Franchise Agreement (Kenya)

A Franchise Agreement in Kenya is a legally binding commercial contract under which a franchisor grants a franchisee the right to operate a business using the franchisor's established brand name, trade marks, business systems, operational manuals, and intellectual property, in exchange for an initial franchise fee and ongoing royalty payments, within a defined territory and for a fixed term, governed by the Law of Contract Act Cap. 23 and the Industrial Property Act No. 3 of 2001.

Kenya does not have a dedicated Franchise Act. Franchise relationships in Kenya are governed principally by the Law of Contract Act Cap. 23 — which codifies the basic requirements of offer, acceptance, consideration, and capacity — and by the Industrial Property Act No. 3 of 2001, which is administered by the Kenya Industrial Property Institute (KIPI) and governs the licensing of trade marks and patents. A franchise is effectively a bundle of licences: a trade mark licence, a copyright licence over the operational manual and branded materials, and a know-how licence granting access to the franchisor's proprietary business systems. Each of these licences must be expressed clearly in the Franchise Agreement.

Trade mark registration and licensing in Kenya are governed by the Trade Marks Act (Cap. 506), administered by KIPI. A franchisor who has not registered its trade marks in Kenya risks losing the ability to enforce the brand licence against the franchisee or third parties in the High Court. Registered trade mark licences should be recorded at KIPI under Section 35 of the Trade Marks Act (Cap. 506) to bind third parties, including successors in title and insolvency practitioners. The franchisor should also register any copyright-protected materials — such as training manuals and branded advertising — under the Copyright Act (Cap. 130), administered by the Kenya Copyright Board (KECOBO).

The Competition Act No. 12 of 2010, administered by the Competition Authority of Kenya (CAK), is relevant to franchise relationships because exclusive territorial grants and resale price maintenance provisions — which are standard features of many franchise systems — may constitute restrictive trade practices under Section 21 of the Competition Act. The CAK has authority to review franchise agreements that restrict competition in the Kenyan market and may impose conditions or prohibit provisions that unreasonably restrict trade. Franchisors should conduct a competition law review before rolling out exclusive territorial agreements in Kenya.

A Franchise Agreement is distinct from a Distributorship Agreement and a Licence Agreement. A Distributorship Agreement appoints a party to resell products in a territory without granting the right to use the supplier's brand or systems. A Licence Agreement grants the right to use specific IP without the broader system, support obligations, and quality control mechanisms characteristic of a franchise. In a franchise, the franchisor retains substantial control over how the franchisee operates — including staff training, premises presentation, product specifications, and customer service standards — and this ongoing control distinguishes the franchise from a simple licence or agency arrangement under the Law of Agency Act (Cap. 30).

Former colonial-era restrictions on foreign franchise agreements have been replaced under Kenya's liberalised investment regime. The Kenya Investment Authority (KenInvest), established under the Kenya Investment Authority Act No. 6 of 2004, supports foreign franchisors entering the Kenyan market. Technology transfer payments — including royalties paid by a Kenyan franchisee to a foreign franchisor — are subject to withholding tax at 5% under the Income Tax Act (Cap. 470), remitted to the Kenya Revenue Authority (KRA).

A Franchise Agreement in Kenya is required whenever a business owner grants another party the right to operate under their brand and system, or whenever an entrepreneur acquires such a right, and several specific circumstances make a detailed written agreement essential.

When a Kenyan business — such as a restaurant chain, retail outlet, or professional services firm — has developed a proven business model and wishes to expand into new counties or regions without deploying its own capital, a Franchise Agreement allows the franchisor to grant franchisees the right to operate outlets in defined territories. Each territorial franchise requires a separate Franchise Agreement, or a master franchise arrangement for an entire region.

When an international franchisor — for example, a global fast food brand, a hotel chain, or an educational institution — seeks to enter the Kenyan market, a Franchise Agreement (or a master franchise agreement granting a Kenyan master franchisee the right to sub-franchise) is the principal commercial instrument. The master franchisee may need to obtain approval from the Kenya Investment Authority (KenInvest) and register the arrangement with the relevant sector regulator depending on the industry.

