HIRE PURCHASE TRANSACTIONS

1. INTRODUCTION:
The Hire Purchase (HP) Agreements is just like any other contract that has 6 elements: offer, acceptance,
consideration, legality, capacity of parties1 and intention to create legal obligations.
2. LAW GOVERNING HIRE PURCHASE TRANSACTIONS:
 Hire purchase (HP) transactions in Kenya are governed by:
a) the Hire Purchase Act, Cap 507 – the law that makes provision for the regulation of certain HP
agreements, for licensing of HP concerns and for purposes connected therewith;
b) the Income Tax (Leasing) Rules, 2002 - has relevance in determining how HP transactions are to be
treated for tax purposes, from the point of view of the owner (lending institution) and the hirer
(consumer).
c) The Sale of Goods Act, the Stamp Duty Act, the Bankruptcy Act, including statutes of General
application2 are also relevant to HP type of agreements.
3. STATE THE NATURE/SCOPE, APPLICATION AND PURPOSE OF THE HIRE-PURCHASE
ACT, CAP 507 IN KENYA:
a) Nature of HP transactions:
 Hire purchase agreement: is an agreement for the bailment (delivery) of goods under which the bailee
(hirer) may buy the goods or under which the property in the goods will or may pass from bailor to the
bailee.3 A HP transaction therefore has two phases:
a) hire phase of the transaction, during which the hirer is granted possession and use of the goods the
subject of the HP agreement in exchange for the payment of a periodic rent; and
b) purchase phase of the transaction, during which the hirer exercises the option to purchase the
goods.
 Rules with regard to bailment: which were laid down before any ‘contract of HP’ was contemplated,
cannot be applied without modification because such a contract has in it not only the element of
bailment but also the element of sale. At common law, ‘hire purchase’ applies only to ‘contract of HP’
conferring an option to purchase. There is therefore no contract to sell the goods unless the option to
purchase is exercised, or the goods are bought at their exhibited cash price and all installments are
paid.
 It is important to note the distinction between the two types of contracts. Under a ‘contract to purchase
by installments’ there is a binding obligation on the buyer to buy and he can therefore pass a good title
to a purchaser or, pledge dealing with him in good faith and without notice of the rights of the true
owner, whereas, in a ‘contract which merely confers an option to purchase’ there is no binding

1
The parties in HP Agreements must be competent to create legally binding relations. Capacity is determined by looking at age, legal status or
mental condition of the parties. Legal incapacitation such as bankruptcy excludes persons from entering into hire purchase agreements. Besides,
HP Agreement entered into by a child or a mental incapacitated person or a drunkard is void or voidable at the instance of the party that lacks
capacity. The Age of Majority (Amendment) Act, 1974 fixes the age of majority at 18 years.1 The test of capacity in relation to insane or drunkard
is whether at the time of contracting, the party was under a degree of mental disability that he was incapable of understanding the nature of the
contract. It must however be proved that mental incapacity was known to the other party.
2
Those which were in force in England on the 12th August 1887 as per S.3 of the Judicature Act, Cap.8.
3
S.2, the Hire Purchase Act, Cap 507.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
1
 obligation on the hirer to buy, and a purchaser or pledgee can obtain no better title than the hirer had,
except in the case of a sale in market overt,4 the contract not being an agreement to buy within the
Factors Act or the Sale of Goods Act.
b) Application: The law that is applicable or regulates hire purchase system in Kenya is the Hire Purchase
Act, Cap 507. The Act is derived from the English Hire Purchase Act, 1938. It commenced on 2nd
November 1970 and has undergone several amendments, the last being in 2017.
Section 3 of the Act provides that the Act:
i. applies to and in respect of: i) all HP agreements entered into after the commencement of the Act, ii)
under which the hire-purchase price does not exceed the sum of Ksh.4 million or such other higher or
lower sum as the Minister may, after taking into account market forces from time to time prevailing,
prescribe;
ii. does not apply in a HP agreement:
 in which the hirer is a body corporate, wherever incorporated. Besides, the monetary limitation
does not apply so as to affect the definition of “hire-purchase business” in Section 2(1);
 controlled, managed or guaranteed by the Government for the purpose of providing loans to any
persons for the purchase of motor vehicles.
The Act, therefore, does not apply to all HP transactions. It operates only where the total HP price is Ksh.4
million or less and the hirer is not a Government. Where the Act does not apply, the common law governs
the agreement.
c) Purpose: Its ‘Preamble’ provides that it is, “an Act of Parliament to make provision for the regulation of
certain hire purchase agreements and for the licensing of hire-purchase concerns, and for purposes
connected therewith.” The other objects of the Act are to:
i. enable the hirer to compare easily the cash price with the total which he will have to pay under the HP
agreement;
ii. enable the hirer to return the goods without incurring liability for more than a fixed amount;
iii. protect the hirer against seizure of the goods without application to the Court after one third of the HP
price has been paid
4. LEGAL RESTRICTIONS: Section 3 of the Hire Purchase Act, Cap 507 restricts the application of the
Act to certain transactions, namely HP agreements:
a) entered into after the commencement of the Act;
b) where the HP price does not exceed KShs.4 million or such higher or lower sum as the Minister may, after
taking into account market forces prescribe;
c) where the hirer is not a body corporate, wherever incorporated; and
d) other than schemes controlled, managed or guaranteed by the Government for the purpose of providing
loans to any persons for the purchase of motor vehicles.

