Are Exclusive Territory and Non-Compete Clauses in Kenyan Franchise Agreements Enforceable?

Franchisors entering Kenya usually arrive with a template agreement drafted for a different legal system, and that template almost always contains three clauses: an exclusive territory for the franchisee, a requirement to buy stock only from the franchisor or its approved suppliers, and a post-termination non-compete stopping the franchisee from running a similar business after the relationship ends. Each is common commercial practice. None is automatically enforceable in Kenya. The Competition Act, 2010 treats a franchisor-franchisee relationship as a “vertical” agreement subject to the same restrictive trade practices regime that applies to competitors, and a separate, older statute governs whether a restraint of trade covenant is reasonable at all. This article works through what the Act and the Competition Authority of Kenya’s own guidance actually say, rather than assumptions imported from other jurisdictions.

Vertical Agreements Are Expressly Covered

Section 21(1) of the Competition Act prohibits agreements, decisions and concerted practices that have “the object or effect of the prevention, distortion or lessening of competition” in trade in Kenya, unless exempt. Section 21(2) makes clear this is not limited to agreements between rivals: it “include[s] agreements concluded between parties in a horizontal relationship, being undertakings trading in competition; or parties in a vertical relationship, being an undertaking and its suppliers or customers or both.” A franchise agreement is a textbook vertical relationship: the franchisor supplies branding and know-how; the franchisee is, in competition law terms, a customer. That places every franchise agreement in Kenya inside the Act’s scope, whatever the contract calls it.

Exclusive Territories, Exclusive Dealing and Tying

Section 21(3) lists specific types of agreement caught by the general prohibition, “without prejudice to the generality” of section 21(1). Paragraph (b) catches an agreement that “divides markets by allocating customers, suppliers, areas or specific types of goods or services”: an exclusive territory clause is precisely this. Paragraph (g) catches an agreement that “makes the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject of the contracts,” the Act’s language for tied selling, such as a franchisee forced to buy unrelated products to keep its licence. Paragraph (h) adds that using an intellectual property right “in a manner that goes beyond the limits of fair, reasonable and non-discriminatory use” is also caught, relevant where a trademark licence smuggles in restrictions unconnected to protecting the brand.

None of this makes an exclusive territory automatically void. Because paragraphs (a) to (i) work “without prejudice to the generality” of section 21(1), a court or the Authority still has to be satisfied the clause actually has the object or effect of harming competition. A territorial allocation between a franchisor and one small franchisee in a market with several competing brands is a different proposition, competitively, from the same clause used by a dominant network to carve up a city between exclusive operators. The legal test is the same; the enforcement risk is not.

Resale Price Maintenance

Section 21(3)(d) separately prohibits “a practice of minimum resale price maintenance.” A franchise agreement that fixes or floors the price a franchisee must charge customers falls directly within this provision and is not saved by calling it a “brand standard.” Section 21(4) carves out a narrow exception: a franchisor may recommend a resale price, provided it is expressly stated as not binding, and the word “recommended” appears next to it wherever displayed. The Authority’s Consolidated Guidelines treat a “recommended retail price” that operates in practice as a floor as potentially anti-competitive, so the labelling has to reflect reality, not just the contract wording.

No General De Minimis Threshold, But a Franchise-Specific Block Exemption Route

Some competition regimes exempt agreements automatically where the parties’ combined market share falls below a set percentage. Kenya’s Competition Act contains no such safe harbour under section 21. The exemption route in sections 25 to 30 instead requires a formal, discretionary application to the Authority, assessed against “exceptional and compelling reasons of public policy.” A small franchise network cannot assume its restraints fall below the radar simply because it has few outlets.

There is, however, a more targeted mechanism. Section 30(2) allows the Cabinet Secretary, on the Authority’s recommendation, to exclude a category of agreements from Part III by notice in the Kenya Gazette, and the Authority’s Consolidated Guidelines confirm it has developed Block Exemption Guidelines specifically covering franchise agreements, alongside stadia and sport branding rights, content and broadcasting agreements, and one-off sporting events, so parties can self-assess whether their agreement qualifies without applying individually. We could not locate the exemption instrument’s operative text online to confirm exactly which clauses it covers, so franchise parties should confirm current scope before relying on it. We cover structuring the initial franchise entry, including local incorporation and IP licensing, in our companion article, Franchising Into Kenya: How International Brands Structure Master Franchise Agreements; this piece looks only at whether the restrictive clauses inside that structure hold up.

Post-Termination Non-Competes Against a Franchisee

A clause stopping a former franchisee from running a competing business after termination is a different legal question from the vertical-restraint analysis above, and distinct from the employee non-compete clauses covered elsewhere on this site; a franchisee is an independent business, not an employee. The relevant statute is the Contracts in Restraint of Trade Act (Cap 24), which provides that a contract restraining a party from exercising a lawful trade, business or profession is not void merely for containing that restraint, but leaves the court to assess whether it goes further than reasonably necessary to protect a legitimate interest, such as the franchisor’s goodwill, trade secrets and brand system. Kenyan courts have applied that reasonableness test repeatedly in employment disputes, weighing duration, geographic scope and the interest genuinely protected. We could not locate reported case law applying the same test to a terminated franchisee rather than an employee, so the employment cases should not be assumed to translate directly; the statute and reasonableness principle apply, but a franchisee’s independent business status is a factor a court would weigh differently. A clause narrowly drawn to the franchise territory, for a period long enough to let the franchisor re-establish or resell the outlet, stands a materially better chance than a blanket, indefinite restriction.