Consignment Agreement (Kenya)

A Consignment Agreement in Kenya sets out the rights, duties and consideration binding the parties to it.

The primary statutory framework for a Kenya Consignment Agreement is the Sale of Goods Act (Cap. 31), which is derived from the received English Sale of Goods Act 1893. Under the Sale of Goods Act, the passing of property in goods is determined by the intention of the parties — in a consignment arrangement, the parties expressly agree that property does not pass to the consignee, and the consignee's authority is limited to selling on behalf of the consignor. The Law of Contract Act (Cap. 23) — Kenya's codification of English contract law principles as received at the 1897 reception date — governs the formation, validity, and enforcement of the agreement.

The consignment relationship in Kenya also has agency law characteristics: the consignee acts as a selling agent of the consignor. The consignee owes fiduciary duties of good faith to the consignor, must account for all proceeds received, and must keep consignment goods and funds separate from the consignee's own property. The Judicature Act (Cap. 8) confirms that English common law rules of agency, as received in Kenya, apply to the consignee's obligations.

For VAT purposes, a consignment transaction requires careful analysis under the Value Added Tax Act No. 35 of 2013, administered by the Kenya Revenue Authority (KRA). Where the consignee is a VAT-registered person and makes taxable supplies of the consigned goods, VAT at 16% is charged on the sale price. The consignor and consignee must agree in the Consignment Agreement on whether VAT is collected by the consignee (on behalf of the consignor) or by the consignor directly, and who files the VAT return. Failure to agree in writing creates compliance risks under the Tax Procedures Act No. 29 of 2015.

A Kenya Consignment Agreement should be distinguished from a Sale or Return Agreement, under which the buyer acquires provisional ownership and may return unsold goods, and from a Distribution Agreement, where the distributor purchases goods outright and resells as principal. In a consignment arrangement, the consignor retains title, risk management obligations, and ultimate responsibility for the goods — the consignee's only role is to find buyers and remit proceeds. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 15 of the Employment Act 2007 (No. 11 of 2007) govern the core requirements for this type of document.

A Kenya Consignment Agreement is required in a range of commercial situations where goods are placed with a third party for sale without transferring ownership.

A Consignment Agreement is required when a manufacturer or importer in Kenya places goods with a retail outlet or distributor for sale on their behalf. This is common in sectors such as fashion and textiles in Nairobi's Westlands and CBD markets, agricultural produce trading at Nairobi's Wakulima Market, and fast-moving consumer goods (FMCG) placed with supermarket chains. Without a written agreement, disputes about title, damaged goods, and unsold stock are resolved by implication — which rarely reflects the consignor's actual intentions.

A Consignment Agreement is needed when a Kenyan artisan, craftsperson, or artist places handmade goods — beadwork, wood carvings, paintings, textile products — with a gallery, curio shop, or export agent in Nairobi's Karen, Gigiri, or Westgate areas for sale to tourists and retail customers. The agreement establishes the commission rate, the minimum sale price, and the procedure for returning unsold work.

A Consignment Agreement is required when a motor vehicle dealer or auctioneer agrees to sell a private individual's vehicle on a consignment basis. In Kenya, motor vehicle consignment sales are regulated by the National Transport and Safety Authority (NTSA), which oversees vehicle registration and transfer of ownership under the Traffic Act (Cap. 403). The agreement should address the consequences of an NTSA title transfer search revealing encumbrances on the vehicle.

A Consignment Agreement is needed when a Kenyan company registered under the Companies Act No. 17 of 2015 places imported goods — electronics, garments, hardware — with retail agents across Kenya's counties, where the agents are paid solely on commission and the company retains title to unsold stock for VAT and import duty accounting purposes under the East African Community Customs Management Act.

A Consignment Agreement is required when an agricultural cooperative registered under the Co-operative Societies Act (Cap. 490) sells members' farm produce — tea, coffee, maize, horticultural products — through a marketing agent or auction house. The Kenya Tea Development Agency (KTDA) and the Coffee Exchange (at the Nairobi Coffee Exchange) operate through structured consignment frameworks governed by written agreements between farmers, cooperatives, and licensed agents.

A Kenya Consignment Agreement must include the following core provisions to protect both the consignor and the consignee under Kenyan commercial law.

Parties and Description of Goods: Full legal names, BRS registration numbers (for companies), KRA PIN numbers, and physical addresses of both the consignor and consignee. A precise description of the consigned goods — including quantity, quality, model or specification, and unit value — is essential because the Sale of Goods Act (Cap. 31) determines passing of property and risk based on the specific goods identified in the contract.

Title and Risk Retention: An express statement that title to the consigned goods remains with the consignor until each item is sold to an end buyer. The consignee holds the goods as a bailee under the common law duty of care. Risk of loss or damage to the goods — and the question of who bears insurance obligations — should be expressly allocated. Under Kenyan commercial practice, the consignor typically insures the goods during consignment.

Commission Rate and Pricing: The agreed commission percentage or fixed fee payable to the consignee per sale, whether calculated on gross sale price or net sale price (after deducting selling costs), and any minimum sale price below which the consignee may not sell without the consignor's written consent. The Income Tax Act (Cap. 470) and the Value Added Tax Act No. 35 of 2013 treat commission income as taxable income; the consignee must declare commissions received as income to the Kenya Revenue Authority (KRA).

Accounting and Remittance: The accounting period — typically monthly — within which the consignee must provide a written statement of goods sold and remit the net proceeds to the consignor. The Law of Contract Act (Cap. 23) implies a duty to account for money received on behalf of another, but the agreement should specify the bank account for remittance, the currency (KES), and the consequences of late remittance including interest at the rate prescribed under the Central Bank of Kenya Act.

Duration and Termination: The initial consignment period, the procedure for renewal, and the rights of each party to terminate the agreement by giving notice. On termination, the consignee must promptly return all unsold goods to the consignor. The agreement should address the procedure for returning goods — transport costs, packaging obligations, and the time limit for return.

Loss, Damage, and Insurance: Consignee obligations to store goods with reasonable care under the standard of a prudent bailee. The consignee's liability for goods lost, stolen, or damaged while in their custody. Many Kenya Consignment Agreements require the consignee to maintain a contents insurance policy with a licensed insurer regulated by the Insurance Regulatory Authority (IRA) naming the consignor as a loss payee.

VAT and Tax Obligations: Allocation of VAT obligations under the Value Added Tax Act No. 35 of 2013 — which party is liable to charge and remit VAT on the sale of consigned goods to end customers. Where the consignee is VAT-registered, the agreement must specify whether the consignee collects VAT as agent of the consignor or in its own capacity as supplier.

Governing Law and Dispute Resolution: The agreement shall be governed by the laws of Kenya. Disputes should be referred first to negotiation, then to arbitration under the Arbitration Act No. 4 of 1995 (revised 2022) at the Nairobi Centre for International Arbitration (NCIA), or to the commercial courts of Kenya. The forms-legal.com Kenya Consignment Agreement template includes all eight provisions described above. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 15 of the Employment Act 2007 (No. 11 of 2007) govern the core requirements for this type of document.