4
It is an open public market authorized and regulated by law at which purchasers of goods with certain exceptions acquire good title regardless of
any defects in the seller's title.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
2
5. HP v. CREDIT SALE: A credit sale is a sale of goods transaction under whose terms the time of the
payment of the purchase price is deferred to a future time, whether payable in lump sum or by instalments.
As such, where the goods are ascertained, the goods passes to the buyer immediately the contract is made,
and the buyer can pass a good title to a third party buying in good faith and for value. In HP transaction,
the goods remains vested in the owner until the option to purchase is exercised. The hirer therefore cannot
pass title to a third party purchaser.
6. HIRE PURCHASE v. CONTRACT OF SALE: In HP, hirer is not bound to purchase the goods
comprised in the agreement. The hirer only exercises an option and is not bound to buy, while in a
Contract of Sale of goods, it entails a binding obligation on the buyer to buy and a similar obligation on the
seller to sell.
7. HP v. LEASE: In a leasing transaction, there is no intention that the property in the goods shall pass from
the lessor/owner to the lessee. The lessee makes regular payments to the owner/lessor in exchange for the
right to use certain goods and at the end of the term created in the lease, the goods are returned to the
owner/lessor. In HP transaction, the hirer exercises the option to purchase the goods.
8. PROVISIONS OF A HP AGREEMENT:
a) Establishment of Registry: Section 4: The Cabinet Secretary, by notice in the Gazette, appoints public
officers to be Registrar of Hire Purchase Agreements, Deputy Registrar of Hire Purchase Agreements and
where necessary Assistant Registrars of Hire-purchase Agreements to conduct the business of the Registry.
After the appointment, the Registrar shall open and maintain a ‘Register of Hire Purchase Agreements’ in
Form H.P. 3 in the First Schedule to the Hire-Purchase (Forms and Fees) Rules, 1970.5 The Registrar must
make an alphabetical index of the names of all hirers shown in the hire-purchase agreements registered by
him and such index must be maintained by means of a card-index or such other method as he may deem
necessary for the purpose of enabling the hirers to be properly identified. The Register of Hire Purchase
Agreements must be open to inspection by the public, on payment of the appropriate fee, at the office of the
Registrar between 9 a.m - 12.30 p.m and from 2 p.m - 3.30 p.m. on every week-day except Saturdays when
it shall be open for inspection between 9 a.m - 11.30 a.m.6
b) Registration of HP Agreements: Section 5: Every HP agreement must be delivered for registration to the
Registrar of Hire Purchase Agreements. Before registration, the agreement:
i. must have been executed (signed) by the hirer and owner; iv. must be in writing
ii. the prescribed fee must have been paid; v. must be in English language
iii. the stamp duty must have been paid, where necessary.7
On registration of a hire-purchase agreement:
i. the Registrar must deliver to the owner the Original Hire Purchase Agreement and Certificate of
Registration which shall be prima facie proof of the facts therein certified in any proceedings. The

5
R.4, the Hire-Purchase (Forms and Fees) Rules, 1970.
6
R.6, the Hire-Purchase (Forms and Fees) Rules, 1970.
7
In Diamond Trust Bank of Kenya v. Mohammed Noor Ahmed, (2005) eKLR the Court held that ‘failure to stamp a document is not, per se, fatal.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
3
 Registrar must retain a copy of the Certificate of Registration endorsed on the Duplicate Hire Purchase
Agreement.8
ii. any person may inspect the Register of Hire Purchase Agreements during the prescribed hours and
may obtain from the Registrar a certified copy of any entry in the Register.
Effect of non-registration:
i. No person can be entitled to enforce the agreement against the hirer or to enforce any contract of
guarantee relating to the agreement.
ii. The owner shall not be entitled to enforce any right to recover the goods form the hirer.
iii. No security given by the hirer in respect of money payable under the agreement, or given by a
guarantor in respect of money payable under a contract of guarantee relating to the agreement, can be
enforceable against the hirer or the guarantor by any holder thereof.
An application for extension of time for registration of a HP Agreement Section 5(1) must be in Form H.P.
1 in the First Schedule and must be delivered to the Registrar with the: a) original hire-purchase agreement,
b) copy of original hire-purchase agreement, c) appropriate fee set out in the Second Schedule to the Hire-
Purchase (Forms and Fees) Rules, 1970.9
Form HP 2 {Section 5(3)}
HIRE PURCHASE ACT, CAP 507
CERTIFICATE OF REGISTRATION OF AGREEMENTS
I hereby certify that .................................. Hire Purchase Agreement No. .................................. was registered this .................... day of
.................... 20 .................... at .................... O’Clock.

