Referral Fee Agreement (Kenya)

A Referral Fee Agreement in Kenya governs the relationship between the parties by fixing what each must do.

The Law of Contract Act Cap. 23, which incorporates the principles of the English common law of contract as received into Kenyan law, requires that a valid Referral Fee Agreement contain offer, acceptance, lawful consideration (the referral fee), and parties competent to contract under Section 11 of the Indian Contract Act 1872 as adopted in Kenya. The agreement must not violate any statutory prohibition — for example, certain regulated professions impose restrictions on referral fee arrangements.

In Kenya's legal profession, the Advocates Act Cap. 16 and the Advocates (Remuneration) Order 2014 administered by the Law Society of Kenya (LSK) regulate the payment of fees to non-advocates for referring legal clients. Advocates are prohibited from sharing professional fees with unqualified persons under Section 32 of the Advocates Act Cap. 16. Referral arrangements in the legal sector must therefore be structured to comply with LSK professional conduct rules.

In Kenya's insurance sector, the Insurance Act Cap. 487 administered by the Insurance Regulatory Authority (IRA) requires persons who receive remuneration for introducing insurance business to be licensed as insurance agents or brokers under Part VII of the Insurance Act. An unlicensed referral fee arrangement in the insurance context may constitute an offence under Section 120 of the Insurance Act Cap. 487.

In Kenya's real estate sector, the Estate Agents Act Cap. 533 administered by the Estate Agents Registration Board (EARB) requires estate agents to be registered. Parties who receive referral fees for property transactions without being registered estate agents may be acting in breach of the Estate Agents Act. Real estate referral fee agreements must therefore be reviewed against the EARB registration requirements.

For Referral Fee Agreements that are not in a regulated sector, the arrangement is governed purely by the Law of Contract Act Cap. 23, the Consumer Protection Act No. 46 of 2012 (where either party is a consumer), and the Income Tax Act Cap. 470 — under which referral fees received are taxable income and may be subject to withholding tax at 5% where the payer is a company making a payment to a resident individual, under Section 35 of the Income Tax Act Cap. 470 and the Third Schedule.

The legal framework governing the Referral Fee Agreement (Kenya) in Kenya draws on several key statutes and regulatory bodies. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Parties executing a Referral Fee Agreement (Kenya) in Kenya should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Law of Contract Act Cap. 23 sets the foundational requirements.

A Referral Fee Agreement in Kenya is required whenever a business or individual enters into a systematic arrangement to receive or pay compensation for client or customer introductions, and the parties want enforceable rights and clear payment terms.

A Referral Fee Agreement is needed when a technology company in Nairobi's Silicon Savannah engages freelance consultants, business developers, or affiliate partners to introduce enterprise clients in exchange for a commission on contracts concluded. Without a written agreement, disputes arise over whether a referral was the effective cause of a deal, the applicable fee rate, and the timing of payment.

A Referral Fee Agreement is required when a financial adviser, accountant, or lawyer in Kenya refers clients to another professional — for example, a tax consultant referring a client to a law firm, or an insurance broker referring a client to a mortgage provider. Documented agreements prevent misunderstandings and, in regulated sectors, evidence compliance with sector-specific referral rules under the Insurance Act Cap. 487 or the Capital Markets Act Cap. 485A.

A Referral Fee Agreement is needed when a property developer or landlord in Kenya engages independent introducers who are not registered estate agents to bring prospective tenants or purchasers. The agreement must clearly state the triggering event for payment — whether it is signature of a sale agreement, payment of a deposit, or completion of the transaction — to avoid disputes when deals fall through.

A Referral Fee Agreement is required when a Kenyan exporter engages an overseas agent or representative to introduce foreign buyers in exchange for a commission on export sales. Such arrangements may also intersect with the Export Promotion Council's trade promotion activities and Kenya's bilateral investment treaties.

A Referral Fee Agreement is needed when a telecommunications company, mobile money operator, or fintech regulated by the Communications Authority of Kenya (CA) and the Central Bank of Kenya (CBK) recruits agents, distributors, or affiliate marketers to acquire new subscribers or customers for a per-acquisition fee. Documenting the arrangement protects both parties and provides the audit trail required by financial sector regulators.

Parties in Kenya should prepare a Referral Fee Agreement (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Kenya Referral Fee Agreement under the Law of Contract Act Cap. 23 must contain the following elements to be commercially effective and enforceable.

Parties: Full legal names and addresses of the referrer and the recipient (also called the beneficiary or introducing party). For corporate parties, the company name, Business Registration Service (BRS) number, and the name of the authorised signatory. For individuals, the National Identity Card (NIC) number and KRA PIN, since referral fees are subject to income tax and withholding tax under the Income Tax Act Cap. 470.

Scope of Referrals: A precise description of the type of client, customer, or business opportunity the referrer is authorised to introduce — by industry, geography, transaction size, or product category. An overly broad scope can create disputes about whether a referral falls within the agreement, while an overly narrow scope may defeat the commercial purpose.

Trigger Event for Fee: A clear definition of when the referral fee becomes payable — whether on introduction of the prospect, on execution of a contract with the prospect, on receipt of payment from the prospect, or some other milestone. The fee trigger is the most common source of disputes in referral arrangements. The ELRC and High Court of Kenya regularly consider the question of whether the referrer was the effective cause of the transaction under general principles of agency law derived from the Law of Contract Act Cap. 23.

Fee Calculation: The referral fee expressed as a fixed amount in Kenya Shillings (KES), a percentage of the contract value, or a tiered structure. Where the fee is a percentage, the calculation base — gross contract value, net revenue, or some other measure — must be defined with precision. Value Added Tax (VAT) treatment under the Value Added Tax Act No. 35 of 2013 should be addressed — whether the referral fee is VAT-inclusive or exclusive, and which party accounts for VAT if the referrer is VAT-registered.

Payment Terms: The timeframe within which the referral fee must be paid after the trigger event, the payment method (bank transfer, mobile money, cheque), and the currency. Late payment interest provisions under the Law of Contract Act Cap. 23 provide a remedy for delayed payment.

Exclusivity and Territory: Whether the referrer has exclusive rights to introduce clients within a defined territory or market segment, or whether the recipient may engage multiple referrers simultaneously. Exclusivity provisions and non-compete obligations must be reasonable in scope and duration to be enforceable under Kenyan common law — overly broad restraints of trade may be struck down by the High Court as contrary to public policy.

Term and Termination: The duration of the agreement, the grounds for termination, and the treatment of pipeline referrals introduced before termination but resulting in transactions after termination — the post-termination tail period.

Confidentiality: The referrer will often receive confidential information about the recipient's business, pricing, and clients. A confidentiality clause protecting the recipient's trade secrets under the Law of Contract Act Cap. 23 and the general law of confidence is standard.

Withholding Tax and Income Tax: Acknowledgment that the recipient may be required to withhold income tax at 5% on referral fees paid to a resident individual under Section 35 of the Income Tax Act Cap. 470 and the Third Schedule, and to remit it to the Kenya Revenue Authority (KRA) by the 20th of the following month. The forms-legal.com Kenya Referral Fee Agreement template includes all essential commercial and tax provisions for enforceable referral arrangements under Kenyan law.