Franchise agreements Kenya businesses sign are not governed by a franchise law at all. We are not aware of any dedicated Kenyan statute, franchise registration authority or mandatory pre-contractual disclosure regime for franchising. What actually regulates a Kenyan franchise is the intellectual property licensing framework underneath it, set out in commercial language, together with ordinary contract law and the statutes that touch particular terms.
There Is No Franchise Act, and That Is the Point
Franchising in Kenya operates under ordinary contract law, supplemented by whichever other statutes happen to touch the specific arrangement: the Competition Act where the agreement contains restrictive terms, the Consumer Protection Act where the franchisee deals with consumers, the Data Protection Act, 2019 where customer data is shared between franchisor and franchisee, and the Income Tax Act where fees or royalties are paid to a franchisor outside Kenya. Because we know of no franchise-specific disclosure regime, a prospective franchisee’s protection comes largely from what they negotiate into the agreement and what due diligence they carry out beforehand, not from a statutory floor.
This means the quality of a Kenyan franchise relationship depends almost entirely on the drafting of the individual agreement, which is precisely why franchise disputes here tend to turn on ordinary contract interpretation rather than any franchise-specific rule.
The Real Legal Mechanism: Trademark Licensing
What a franchise agreement actually does, legally, is licence a bundle of intellectual property: principally the franchisor’s trademark, alongside copyright in operating manuals, marketing materials and training content, and often confidential business methods. The statutory hook for the trademark side is section 31 of the Trade Marks Act, Cap. 506, headed “Registered users”. Section 31(1) allows a person other than the proprietor to be registered as a licensee of a registered trade mark, for all or any of the goods or services for which it is registered, with or without conditions or restrictions.
The registration has real consequences. Under section 31(2), the permitted use of a trade mark by a registered licensee is deemed to be use by the proprietor, which matters where the mark might otherwise be vulnerable for non-use. Under section 31(3), a licensee may call on the proprietor to take infringement proceedings and, if the proprietor refuses or neglects to act within two months, may sue in its own name, making the proprietor a defendant. A franchisor should therefore register its trademark in Kenya before franchising begins, since trademark rights are territorial and a mark registered abroad gives no protection here.
How a Franchisee Is Recorded as a Registered User
Registration is not automatic. Under section 31(4), the proprietor and the proposed licensee must apply in writing to the Registrar in the prescribed manner, and must furnish a statutory declaration made by the proprietor, or by a person authorised to act for the proprietor and approved by the Registrar. The declaration must give particulars of the relationship between the parties, including particulars showing the degree of control by the proprietor over the permitted use, and must state the goods or services, any proposed conditions or restrictions, and whether the permitted use is for a period or without limit of time.
Under section 31(5), the Registrar may register the licensee if satisfied that the proposed use would not be contrary to the public interest. In practice, this means the franchisor’s quality control provisions are not only commercial protection; they are also part of what the Registrar is asked to consider. A franchise agreement that is silent on control over the franchisee’s use of the mark will sit awkwardly with the section 31(4) declaration.
What the Agreement Has to Do
Because there is no franchise-specific statute filling in the gaps, the franchise agreement itself has to do considerably more work than it would in a jurisdiction with a franchise code. It needs to define precisely what is being licensed and on what terms, set quality control standards the franchisor can actually enforce, address territory and exclusivity, set out fee and royalty structures, and specify post-termination obligations, including the franchisee’s duty to stop using the mark and return or destroy branded materials.
Two statutes shape the commercial terms. Section 21(1) of the Competition Act prohibits agreements between undertakings that have as their object or effect the prevention, distortion or lessening of competition in Kenya, unless exempt, and section 21(2)(b) confirms that this includes vertical relationships between an undertaking and its suppliers or customers. Section 21(3) gives examples, including minimum resale price maintenance and the use of an intellectual property right in a manner that goes beyond the limits of fair, reasonable and non-discriminatory use. Territorial exclusivity, pricing controls and tying of supplies should be reviewed against that provision.
On cross-border payments, section 10(1)(b) of the Income Tax Act deems a royalty paid by a resident person, or by a person with a permanent establishment in Kenya, to another person to be income that accrued in or was derived from Kenya, subject to the provisos in that section. Fees and royalties payable to a foreign franchisor therefore need tax advice before the fee structure is fixed.
Where Franchisors Underestimate the Risk
The most common failure is not in the headline commercial terms but in what happens when the relationship ends. A franchisor’s ability to stop a former franchisee from continuing to trade under its branding, or from opening a near-identical competing outlet, depends on the enforceability of the termination and non-compete clauses drafted into the original agreement. A broad restrictive covenant risks being narrowed or struck down by a court applying the restraint-of-trade doctrine, leaving the franchisor with a former partner who knows the business model and has the training materials.
How We Can Help
Clay & Associates Advocates advises franchisors and franchisees on structuring Kenyan franchise agreements, registering and licensing the underlying trademarks, and drafting enforceable termination and non-compete terms. Our guide to IP asset registers and what investors actually diligence is a useful companion for franchisors preparing their brand for expansion. Contact our Intellectual Property practice to review or draft a franchise agreement.
Sources: Trade Marks Act, Cap. 506, section 31; Competition Act, 2010, section 21; Income Tax Act, section 10.
Frequently asked questions
Is there a law specifically regulating franchises in Kenya?
We are not aware of one. Franchise agreements are governed by general contract law, supplemented by the Trade Marks Act, Competition Act, Consumer Protection Act, Data Protection Act and Income Tax Act as relevant to the specific arrangement.
Does a franchisor have to disclose financial information to a prospective franchisee before signing?
We know of no statutory pre-contractual disclosure requirement for franchising in Kenya. Any disclosure obligation therefore has to be negotiated into the agreement itself.
How does a franchisee legally get the right to use the franchisor’s brand?
Through a trademark licence, which can be recorded by registering the franchisee as a licensee (“registered user”) of the mark under section 31 of the Trade Marks Act, alongside the franchise agreement itself.
What happens if a franchisee keeps trading under the brand after termination?
The franchisor’s remedy depends on the termination and post-termination clauses in the agreement. Without a statutory franchise termination regime, enforceability comes down to ordinary contract and trademark infringement principles, and the reasonableness of any restrictive covenant.
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This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