Signed ..................................
Registrar of Hire Purchase Agreements
Fee paid: KSh. 20
M. R. No.

Form HP 3 {Section 5}
HIRE PURCHASE ACT, CAP 507
REGISTER OF AGREEMENTS

S. No. of Hirer Owner Date of Date of Amount of Nature Final Completion

Agreement Agreement Registration Agreement of instalment or
of goods date termination
Agreement
Name Address Name Address

8
See, R.3, the Hire-Purchase (Forms and Fees) Rules, 1970.
9
R.2, the Hire-Purchase (Forms and Fees) Rules, 1970.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
4
 c) Requirements relating to agreements10: Section 6: In a HP agreement:
i. the owner must inform the hirer, in writing, of the cash price for the goods - Displaying the cash price
can be on a label, tag, price list or advertisement exhibited by the owner. Failure to adhere to this
requirement deprives the owner of the right to enforce the HP agreement or any contract of guarantee
relating thereto. The rationale is to ensure the hirer freely and with full information elects to either
purchase the goods outright in cash or to enter into the HP arrangement;
ii. the hirer must be given an opportunity to inspect the goods or like goods, and at the time of inspection,
tickets or labels must be attached to or displayed with the goods clearly stating the cash price, either of
the goods as a whole or of all different articles or sets of articles comprised therein.
iii. Where the hirer selects goods by reference to a catalogue, price list or advertisement that clearly states
the cash price, either of the goods as a whole or of all the different articles or sets of articles comprised
therein must be indicated.
iv. the agreement must contain a statement of:
 hire-purchase price and cash price of the goods to which the agreement relates;
 the amount of each of the installments by which the hire purchase price is to be paid and the date
(or the mode of determining the date) upon which each installment is payable;
 a description of the goods sufficient to identify them.
v. the agreement must contain a notice setting out the rights of the hirer which is at least as prominent as
the rest of the contents of the agreement.
vi. the hirer must make and sign the agreement.
vii. A copy of the agreement must be delivered or sent by registered post by the owner to the hirer within
21 days of the date of the agreement.
d) Avoidance of certain provisions in agreements: Section 7: These are safeguards meant to deter the owner
from unilaterally seeking to exclude or limit the rights of the hirer. The Act makes the following types of
provisions in a HP agreement void, where:
i. the owner or any person acting on his behalf is authorized to enter upon any premises for the purpose
of taking possession of goods which have been let under a hire-purchase agreement, or is relieved from
liability for such an entry;
ii. the right conferred on a hirer to terminate the hire-purchase agreement is excluded or restricted;
iii. any liability beyond that imposed by Section 12 is imposed on a hirer by reason of the termination of
the hire-purchase agreement by him under that section;
iv. a hirer, after the termination of the hire-purchase agreement or the bailment in any manner whatsoever,
is subject to a liability which exceeds the liability to which he would have been subject if the
agreement had been terminated by him;
v. any person acting on behalf of the owner in connexion with the formation or conclusion of a hire-
purchase agreement is treated or deemed to be the agent of the hirer;

10
November 2016: What are the essential elements of a hire purchase agreement?
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
5
 vi. an owner is relieved from liability for the acts or defaults of any person acting on his behalf in
connexion with the formation or conclusion of a hire-purchase agreement.
e) Conditions and warranties implied in HP agreements:11 Section 8: In every hire-purchase agreement
there must be implied a:
i. condition that the:
 owner will have a right to sell the goods at the time when the property is to pass;
 goods will be of merchantable quality except where the goods are second-hand goods and the
agreement contains a statement to that effect;
 the legal ownership of, and title to, the goods shall automatically be vested on the hirer upon
payment by him of full hire purchase price;
 Where the hirer expressly or by implication makes known the particular purpose for which the
goods are required, there shall be implied a condition that the goods will be reasonably fit for that
purpose.
ii. warranty that the:
 hirer shall have and enjoy quiet possession of goods;
 goods will be free from any charge or encumbrance in favour of a third party at the time when the
property is to pass.
However, no condition can be implied as regards defects of which the:
i. owner could not reasonably have been aware at the time when the agreement was made; or
ii. hirer has examined the goods or a sample of them, as regards defects which the examination revealed
or ought to have revealed.
The conditions and warranties set out above are implied notwithstanding any agreement to the contrary and
the owner cannot be entitled to rely on any provision in the agreement excluding or modifying a condition
set out above unless he proves that before the agreement was made, the provision was brought to the notice
9. CHANGE OF ADDRESS AND REMOVAL OF GOODS FROM PREMISES: Section 9: The owner
of goods under a HP Agreement may stipulate in the agreement that:
a) the hirer must record his postal, residential and business addresses in the agreement; and
b) if the hirer changes either his postal, residential or business address or removes or allows the goods or part
thereof to be removed from any premises for keeping at other premises, he shall, before such change or
removal, notify the owner or his agent, in writing, of:
i. his new postal, residential or business address;
ii. the premises to which the goods are to be removed;
iii. the name and postal, residential and business addresses of the landlord, if any, of the new premises but,
no such stipulation can require the hirer to notify the owner more than 96 hours before the time of the
change or removal. Where the landlord is given notice, s/he cannot have any right of distress over the
goods for rent.
Failure to notify the owner, attracts a fine not exceeding Ksh.2,000 payable by the hirer.

