t take it seriously. Now that enforcement has started, they act surprised.”

For businesses and property owners, the city's latest measures can seem incomprehensible.

Abdulkadir Kemal, a former air force officer battling stage-three thyroid cancer, lives near Taqwa Mosque around Bethel Roundabout. His two-story house, built on a 150Sqm plot, shelters his family upstairs while the ground floor is rented to a bank branch and a dairy shop. The lease designated the property residential, a contradiction with the city-issued construction permit five years ago, which labels it mixed-use.

“When I got the building permit, it clearly said ‘mixed use’," he told Fortune. "The city permitted me to operate shops."

Abdulkadir pays income tax and VAT on rent, up to 30pc of his earnings each month. Last week, officers taped a notice on his door, urging him to convert the lease or face penalties. At the Qolfe Qeranio District office, he learned he should settle 2.4 million Br before the end of May, 85,000 Br as a one percent fine and 8.5 million Br for 20-year mixed-use lease rights.

"And now, they’re treating me like I committed a crime. We bought this house legally, with our savings. Now they’re trying to take our money in the name of the law," he said. "This isn’t government work. It feels like robbery. All I’m asking is for them to adjust the amount and give us more time.”

Abdulkadir feels he can spare perhaps 240,000 Br, not millions.

A few kilometres away, Amir Mohammed confronted the same bind. He represents his elderly parents, owners of a three-story house in Bethel whose six shops on the ground floor were sealed two weeks ago. District officials told him that converting the lease would cost 11 million Br, with 31pc, roughly 3.4 million Br, due by May.

“They keep asking what happened," Amir said of his parents. "I don’t even know what to tell them.”

Without the rent, the family’s sole income evaporates. Each day, he trudges to district offices seeking clarification. If he closes the shops, his parents lose income. If he tries to pay, he cannot afford it.

"We just want time, not to evade payment," he told Fortune. "But to understand what’s happening, everything is happening too quickly.”

Ashenafi Birhanu, communications director at the Addis Abeba Trade Bureau, supports the closures. His office issues trade licenses but does not check zoning. He counsels property owners to rent only to tenants whose activities match the lease and implores traders to verify a property’s category before signing contracts. Both, he said, share responsibility for the prevailing chaos.

“Property owners should promptly correct their lease status and pay the necessary fees,” he said, urging business owners to resume operations swiftly to limit economic damage.

However, economists warn of broader fallout. Mered Fikireyohannes, CEO of Pragma Capital, noted that more than half of Ethiopia’s economic activity occurs in the capital and that roughly 45pc of its residents earn a living in services, most of whom rely on leased property. About 70pc of the city’s 270,000 businesses are small or medium-sized, major employers and taxpayers.

“Shutting them down will result in widespread unemployment and will undermine the city’s revenue base,” he told Fortune.

Recent statistics showing 37,000 licenses in the city were returned or revoked in 2024, compared with 99,000 issued that year. Mered said "the recent action of the city Reduced revenue collections at the Addis Abeba Revenue Bureau and the Federal tax authority would strain budgets".

"If regulatory enforcement disrupts livelihoods without clear transition measures, investors and residents may lose confidence in the city,” Mered warned. "Reform on this scale needs consultation, public awareness and gradual phasing to ensure market stability."

It is a voice of caution echoed by other experts, such as Mustofa Abdella, economist and consultant at Zafer Plus Business & Investment Consultancy Services. He agreed that legality alone does not guarantee fairness. Many small businesses, he observed, operate on thin margins and cannot absorb sudden closures, relocation costs, inventory losses or the time needed to secure new premises. Perishable goods spoil immediately, while damages go uncompensated. Because advance notice was insufficient, traders could not cash stock or recover investments made to outfit rental spaces.

Employees lose wages, while property owners forfeit rent. Supply chains break, and communities lose access to goods. The sudden jolt, Mustofa fears, could push entrepreneurs into the informal market, slashing future tax revenue. He advocated payment schedules extended beyond eight months, subsidised or tiered fees for smaller properties, and grace periods of six to 12 months. Temporary licenses, he argued, could let compliant businesses operate while property owners convert leases.

"An appeals process would buffer hardship cases and balance regulation with economic stability," he said.

Veteran lawyer Daniel Fikadu frames the campaign as a breach of constitutional and international property rights.

“Right to use land is protected under agreements Ethiopia has signed,” he said.

He contended that penalties should be proportional to financial capacity and that enforcement without advance public notice is unjust. Lacking clear guidance, residents cannot comply. High, unexpected fees, in his view, will be challenged and likely overturned in court.

Officials counter that exemptions and payment plans already temper the burden. Essential services remain open.

“We understand people’s concerns,” said Zerihun. “We’ve made sure that essential services are not disrupted. Our goal is to reduce tension, not create it.”

Paying one percent to continue as a residence, they argue, is less than the cost of long-term mixed use. Yet on the streets, the tension is real, with doors closed, tenants anxious, and Business owners perplexed. Traders gathered outside sealed shops to compare notes. Some passers-by paused to read the city’s notices, shaking their heads before moving on. Others approached balcony vendors like Solomon and bought peppers in small gestures of solidarity.

Inside locked storefronts, grain bloated and weevils spread. Banks that once served neighbourhood customers reroute clients to distant branches. Dairy goods curdle in the summer heat. Shop assistants wait without pay, unsure if employment will resume or vanish. Rats gnaw through sacks, and mould spots spice that once perfumed the air. The hum of commerce that once floated over Alem Bank, Bethel and Ayat has faded into a low buzz of uncertainty.

The city’s campaign shows no sign of slowing. Zerihun disclosed that inspectors will keep sweeping neighbourhoods to identify misuse and levy fines.

“We'll keep intensifying our work at the city level,” he said, reiterating the revenue target framed as part of enforcing proper land use.

According to him, the Bureau has observed neglect, with some properties sealed without anyone appealing, signs that absentee property owners or dormant businesses are present.

“That shows either negligence or that the properties were not actively used,” he said. "Enforcement must apply equally to everyone.”

Equal application, however, collided with unequal means. The penalties may sting large developers, but could devastate a single-store proprietor. A down payment for lease-holding conversion may be routine for a chain retailer, yet impossible for an ageing couple living on rent. Without an appeals board and tiered fees, experts such as Mustafa argue, equity remains theoretical. And without a longer runway, more shops may fail, shifting businesses underground.

The closures rumble beyond traders and property owners. Suppliers who extend credit to small grocers await payment. Transport operators lose loads. Electricity consumption dips in commercial blocks while residential circuits overload from repurposed appliances. Each shock ripples through the urban grid.

PUBLISHED ON Oct 26,2025 [ VOL 26 , NO 1330]