Commercial Contracts in Kenya: Key Clauses and Common Mistakes

For commercial contracts in Kenya, a well-drafted agreement records what the parties agreed, allocates risk between them and provides a framework for resolving disputes if something goes wrong. Most poorly drafted contracts fail at the second and third tasks while appearing to accomplish the first, and the clauses that do the risk-allocation and dispute-prevention work are frequently the ones a generic template gets wrong or omits.

Commercial Contracts in Kenya: Deliverables

Define deliverables with enough specificity to allow objective assessment of whether performance obligations have been met. Vague descriptions are among the most common sources of commercial disputes. For services, specify what the provider will and will not do and how completion is measured, because a dispute over whether a service is “complete” is far easier to resolve against a pre-agreed standard than against each party’s recollection. Where work is phased, give each phase its own acceptance criteria rather than leaving acceptance to a distant final milestone.

Payment Terms

Specify the amount, currency, payment schedule, invoicing requirements and the consequences of late payment, including any interest on overdue amounts. A contract silent on late payment interest leaves a creditor relying on the court’s discretion in a recovery action, a weaker position than a clearly agreed contractual rate. In cross-border contracts, state which party bears exchange rate movement between invoicing and payment, because leaving it open invites a dispute precisely when the movement has already happened.

IP Ownership: The Statutory Default Favours the Commissioning Party

Intellectual property ownership is frequently overlooked in service contracts, and the default is the opposite of what is commonly assumed. Under section 31(1) of the Copyright Act, 2001, copyright initially vests in the author, but where a work is commissioned by a person who is not the author’s employer under a contract of service, the copyright is deemed to be transferred to the person who commissioned it, subject to any agreement between the parties excluding or limiting the transfer. Work created by an independent contractor under a commission can therefore vest in the commissioning business by default.

This does not make an IP assignment clause unnecessary. If you commission software, designs or written content, include an explicit assignment: it removes any argument about whether the engagement qualifies as a “commission” on the particular facts, and a counterparty in a later financing round or acquisition will expect ownership to be documented rather than rely on a statutory default. A contractor who wants to keep ownership must negotiate that expressly, since silence works against the contractor. Our guide to copyright law in Kenya covers ownership in more detail.

Liability Limitation

Liability limitation clauses restrict the amount one party can claim from the other on breach. As a general contract law principle, a cap that was genuinely negotiated between commercially sophisticated parties is more secure than one imposed on a party with no realistic opportunity to negotiate. Exclude consequential loss, indirect loss and loss of profit expressly rather than relying on a general limitation clause, because exclusion clauses are generally construed strictly against the party relying on them, and an exclusion that does not name a head of loss may not be read to cover it.

Force Majeure

Force majeure clauses excuse a party from performance when prevented by events beyond its reasonable control. Define the triggering events specifically rather than relying on a vague catch-all, and set out the notification requirements and timeline, the duration of the excuse, and each party’s right to terminate if the event continues beyond a specified period. A clause with no maximum duration can leave both parties indefinitely suspended in an unperformed contract that neither can easily exit.

Termination

Distinguish clearly between termination for convenience, which lets either party exit on notice without showing cause, and termination for cause, triggered by a specified breach or default. Set notice periods for convenience terminations, say precisely what conduct triggers termination for cause, and state whether a cure period applies. A contract that merges the two routes into one vague clause leaves both parties uncertain, when a dispute arises, about which standard applies and what process must be followed.

Governing Law and Dispute Resolution

Choose Kenyan law if you intend to enforce the contract in Kenya, since a foreign governing law clause can complicate enforcement even where the parties and subject matter are substantially Kenyan. Specify whether mediation is required before arbitration or litigation, with a realistic timeline so that the step cannot be used to delay indefinitely. Where you choose arbitration, include the seat and the institutional rules. Under section 6 of the Arbitration Act, 1995, a court before which proceedings are brought on a matter that is the subject of an arbitration agreement must, if a party applies not later than when it enters appearance or otherwise acknowledges the claim, stay the proceedings and refer the parties to arbitration, unless the agreement is null and void, inoperative or incapable of being performed, or there is no dispute. Where you choose litigation, specify the jurisdiction of the Kenyan courts expressly.

Common Mistakes

Oral variations to a written contract create evidentiary uncertainty. Include an entire agreement clause confirming that the written contract is the complete agreement, and a no oral variation clause requiring changes to be in writing and signed by both parties. Failing to specify remedies is a missed opportunity: consider liquidated damages where loss would be hard to quantify, step-in rights allowing one party to take over performance in specified circumstances, and specific performance, in addition to the general law right to damages. A contract that simply restates the general law has not done the risk-allocation work a commercial agreement is meant to do.