11
November 2013: Write short notes on conditions and warranties implied in every hire-purchase agreement.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
6
 Removal of goods from Kenya: Section 10: The owner of goods under a HP Agreement may stipulate in
the agreement that the hirer should not remove or permit the removal of the goods from Kenya without the
written consent of the owner. Where the hirer breaches this stipulation with intent to deprive the owner of
his ownership of the goods or to defeat the rights of the owner to obtain any payment due to him under the
agreement, he shall be liable to pay a fine not exceeding Ksh.10,000 or, imprisonment for a term not
exceeding one year, or to both. Where the owner believes that the goods have been removed or, are being
removed or, are about to be removed from Kenya without his written consent, he may make an application
to the Court on summons or ex parte on the respondent for an order of ‘attachment of the goods.’ However,
the Court may require the applicant to give such security for damages as may be caused by the order as it
may think fit. An order for the attachment of goods:
a) may be discharged or varied by the Court on cause shown by any person affected by the order and on
such terms as to costs as the Court may think fit; and
b) shall ipso facto be discharged upon the respondent giving security both for the value of the goods to
which the order relates and for the applicant’s costs.
Court may allow goods to be removed: Section 11: Where the terms of a HP Agreement require the hirer
to keep the goods comprised in the agreement in his possession or control at a particular place or, not to
remove the goods from a particular place, the Court may, on the application of the hirer and after hearing
any representations made by the owner, make an order approving the removal of the goods to some other
place within Kenya, which place shall thereafter, for the purposes of the agreement, be substituted for the
first-mentioned place.
10. RIGHTS OF THE HIRER: Right to:
a) buy the goods at any time by giving notice to the owner and paying the balance of the HP price less any
rebate;
b) have and enjoy quiet possession of goods;
c) return the goods to the owner;
d) terminate the hire-purchase agreement;
e) assign both the benefit and the burden of the contract to a third person with the consent of the owner;
f) Where the owner wrongfully repossesses the goods, the hirer has the right of: i) protection, ii) notice, iii)
repossession, iv) statement, v) excess amount.
11. DUTIES OF THE HIRER AND REMEDIES UNDER HP AGREEMENTS: If the hirer is to be
released from his contractual liabilities then s/he must fulfil the following duties:
a) Duty to take delivery of the goods: Failure to take delivery or to reject the goods amounts to a fundamental
breach which would allow the owner to treat the contract as repudiated.
b) Duty to take reasonable care of the goods: Breach of this duty gives the owner the right of civil action for
damages in negligence.
c) Duty to inform the owner where the goods will be kept.

Dr. Ratemo Tom

Kenyatta University School of Law, Parklands, Nairobi.
7
 d) Duty not to remove the goods: The hirer is under an obligation to keep the goods at the premises disclosed
in the HP agreement and not to remove them from Kenya without the written consent of the owner. 12
e) Duty to pay the HP instalments: Failure to pay the instalments when they fall due amounts to a serious
breach which entitles the owner to terminate the HP agreement, and to repossess the goods subject to the
provisions of Sections 12 and 15 of the Act
f) Duty to continue with the hire for the agreed period: and not to re-let or sell or part with possession of the
goods.

12. TERMINATION OF HP AGREEMENTS13:

 Mode of termination: A HP agreement may be terminated by either party in accordance with the terms of
HP Agreement or pursuant to the Act in any of the following ways, by:
a) performance, in which case the parties are fully discharged from their respective obligations;
b) notice by the hirer in accordance with the Act: Section 12: At any time before the final payment under
a HP Agreement falls due, the hirer may terminate the agreement by:
i. returning the goods to the owner, and
ii. giving owner written notice of termination of the agreement.
However, the hirer will be liable to pay:
i. the amount, if any, by which one-half of the hire-purchase price exceeds the total of the sums paid
and the sums which were due in respect of the hire purchase price immediately before the
termination or such lesser amount as may be specified in the agreement;
ii. damages for the failure to take reasonable care of the goods;
iii. expense of returning the goods to the premises from which they were originally supplied to him or
to such other place as the owner may direct. But, the owner must reimburse the hirer for any
additional expense incurred in returning the goods to premises other than those from which they
were originally supplied.
c) breach on the part of either party, in which case the aggrieved party acquires a right of action for
compensation.
d) rescission of the agreement for fraud, misrepresentation or mistake.
In the case of agreements within the statutory control, the following additional modes of termination
are available to the hirer or buyer:
i. cancellation within the cancellation period; and
ii. termination under the statutory right.
 Notice of default: In a HP agreement, certain restrictions are placed on the right of the owner/seller to
terminate a HP agreement, or to recover possession of goods let. Thus, if the agreement contains a
provisions that in a default in the payment of one or more installments or other sums payable, the
agreement or bailment is to terminate, or the owner/seller has a right to recover possession, such

