Whether you are leasing a new home or buying a car, you are likely to come across a contract. And in Kenya, the use of contracts has become the new norm as more people seek to safeguard their legal rights. But what are contracts in Kenya, and what rights do they confer on their parties? This guide explains these documents in detail, thus enabling you to understand what you are signing.

What Is A Contract?

Simply put, a contract is an agreement between two or more persons. However, contracts in Kenya are not the same as these agreements take various forms and are governed by various laws, including the Law of Contract Act (Cap 23), the Sale of Goods Act (Cap 31), and the Employment Act (2007).

Types Of Contracts In Kenya.

There are two main types of contracts, namely Written and Oral contracts. Written contracts refer to those contracts which have been reduced into writing, whereas Oral contracts refer to the agreements which are not written but have been discussed and agreed to orally.

Certain contracts in Kenya must be made in writing for them to be legally valid. These include:

• Sale of land agreements,
• Most agreements with lending institutions, including Charges, Mortgages, Debenture agreements, and
• Agreements involving huge amounts of money, etc.

It is important to note that where a contract is written, the terms of that contract must be clearly stated and the parties to that contract must sign it. There may or may not be witnesses to the same, but it’s always safer and better to have the contracts witnessed.

Whether a contract is written or oral, it is very important for its terms to be clear and be understood by all the parties involved.

What Are The Elements Of A Contract In Kenya?

Contracts in Kenya have certain elements. They are as follows:

The Offer.

In the initial stages of the contract, there is an offer. For example, in selling an item or an asset to another person interested in the asset, the seller is making an offer. In this case, the offer means that the seller indicates to would-be buyers that he is selling an asset at the terms that he indicates to the interested parties.

Alternatively, a would-be buyer can initiate a contract-making process by indicating to a seller of an item that he would be willing to buy the item at a certain price, and this also amounts to an offer.

Offers do not exist only in the sale of asset contracts. They are part of any contractual transaction, and in simple terms, they mean that one of the parties to an intended contractual making process has approached the other party and indicated interest in a particular issue and would be willing to take up the issue on certain terms. Those terms constitute the offer.

Acceptance.

The second element seen in contracts in Kenya is acceptance, which means that the party to whom an offer has been made must clearly accept the offer made by the other party. The acceptance can be orally implied or in writing, depending on the contract being made.

Orally means that the other party expresses his or her wish to accept the offer without reducing the same into writing. Acceptance may also be implied by the conduct of the second party to the agreement.

Consideration.

The other element you find in contracts is Consideration, which refers to the money or something of value exchanged between the two parties. The consideration must be clearly indicated in the contract, and the mode of exchange of the same between the parties must be well indicated in the contract.

In a written contract, the parties to that contract must sign it together with their witnesses. Not all contracts require witnesses, but in some contracts or policies of certain organizations, the requirement of witnesses is clearly spelled out, and the policies must be adhered to in all their contracts or in some of them.

Generally, contracts involving huge amounts of money are written and witnessed. The parties to the contract must clearly understand the terms and conditions of that contract, and if there is a lack of understanding of the terms of the contract, such contracts are voidable.

The contract must also have as its subject matter a legal transaction. All contracts covering illegal transactions are not recognized by the law.

What Can Invalidate A Contract In Kenya?

You may have heard that contracts in Kenya are legally binding. However, this is not always the case, and there are circumstances under which contracts can be invalidated.

It helps to note that a contract can be invalidated by various factors, including the following:

There are many other factors that can invalidate a contract, and what is covered here is very brief. Most of what causes an invalidation will depend on the terms and context of the particular contract, and it is thus important to take this into account when entering into a contract.

What Are The Various Ways Contracts in Kenya Can Be Terminated?

Contracts in Kenya can be terminated in various ways, with the following being the most common scenarios:

1. Where a contract was for a certain time and the time covered by it has lapsed, such a contract terminates or comes to an end automatically upon the lapse of that time.
2. Where there was fraud or duress in the formation of the contract, the party so defrauded or forced into entering into that contract can repudiate the contract and refuse to continue with it and inform the other party accordingly.
3. Where the terms of the contract expressly provide for termination due to the occurrence of certain factors or issues. When those factors or issues as stated in the contract occur, then the same can be terminated.
4. Where parties to the contract agree to terminate it for various reasons, including that it is no longer serving the purpose it was made for, or it has become financially infeasible, or they want to terminate it and do a different one altogether, and the list is endless.
5. Where one party fails to meet their end of the bargain, and the other party decides to get out of the contract, thereby terminating it.
6. Where its terms cannot be attained due to factors beyond the capacity of the parties. This may be applicable, for example, where a party was to sell and supply some goods, but it cannot do the same due to factors beyond their control, like heavy floods occurring and transportation of the goods cannot be done, or the goods getting burnt accidentally and therefore do not exist anymore for the supply to be made.

Additionally, some contracts can be terminated by the breach of the terms of the contract by one party or all parties.  This may result in a situation where the contract cannot be performed anymore, and this results automatically in the contract being terminated.

Modes Of Termination And The Consequences Of Termination.

As earlier stated, contracts in Kenya can be terminated in several ways. Some contracts provide for the mode of termination and the process of achieving the same. In such a case, any of the parties can terminate the contract by following the procedure provided in the contract.

Some contracts also provide for Notices to be given by the party desiring to terminate the contract. Thus, the party wishing to terminate the contract notifies the other party of their desire within the provided time and progressively terminates the same as per the terms of the contract if the same is provided for. Where this is not provided for, then the logistics of the particular contract will come into play.

Some contracts also provide for the consequences of termination of the same. In this case, it is easy for the parties to engage the terms in their contracts to terminate the contractual relationship.

Where the contract does not provide for the termination consequences and the contract is terminated, what follows will depend on the kind of contract the parties had entered into. For example, if it were a sale of a land contract and the seller refuses to transfer the land parcel upon receiving the purchase price, the purchaser may ask for a refund of the purchase price or may pursue specific performance of the contract and costs incurred in the process.

In some other instances, the parties may decide to let their contract go and each party to bear their own costs. In all circumstances, different contracts cover different economic and social aspects, and what follows upon their termination depends so much on the terms of the particular contract, the losses incurred, the importance of the contract, the parties involved, and many other factors. There is no one-size-fits-all situation, and often, parties seek guidance from the court or engage in alternative dispute resolution to seek a way forward.

Even after taking all the aforesaid into consideration, where the value and importance of the contract is high, it is always wiser to do a written contract as opposed to an oral one and cover as much as can reasonably be covered in the same.

Get Legal Advice on Contracts in Kenya.

Contracts are complex legal agreements that require all parties to pay particular attention to their terms. Where one does not conduct due diligence before entering into a contractual relationship, the other parties in the contract can take the matter up in court, which can result in losses for the former person. To avoid such occurrences, it is always best to consult a legal professional before drafting or signing a contract.

Using the form below, you can book a consultation with our legal experts who are well-versed in contracts in Kenya and who can help you avoid the common pitfalls in contracts.