Sale or Return Agreement (Kenya)

A Sale or Return Agreement in Kenya reports the figures a taxpayer must declare so the correct liability can be assessed.

The Sale of Goods Act Cap. 31 of Kenya — which substantially mirrors the English Sale of Goods Act 1979 as received into Kenyan law — governs the passing of property in goods in a sale or return transaction. Under Section 23 of the Sale of Goods Act Cap. 31, when goods are delivered to a buyer on approval or on sale or return terms, property passes to the buyer when the buyer signifies approval, when the buyer does any act adopting the transaction, or when the fixed time for return expires without the buyer having signified rejection or returned the goods.

The distinction between a Sale or Return Agreement and a Consignment Agreement is commercially significant in Kenya. Under a consignment arrangement, the dealer holds goods as agent of the owner and remits proceeds to the owner, never acquiring title. Under a sale or return arrangement, the dealer has the option to acquire title by selling the goods and is personally liable for the purchase price if the goods are not returned on time. This distinction determines who bears the risk of loss, theft, or damage while the goods are in the dealer's possession.

The Consumer Protection Act No. 46 of 2012 administered by the Competition Authority of Kenya (CAK) applies where the ultimate buyers of the goods are consumers. The dealer operating under a Sale or Return Agreement in Kenya who sells goods to consumers must comply with consumer protection obligations regarding product descriptions, warranty rights, and refund entitlements under Sections 55 to 75 of the Consumer Protection Act No. 46 of 2012.

The Kenya Revenue Authority (KRA) under the Value Added Tax Act No. 35 of 2013 treats goods supplied on sale or return as a taxable supply at the point the goods are sold by the dealer or at the point they are adopted by the dealer. VAT-registered suppliers and dealers must issue tax invoices at the correct point of supply and account for VAT on their periodic VAT returns filed through the KRA iTax portal.

The Stamp Duty Act Cap. 480 applies to certain instruments evidencing the transfer of goods in Kenya. Where the Sale or Return Agreement creates a charge or security interest over the goods, registration with the Collateral Registry under the Movable Property Security Rights Act No. 13 of 2017 may be required to perfect the owner's security interest against third parties, including the dealer's creditors in insolvency.

A Sale or Return Agreement in Kenya is required whenever a supplier provides goods to a retailer, dealer, or agent on terms that allow unsold goods to be returned, particularly where the supplier wants to retain ownership and risk allocation until the point of actual sale.

A Sale or Return Agreement is needed when a Kenyan manufacturer or wholesaler supplies fast-moving consumer goods (FMCG) — such as foodstuffs, beverages, cosmetics, or household products — to retail outlets on a trial or promotional basis. Without a written Sale or Return Agreement, disputes about responsibility for unsold stock, spoilage, or theft are common, and the owner may find it difficult to recover goods or proceeds from a dealer who has become insolvent.

A Sale or Return Agreement is required when an artist, craftsperson, or fashion designer in Kenya places goods — paintings, jewellery, clothing, or craft items — with a gallery, boutique, or market stall operator for sale to the public. The Kenyan creative economy has grown significantly, and artists regularly supply consignment stock to retail outlets in Nairobi's Karen, Westlands, and CBD precincts. A written agreement protects the artist's ownership rights and sets clear return deadlines.

A Sale or Return Agreement is needed when a Kenyan publisher or book distributor places books, periodicals, or educational materials with bookshops and schools on sale or return terms, as is common practice in the Kenyan publishing industry. The Basic Education Act No. 14 of 2013 governs the supply of educational materials to schools, and publishers supplying school textbooks on sale or return terms should document ownership and return obligations clearly.

A Sale or Return Agreement is required when a Kenyan electronics distributor supplies mobile handsets, accessories, or appliances to retail agents in county towns across Kenya on a sale or return basis. The Communications Authority of Kenya (CA) requires that mobile devices sold in Kenya comply with type approval requirements under the Kenya Information and Communications Act Cap. 411A, and a Sale or Return Agreement should reference compliance with device standards.

A Sale or Return Agreement is needed when perishable or seasonal goods — fresh produce, flowers, or agricultural products — are supplied by a Kenyan farmer or cooperative to urban market vendors on a short-cycle return basis, confirming that unsold perishable stock can be quickly reconciled and returns processed efficiently.

A Kenya Sale or Return Agreement under the Law of Contract Act Cap. 23 and the Sale of Goods Act Cap. 31 must contain the following essential elements to be enforceable and commercially effective.

Parties and Identification: Full legal names and addresses of the owner (supplier) and the recipient (dealer). For companies, the Business Registration Service (BRS) number and registered office address under the Companies Act No. 17 of 2015. For sole traders, the National Identity Card (NIC) number and the county business permit number issued under the relevant County Government Finance Act.

Description of Goods: A precise description of the goods delivered on sale or return terms, including quantity, unit, make, model, SKU code or description, and agreed sale price per unit. Where goods are subject to regulatory requirements — such as Kenya Bureau of Standards (KEBS) certification under the Standards Act Cap. 496 — the relevant approval mark or standards reference should be stated.

Delivery and Receipt: The date of delivery, the place of delivery, and the method of delivery. A signed delivery note or goods received note (GRN) acknowledging receipt by the dealer should be incorporated by reference or attached as a schedule to the agreement.

Sale Period and Return Deadline: The period within which the dealer must sell the goods or return unsold stock to the owner. This is a critical clause: under Section 23 of the Sale of Goods Act Cap. 31, if the dealer fails to return goods within the agreed period, property passes to the dealer and the dealer becomes liable for the full sale price. The agreement should state the last return date in clear calendar terms.

Passing of Title and Risk: An explicit clause stating that title to and ownership of the goods remain with the owner until the dealer sells the goods to a third-party buyer, at which point title passes to the buyer. Risk of loss, theft, or damage while goods are in the dealer's possession should be allocated — typically the dealer bears the risk once delivery is taken, which incentivises proper storage and handling.

Price and Payment Terms: The agreed sale price per unit, the owner's wholesale price or commission rate, the timing of payment (typically within a fixed number of days after sale), and the method of payment (bank transfer, M-Pesa, or cheque). Where the dealer retains a commission, the commission rate and calculation method must be stated.

Return Procedure: The procedure for returning unsold goods — condition of returned goods, packaging requirements, transport cost allocation, and the owner's right to inspect returned goods and reject damaged or incomplete items. The forms-legal.com Kenya Sale or Return Agreement template includes a structured return schedule and goods condition assessment process.

Governing Law and Dispute Resolution: The agreement is governed by the laws of Kenya, including the Law of Contract Act Cap. 23, the Sale of Goods Act Cap. 31, and the Consumer Protection Act No. 46 of 2012. Disputes may be resolved before the Magistrates Court of Kenya (for claims up to KES 20,000,000) or through arbitration under the Arbitration Act No. 4 of 1995 before the Nairobi Centre for International Arbitration (NCIA).

Additional compliance elements for a Sale or Return Agreement (Kenya) used in Kenya include: 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. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.