12
Ss.9 & 10, the Hire Purchase Act, Cap 507.
13
November 2013: State the rights of the hirer to terminate a Hire Purchase Agreement and the significance thereof.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
8
 consequences cannot follow default unless the owner/seller serves on the hirer/buyer a ‘notice of default’
stating the amount due but unpaid and requiring payment within a specified period of at least seven days.
Where a notice is served, the consequences do not follow before the end of the period and do not follow
after payment by hirer/buyer or any guarantor.
 Carrying out any installation: Where the owner/seller is required by HP agreement to carry out any
installation and the agreement specifies, as part of the hire purchase or total purchase price, the amount to
be paid in respect of the installation, the hirer/buyer is liable for the aggregate of such amount and one-half
of the remainder of the hire purchase or total purchase price.
 Duty of seller to inform hirer of cancellation rights: The prospective hirer/buyer must be informed of his
cancellation rights in the prescribed statutory copies. The right exists where such a person signs (at a place
other than appropriate trade premises) a document which constitutes a hire purchase, conditional sale, or
credit sale agreement within the statutory control, or which would do so if executed by or on behalf of
another person as owner/seller of the goods to which it relates. The right is exercised by giving notice
within a prescribed period. Thus, at any time after signing the relevant document and before the end of a
period of 4 days beginning with the day on which he receives the second statutory copy, the prospective
hirer/buyer may serve the owner/seller, or his agent with a notice of cancellation.
 Effect of notice of cancellation: On service of a notice of cancellation, any sum:
a) paid by the prospective hirer/buyer in respect of the goods, and
b) which is or would be comprised in the hire purchase or total purchase price, or has, in pursuance of
antecedent negotiations been paid to or for the benefit of the owner/seller, or for the benefit of any
other person who conducted the negotiations;
is recoverable by the prospective hirer/buyer from the person to whom it has been paid.
Moreover, any obligation to pay any sum which, if it had been paid before the service of the notice of
cancellation, would have been so recoverable, is extinguished on the service of the notice.
If the relevant document constitutes a hire purchase, or credit sale, or conditional sale agreement at the time
when the notice of cancellation is served, that agreement is rescinded by service of the notice. In any other
case, service of the notice operates as a withdrawal of any offer to enter into such an agreement which is
contained in the document.
 Reasonable care of goods: Hirer/buyer must take reasonable care of the goods until the end of the period
of 21 days beginning with the date of service of the notice of cancellation. Where he delivers the goods to
an authorised person, or to a person designated by an authorised person, his obligation to take care of the
goods ceases; and, if he sends them to un authorised person, he is under an obligation to take reasonable
care to see that they are received by seller and are not damaged in transit.

13. COMPLETION BY HIRER: Section 13: To complete the HP Agreement, the following conditions must
be met, the hirer must:
a) give notice in writing to the owner of his intention to complete the purchase of the goods;

Dr. Ratemo Tom

Kenyatta University School of Law, Parklands, Nairobi.
9
 b) pay to the owner, on a specified day, the net balance due under the agreement.14
The rights conferred on the hirer by this provision may be exercised by him:
a) at any time during the continuance of the agreement; or
b) within 28 days after the owner has taken possession of the goods, upon paying to the owner in addition to
the net balance due:
i. the reasonable costs incurred by the owner in and incidental to taking possession of the goods;
ii. any amount properly expended by the owner on the storage, repair or maintenance of the goods; and
iii. any additional interest which is due under the agreement.

Form HP 9 (Section 13)

HIRE PURCHASE ACT
NOTICE BY HIRER TO COMPLETE AGREEMENT
From: James Peters (Hirer)
P.O. Box 3983,
Nairobi, Kenya.
To: John Mathayo (Owner)
P.O. Box 4986,
Nairobi, Kenya.
Number and Date of the Hire purchase Agreement …………………………..……………………………
Particulars of the goods …………………………..……………………………
I hereby give you notice that I intend to complete the above mentioned agreement seven days after the date hereof by paying to you
the net balance due to you under the agreement.
I understand that the expression ‘net balance due’ means the balance originally payable under the agreement less any amounts (other
than the deposit) paid or provided, whether by cash or by other consideration, by me or on my behalf under the agreement.
I also understand that if I wish to exercise the rights conferred to me by Section 13 of the Hire Purchase Act, 1978 within the statutory
period of 28 days after you have taken possession of goods, I can only do so upon paying or tendering to you in addition to the net
balance due:
1) the reasonable costs incurred by you in and incidental to taking possession of the goods;
2) any amount properly expended by you on the storage, repair or maintenance of the goods, and
3) any additional interest which is due under the agreement.
Please sign and return the duplicate copy of this notice.
Dated: …………………………..………… …………………………..…………
(Signature of Hirer)
Endorsement on duplicate
Received a Notice of which the above is a copy
Dated: …………………………..………… …………………………..…………
(Signature of Owner)
14. RECOVERY OF POSSESSION BY SUIT (PART VI):
a) Adverse possession: Section 14: Where an owner institutes a suit to enforce a right to recover possession
of goods from a hirer and proves that, before the institution of the suit and after the right to recover
possession of the goods accrued, he made a request in writing to the hirer to surrender the goods, the hirer’s