When a franchisee invests substantial capital in fitting out premises, hiring staff, and acquiring stock for a franchise outlet, a long-term written Franchise Agreement is essential to protect the franchisee's investment by guaranteeing the term of the grant, the territorial exclusivity, the conditions for renewal, and the circumstances in which the franchisor may terminate. Without a written agreement, the franchisee's investment is vulnerable to arbitrary termination.

When a franchisor wishes to set quality control standards for products or services provided under its brand — including food safety standards under the Food, Drugs and Chemical Substances Act Cap. 254, or professional standards under a sector regulator — a Franchise Agreement is the mechanism through which those standards are contractually imposed on the franchisee.

When a Kenyan company is being sold or seeking investment, a clear Franchise Agreement with each franchisee is required during the due diligence process to establish the rights and obligations of each franchise outlet, the remaining term of each agreement, and the royalty income stream. Investors and lenders financing a franchise system expect well-documented franchise agreements before committing capital.

A Franchise Agreement governed by Kenyan law under the Law of Contract Act Cap. 23 and the Industrial Property Act No. 3 of 2001 must contain the following essential elements to be commercially effective and legally enforceable.

Parties and Recitals: Full legal names and addresses of the franchisor and franchisee; the franchisor's Business Registration Service (BRS) number under the Companies Act No. 17 of 2015; and a recital confirming that the franchisor is the owner of the brand, trade marks, and business system being licensed. Where the franchisor is a foreign company, its country of incorporation and Kenya tax registration (KRA PIN) should be stated.

Grant of Franchise and Territory: A clear statement of the rights granted — the right to operate the franchise system under the franchisor's trade marks within a defined geographic territory (e.g., Nairobi County, or specific sub-county). Whether the grant is exclusive or non-exclusive within the territory must be specified. Exclusive territorial grants may attract review by the Competition Authority of Kenya (CAK) under Section 21 of the Competition Act No. 12 of 2010.

Term and Renewal: The initial term of the franchise (commonly 5 to 10 years), conditions for renewal, and the notice period required for either party to elect not to renew. Renewal conditions typically require the franchisee to have complied with the system standards, paid all fees, and completed updated training.

Fees and Royalties: The initial franchise fee (payable at signing); ongoing royalties expressed as a percentage of gross revenues (typically 4%–10%); marketing fund contributions; and the method and frequency of payment. Under the Income Tax Act (Cap. 470), royalties paid to a non-resident franchisor attract withholding tax at 5%, which the franchisee must deduct and remit to the Kenya Revenue Authority (KRA).

Intellectual Property Licence: A licence to use the franchisor's registered trade marks (registered under the Trade Marks Act Cap. 506 with KIPI), copyrighted operational manuals and branded materials (protected under the Copyright Act Cap. 130), and any patented systems (registered under the Industrial Property Act No. 3 of 2001). The franchisee acknowledges the franchisor's ownership of all IP and agrees not to challenge or dilute it.

Operational Standards and Training: The franchisor's right to prescribe operational manuals, product specifications, staff training requirements, premises standards, and customer service protocols. The franchisee's obligation to comply with updated standards issued from time to time, and the franchisor's right to conduct inspections and audits to verify compliance.

Confidentiality and Non-Compete: The franchisee's obligation to maintain the confidentiality of the franchisor's proprietary systems, recipes, and know-how during and after the term; and post-term non-compete obligations restricting the franchisee from operating a competing business — enforceable in Kenya subject to reasonableness under the Law of Contract Act Cap. 23.

Termination and Consequences: Grounds for termination by the franchisor (breach of standards, non-payment, insolvency, criminal conviction); notice and cure periods; and the obligations on termination — cessation of trade mark use, return of manuals, transfer or sale of the business. Forms-legal.com provides this Kenya Franchise Agreement template as a starting point; both franchisors and franchisees should seek advice from an advocate registered with the Law Society of Kenya (LSK) before signing.

Governing Law and Dispute Resolution: Kenyan law governs the agreement; disputes to be resolved by mediation or arbitration at the Nairobi Centre for International Arbitration (NCIA) under the Nairobi Centre for International Arbitration Act No. 26 of 2013, or by litigation in the High Court (Commercial Division).