When a Kenyan franchise relationship ends, the questions that actually cause disputes are rarely about whether the agreement can be terminated. They are about what happens next: does the termination clause get enforced as written, what becomes of the franchisor’s brand and know-how once the franchisee is out the door, and where a dispute has to be fought if the parties disagree. This guide covers those three questions. For exclusive territory clauses and post-termination non-compete restrictions, both governed by the Competition Act and the Contracts in Restraint of Trade Act, see our companion article on exclusive territory and non-compete clauses in Kenyan franchise agreements.
How Franchise Agreements Actually End
Kenya has no dedicated franchise statute. A franchise agreement terminates, and is enforced on termination, under ordinary Kenyan contract law, principally the Law of Contract Act (Cap 23) and the general common law of contract. Two routes matter in practice: termination for breach, where a franchisee’s conduct (unpaid royalties, unauthorised deviation from brand standards, unlawful sub-franchising) amounts to a repudiatory breach entitling the franchisor to end the agreement and claim damages; and termination for convenience or on notice, where the agreement gives either party a right to terminate on written notice, often tied to renewal anniversaries.
Kenyan courts read these clauses literally. In Heineken East Africa Import Company Ltd & another v Maxam Ltd (Civil Appeal E403 & E404 of 2020, consolidated) [2024] KECA 625 (KLR), the Court of Appeal overturned a High Court finding that an exclusive distributor had a “legitimate expectation” of renewal, holding that legitimate expectation is a public law doctrine with no place in private commercial contracts, and that an unambiguous termination-on-notice clause will be enforced as written. The case concerned an exclusive beer distributorship rather than a franchise, but the reasoning applies directly to franchise termination clauses: automatic renewal language does not create an unwritten right to perpetual continuation. At trial, the distributor had been awarded roughly KES 1.8 billion in special damages for the manner of termination; the Court of Appeal’s rejection of the legitimate expectation basis for that award, with the damages question partly remitted rather than finally resolved, shows how much turns on the precise wording of the termination clause rather than on general fairness arguments.
The practical lesson is the same for either side of a Kenyan franchise relationship: notice, cure, and termination provisions will very likely be enforced exactly as drafted. There is no statutory franchise-specific compensation regime overriding the contract on exit, so the drafting done at the outset largely determines the outcome at the end.
What Happens to the Brand on Exit
On termination, the franchisee’s right to use the franchisor’s trademarks, trade dress, and confidential operating materials ends, but only to the extent the agreement, and where applicable the Trade Marks Act (Cap 506), says so clearly. Kenyan trademark law allows a proprietor to license use of a mark and have that use recorded, and allows for variation or cancellation of that recordal. A well-drafted franchise agreement should not leave this to the general law; it should require the franchisee to immediately stop using the licensed marks and trade dress on termination, remove branded signage and materials within a fixed, short period, and cooperate in cancelling any registered user or licence recordal at the Kenya Industrial Property Institute.
The same applies to the operations manual and other know-how. Confidentiality obligations should be drafted to survive termination expressly; a franchisee’s duty not to misuse confidential information does not automatically evaporate once the relationship ends, but relying on an implied common law duty of confidence is weaker than an express, surviving obligation with a return-or-destroy mechanism and, ideally, a certification requirement so the franchisor has documented proof that materials were not retained for use in a competing business.
Dispute Resolution: Arbitration and Cross-Border Enforcement
International franchise agreements with a Kenyan franchisee commonly specify arbitration seated outside Kenya, under foreign governing law, and Kenyan law generally respects that choice. Under section 6 of the Arbitration Act, 1995, a Kenyan court before which proceedings are brought in breach of a valid arbitration agreement must, on application, stay the litigation and refer the parties to arbitration, subject only to narrow grounds such as the agreement being null and void or incapable of performance. Kenya acceded to the New York Convention in 1989, and section 36(2) of the Arbitration Act gives it direct effect: a foreign arbitral award is recognised as binding and may be enforced in Kenya, with recognition refused only on the limited grounds in section 37, such as incapacity, an invalid arbitration agreement, improper notice, an award exceeding its scope, or conflict with Kenyan public policy.
The practical reality is more layered than the clause alone suggests. Arbitrating abroad is expensive and logistically demanding for a Kenyan franchisee, which can itself become leverage in settlement talks. Even with a valid foreign arbitration clause, a party may still need Kenyan courts for urgent interim relief, for example an injunction against continued trademark use after termination, since Kenyan courts retain jurisdiction to grant such measures in support of arbitration. Enforcing a foreign award once obtained is also a distinct Kenyan court process, not an automatic formality, and should be budgeted for accordingly.
Franchise Exit Checklist Generator
Answer three questions about how a Kenyan franchise relationship is ending, and get a tailored, checkable list of the practical steps that matter most on exit. This does not replace legal advice on your specific agreement, but it flags the issues worth raising with counsel before positions harden.
How Clay & Associates Advocates Can Help
Clay & Associates Advocates advises both franchisors and franchisees on the exit side of the franchise relationship: reviewing termination clauses before a dispute arises, handling trademark de-registration and de-branding on termination, drafting and enforcing confidentiality return obligations, and acting in arbitration and related Kenyan court proceedings, including applications for interim relief in support of a foreign-seated arbitration. Where a franchise relationship is heading toward, or already in, dispute, we advise on the realistic range of outcomes under Kenyan contract law before positions harden.
Sources: Heineken East Africa Import Company Ltd & another v Maxam Ltd (Civil Appeal E403 & E404 of 2020, Consolidated) [2024] KECA 625 (KLR); Trade Marks Act (Cap 506); Arbitration Act, 1995, sections 6, 36(2), and 37.
Frequently asked questions
Can a franchisor terminate a franchise agreement in Kenya without notice?
Only if the agreement allows it, typically for a serious or repudiatory breach. Where the agreement requires notice, Kenyan courts enforce that requirement as written, as the Court of Appeal’s approach in the Heineken v Maxam distributorship case illustrates.
What happens to my trademark licence when the franchise agreement ends?
The right to use the franchisor’s marks and trade dress ends, and the agreement should require immediate de-branding, removal of signage, and cooperation with cancelling any licence or registered user recordal. Confidentiality over the operating manual should survive termination expressly.
If my franchise agreement has a foreign arbitration clause, must I arbitrate abroad?
Kenyan courts generally stay local litigation and refer parties to a valid foreign arbitration clause, and a resulting award is enforceable in Kenya under the New York Convention. Courts can still grant urgent interim relief, such as an injunction over trademark misuse, while arbitration proceeds.
Was the KES 1.8 billion damages award in the Heineken case actually upheld?
The Court of Appeal rejected the “legitimate expectation” basis the High Court used to justify part of that award, and remitted aspects of the damages question rather than finally confirming the figure. The case is cited here for its termination-clause reasoning, not as authority for a specific damages amount.