14
The ‘net balance due’ is the balance originally payable under the agreement less any amounts (other than the deposit) paid or provided, whether
by cash or by other consideration, by or on behalf of the hirer under the agreement.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
10
 possession of the goods shall, for the purpose of the owner’s claim to recover possession thereof, be
deemed to be adverse to the owner.
b) Recovery of possession where two-thirds of price paid: Section 15: Where 2/3 of the HP price of the
goods has been paid, whether in pursuance of the agreement or of a judgment by the hirer or a guarantor,
the owner cannot enforce any right to recover possession of the goods from the hirer otherwise than by suit.
If an owner retakes possession of goods in contravention of this provision, the HP Agreement, if not
previously terminated, shall terminate and the hirer is:
i. released from all liability under the agreement;
ii. entitled to recover from the owner by suit all sums paid by him under the agreement or under any
security given by him in respect thereof; and
iii. the guarantor is entitled to recover from the owner by suit all sums paid by him under the contract of
guarantee or under any security given by him in respect thereof.
c) Provisions where suit instituted: Section 16: Where a suit is instituted to recover possession where 2/3 of
the HP price of the goods has been paid:
i. the owner cannot take any step to enforce payment of any sum due under the HP Agreement or
contract of guarantee relating thereto, except by claiming the sum in the suit;
ii. all parties to the agreement and any guarantor are made parties to the suit;
iii. pending the hearing of the suit, the Court has power to make:
 upon the application of the owner, such orders as it thinks just for the purpose of protecting the
goods from damage or depreciation;
 orders restricting or prohibiting the use of goods or giving directions as to their custody.
iv. on the hearing of the suit, the Court may make an order for the delivery of:
 all the goods to the owner; or
 all the goods to the owner and postpone the operation of the order on condition that the hirer or
guarantor pays the unpaid balance of the HP price at such times and in such amounts and fulfils
such other conditions as the Court thinks just; or
 a part of the goods to the owner and for the transfer to the hirer of the owner’s title to the
remainder of the goods. However, the transfer order cannot be made unless the Court is satisfied
that the amount which the hirer has paid exceeds the price of that part of the goods by at least one-
third of the unpaid balance of the HP price.
Once the Court makes an order for delivery of the whole or part of the goods to the owner, it shall in
the order confer on the owner a right of entry on any premises where the goods may be for the purpose
of obtaining their possession.
v. where the Court awards damages against the owner in the suit, the Court may treat the hirer as having
paid towards the HP price, in addition to the actual amount paid, the amount of the damages or such
part thereof as the Court thinks fit, and remit the damages accordingly.
d) Owner to account for proceeds of sale: Section 25: Where the owner under a HP Agreement enforces a
right to recover possession of the goods from the best price reasonably obtainable, he shall be liable to
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
11
 account for and pay hirer proceeds of sale which exceeds the sum of the unpaid balance of the HP price and
the expenses necessarily incurred by the owner in recovering possession of and selling the goods.
15. LICENSING OF HIRE-PURCHASE BUSINESSES (PART VII):
a) Licence required to carry on hire-purchase business: Section 18: No person should carry on HP
business without a licence. Any contravention attracts a fine not exceeding Ksh.20,000, or imprisonment of
up to one year, or both.
Form HP 11 (Section 18 and 20)
REPUBLIC OF KENYA
HIRE PURCHASE ACT
FORM OF LICENCE
Licence No. ………………………… Expires on: …………………………
LICENCE TO CONDUCT HIRE PURCHASE BUSINESS
I hereby certify that ……………………………………………………………. is licenced to carry on the business of hire purchase in
Kenya subject to the provisions of the Hire Purchase Act, Cap 507 for the period ending 31st December 20 ……….
Given under my hand at Nairobi this ………. day of ………. 20 ……….

………………………………..
Licencing Officer

b) Licensing officer: Section 19: The Cabinet Secretary appoints a public officer to be a Licensing Officer
who shall be in charge of maintaining records of all licences issued by him (Licensing Officer). 15
c) Granting of licences: Section 20: A person may make application for a licence in the prescribed manner
and upon paying a fee of Ksh.1,000, the Licensing Officer shall either:
i. grant a licence either without conditions; or
ii. grant a licence subject to such conditions as he may think fit; or
iii. refuse to grant a licence.
But, where the officer refuses to grant a licence, or imposes conditions, s/he must give to the applicant the
reasons in writing for his action, if the applicant so requests. The licence is valid for 2 years.
In considering an application for a licence, the officer must take into account:
i. the financial condition of the applicant;
ii. the manner in which s/he has previously conducted any HP business, and
iii. may require the applicant to provide such information as he requires to enable him to make a decision.

