Franchise Agreements in Kenya: Legal Framework, Key Clauses and Compliance

Franchise agreements in Kenya are private contracts. We have not identified a franchise-specific statute in the Laws of Kenya, so the agreement does most of the legal work, supported by the general law of contract, trade mark law and competition law. A weak agreement leaves both sides exposed. This guide sets out the clauses that matter most, the statutes that sit behind them and what a Kenyan court has said about ending a franchise.

The Legal Framework for Franchise Agreements in Kenya

Because there is no dedicated franchise regime, three bodies of law matter in practice. The contract itself sets rights and remedies. The Trade Marks Act, Cap. 506 governs how the brand is licensed. The Competition Act, 2010 (Cap. 504) limits restrictions on competition that a franchise agreement may contain. A foreign brand entering Kenya should also look at our guide to master franchise agreements for Kenya and, for the restraints in particular, our article on exclusive territory and non-compete clauses.

Licensing the Brand Under the Trade Marks Act

Section 31 of the Trade Marks Act allows a person other than the proprietor of a registered trade mark to be registered as a licensee, in respect of all or any of the registered goods or services and with or without conditions or restrictions. Use by a registered licensee that complies with those conditions is “permitted use”. The Act treats permitted use as use by the proprietor for purposes such as the non-use provisions in section 29. A franchisor that registers its marks in Kenya and records its franchisees as licensees therefore protects the registration from a non-use challenge and keeps control over how the mark is used. A franchisor that has not registered the marks in Kenya has weaker rights, which is why trade mark filing should come before the first franchise is granted. The same Act sets out the powers and limits on assignment in section 25.

Competition Law Limits on Franchise 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 trade in goods or services in Kenya, unless they are exempt. Section 21(2) expressly covers vertical relationships, meaning an undertaking and its suppliers or customers. That includes franchisor and franchisee. Section 21(3) lists practices caught by the prohibition. Several are relevant to franchising:

• directly or indirectly fixing purchase or selling prices or other trading conditions;
• dividing markets by allocating customers, suppliers or areas;
• a practice of minimum resale price maintenance;
• making contracts subject to supplementary conditions that have no natural connection with the subject of the contract; and
• using an intellectual property right beyond the limits of fair, reasonable and non-discriminatory use.

Territorial exclusivity, mandatory supply from the franchisor and resale price controls should therefore be tested against section 21 before they go into the agreement. The Act also allows the Competition Authority to grant exemptions in certain cases, including for agreements relating to intellectual property rights (section 28), on application and on conditions it sets. Do not assume an exemption exists. If a clause is commercially essential and sits close to the section 21 list, get advice on whether to apply.

Clauses Every Kenyan Franchise Agreement Needs

The agreement should deal with at least the following:

• Territory: the geographic area, whether it is exclusive and what the franchisor may do inside it, such as online sales or company-owned outlets.
• Term and renewal: the length of the term, the conditions for renewal and any renewal fee.
• Intellectual property: the scope of the licence, quality standards, ownership of improvements and what happens to the licence on termination.
• Fees: the initial fee, ongoing royalties, the payment dates, reporting obligations and audit rights.
• Support and training: what the franchisor must provide and when.
• Operating standards: brand rules, approved suppliers and inspection rights.
• Restraints: non-compete and non-solicitation terms, limited in scope, geography and time so that they are reasonable.
• Termination: the events that allow termination, notice and cure periods and the steps the franchisee must take on exit.
• Disputes: governing law, forum, and whether disputes go to court or arbitration.

Ending a Franchise: What a Kenyan Court Has Held

In Kip McGrath Education Centres Limited v Makworo (Civil Case 224 of 2018) [2024] KEHC 12488 (KLR), the High Court at Nairobi (Commercial and Tax Division, Mulwa J, 17 October 2024) dealt with a franchise for a tutoring business that the franchisor said it had terminated after the franchisee stopped paying franchise fees. The franchisee argued that the termination was unfair and that the termination letter carried the wrong date. The court found that the franchise agreement was validly terminated, ordered the franchisee to make the franchisor’s materials available for pick-up, and left each party to bear its own costs. The lesson for franchisors is to follow the termination clause exactly, send clear notices and follow up in writing. The lesson for franchisees is that unpaid fees give the franchisor a strong ground to end the agreement. For the exit mechanics, see our guide to ending a franchise agreement in Kenya.

Practical Steps Before You Sign

Franchisors should register the marks in Kenya, record licensees where appropriate and review pricing and territory terms against section 21 of the Competition Act. Franchisees should ask for the disclosure they need to assess the offer, including the fee structure and the term, and should read the termination and post-termination clauses first. Both sides should agree how disputes will be resolved before any money changes hands.