Form HP 10 (Section 20)

HIRE PURCHASE ACT
APPLICATION TO BE LICENCED AS A HIRE PURCHASE BUSINESS
Name under which applicant seeks to be licenced: ………………………………………………

Address of the Applicant: ………………………………………………

Name of Directors: ………………………………………………

15
See, R.15, the Hire-Purchase (Forms and Fees) Rules, 1970.
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
12
 Name of officers empowered to sign agreements: ………………………………………………

Date: ……………………………………………… ………………………………………………

Chairman
………………………………………………
Director
To be submitted with:
a) Copy of the Memorandum
b) Copy of Articles of Association
c) Copy of Balance Sheet for the 3 years immediately preceding application
d) Statement of Hire Purchase Business conducted for the past 3 years.
e) Statement of Financial House Support (if any).

d) Where renewal of licence is refused: Section 21: Where the holder of a licence applies and is refused a
new licence, or where a person who, before the commencement of the Act was carrying on HP business
applies before the appointed day for and is refused a licence, s/he may continue to carry on HP business
only as is necessary to complete existing HP agreements and wind up the business, and may not enter into
any new HP agreements.
e) Appeals: Section 22: Any person who is refused a licence may appeal to the Cabinet Secretary in writing
within one month after the date of the refusal, and the Cabinet Secretary’s decision shall be final. Where a
person appeals, s/he may continue to carry on HP business until the appeal is decided.
f) Licence to be displayed: Section 23: The holder of a licence must ensure that the licence or a copy thereof
is at all times conspicuously displayed in or on every premises in which he carries on HP business, and if
he fails to do so he shall liable to a fine not exceeding Ksh.1000.

SAMPLE OF HIRE PURCHASE AGREEMENT

Dated as of the ………………………. day of ………………………. 20 ……………………….

XYZ LIMITED
(as “Owner”)

and
KEN PATO
(as “Hirer”)

and
DAVO SIMA
(as “Guarantor”)

HIRE PURCHASE AGREEMENT

Subject to the Hire Purchase Act (Chapter 507, Laws of Kenya)

This HIRE PURCHASE AGREEMENT is made as of the …………..... day of …………..... 20 ………….....
BETWEEN
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
13
1. XYZ LIMITED (Company No. C. 12321) a private company incorporated with limited liability
incorporated in the Republic of Kenya and having its registered office situated in Nairobi and whose
address for the purposes of this Agreement is P.O Box 45654 - 00100, Nairobi (hereinafter called the
"Owner") of the one part;
2. The person identified in Part I of the Schedule hereto as the hirer (hereinafter called the "Hirer" (which
expression shall where the context so admits include the Hirer’s successors, permitted assigns and/or
personal representatives as the case may be) of the second part; and
3. The person identified in Part II of the Schedule hereto as the guarantor (hereinafter called the "Guarantor"
which expression shall where the context so admits include the Guarantor’s personal representatives heirs
and permitted assigns) of the third part.
WHEREAS:
1. The Owner has agreed to let and the Hirer has agreed to hire the Goods (as hereinafter defined) on the
terms and conditions hereinafter appearing which terms and conditions including the Statutory Notices
appearing after the said terms and conditions are deemed to be incorporated in and form part of this
Agreement.
2. The Owner, the Hirer and the Guarantor have entered into this Agreement on the terms and conditions
hereinafter appearing.
TERMS AND CONDITIONS:
1. DEFINITIONS AND INTERPRETATION: In this Agreement (including the recitals the Schedule and
the Statutory Notices), save where the context otherwise requires, the following terms shall have the
following meanings:
"Act" means the Hire Purchase Act (Chapter 507, Laws of Kenya);
"Address" means the address at which the Goods are to be kept as specified in Part I of the Schedule or as
thereafter changed by the Hirer in accordance with this Agreement;
"Business Day" means a day (except a Saturday, Sunday or gazetted public holiday in Kenya) on which
banks open for banking business in Kenya;
"Encumbrance" includes any mortgage or charge (whether legal or equitable);
"Goods" means the assets set out in Part III of the Schedule;
"Hire Purchase Price" means the total sum payable by the Hirer under this Agreement in order to complete
the purchase of the Goods, including the Deposit or other initial payment credited to the Owner;
"Monthly Instalment Payment" means a monthly instalment specified in Part IV of the Schedule;
"Net Balance Due" means the balance originally payable under this Agreement less any amounts (other
than the Deposit) paid, whether by cash or other consideration, by or on behalf of the Hirer under this
Agreement;
"Unpaid Instalment Payment" means any Monthly Instalment Payment which has not been paid either in
full or in part on its respective Repayment Date together with any interest.
Words and expressions defined in the Act shall bear the same meanings ascribed to them in the Act
wherever used herein.
2. CONSIDERATION:
2.1 The total consideration for the hire of the Goods shall be the Hire Purchase Price.
2.2 The Hirer shall pay to the Owner on or before the signing of this Agreement, the Deposit, in
consideration of the right to purchase the Goods as provided for hereinafter, for which credit shall be
given if the Goods are purchased in accordance with this Agreement.
2.3 The Hire Purchase Price less the Deposit shall be paid by the Hirer to the Owner by way of the
Monthly Instalment Payments on the Repayment Dates set out in Part IV of the Schedule.
2.4 Each Monthly Instalment Payment shall be paid by the Hirer by way of a cheque drawn on a prime
commercial bank in favour of “XYZ Limited” which shall be delivered to the Owner’s place of
business specified in this Agreement.
2.5 If the Hirer fails to pay any Monthly Instalment Payment on the Repayment Date, such amount shall be
deemed to be an Unpaid Instalment Payment and the Hirer shall be obliged to pay to the Owner the
Default Interest from (and including) the date on which the Monthly Instalment Payment was due.
2.6 All payments (including prepayments) made by the Hirer to the Owner shall be applied first in the
repayment of all amounts due by the Hirer up to the date of such payment in the following order: first,
in payment of Default Interest (if any) accruing up to the date of such payment; and secondly, in
payment of the principal element of any Unpaid Instalment Payment.
3. COVENANTS BY THE HIRER: The Hirer shall at his own cost and expense:
a) keep the Goods in his own custody and possession at the Address;
Dr. Ratemo Tom
Kenyatta University School of Law, Parklands, Nairobi.
14
 b) keep the Goods in good and substantial repair and condition to the satisfaction of the Owner and shall
indemnify the Owner against all loss damage claims and expenses arising out of any damage to the
Goods howsoever caused;
c) service and/or maintain the Goods in accordance with the Owner’s service and/or maintenance
recommendation schedule;
d) keep the Goods insured at the Hirer’s expense during the continuance of the hiring for their full
replacement value and for uses for which the Goods are being put with full comprehensive or all-risks
covers with insurers to be approved by the Owner;
e) the Hirer irrevocably appoints the Owner to be his sole agent for the receipt of any insurance monies
and for any negotiation or compromise with the insurers as to the amount payable;
f) to punctually pay all premiums or charges payable under the insurance policy and produce the receipts
for such payments to the Owner on demand;
g) in the event of the Goods suffering any damage, the Hirer shall, before incurring any expense in
connection with the repair thereof, notify the Owner who shall be entitled to repair the Goods or have
the same repaired by a person duly authorised and appointed by the Owner to do so at the expense of
the Hirer;
h) punctually pay all licence fees, taxes, registration fees and all other charges payable in respect of the
Goods and/or their use;
i) to comply with and observe all statutes, rules and regulations and instructions of the relevant
authorities in connection with the Goods or the use thereof;
j) obtain all necessary licences, permits and permissions for the use of the Goods and not to use the
Goods or permit the Goods to be used contrary to any laws rules or regulations for the time being in
force;
k) inform the Owner immediately if the Goods are subject to any legal proceedings (whether civil
criminal or otherwise) seizure, forfeiture by any person and the Hirer shall bear all costs and expenses
(including advocate costs) to have the Goods released therefrom;
l) inform the Owner of any change in the Address by notice in writing of not less than 96 hours from the
time of the change or removal of the Goods therefrom; and
m) on request of the Owner, produce the Goods for inspection and testing by the Owner or the Owner’s
agents and any other governmental or regulatory body.
The Hirer shall not:
i. without the prior written consent of the Owner remove or permit to be removed the Goods outside the
borders of Kenya;
ii. conceal the Goods or alter the Goods or any part thereof;
iii. change the registration number or identification mark of the Goods without the prior written consent of
the Owner;
iv. permit any person to operate the Goods except those persons permitted to operate under the terms of
any policy of insurance for the time being in force;
v. use the Goods for any purpose other than those for which the Goods were designed and in accordance
with any instructions contained in any manual book prepared by the manufacturer;
vi. attach to or use in any connection with the Goods any appliances, accessories or devices other than
those recommended for use with the Goods;
vii. use or permit the Goods to be used contrary to the law or in any manner which may cause or result in
the Goods being seized, confiscated or forfeited;
viii. sell, assign, pledge, mortgage, charge, exchange and underlet or otherwise part with possession of the
Goods or any part thereof; or
ix. cause the Owner’s endorsement of the ownership of the Goods to be cancelled, altered or amended.
4. EVENTS OF DEFAULT: If the Hirer shall:
a) not pay to the Owner any Monthly Instalment Payment on the due date for payment; or
b) fail to perform or observe any of the terms and conditions of this Agreement; or
c) cause or permit to be caused anything whereby the rights of the Owner are jeopardised or the value of
the Goods depreciated; or
d) suffer the presentation of a petition for bankruptcy or is unable to pay his debts as and when they fall
due; or
e) have any distress or execution levied on the Goods; or
f) die,

Dr. Ratemo Tom

Kenyatta University School of Law, Parklands, Nairobi.
15
 then, the Owner shall be entitled, subject to giving of notice to the Hirer of not less than 14 days, to demand
that the Hirer return the Goods and/or appropriately pay the Owner, save where the Hirer has paid to the
Owner not less than two-thirds of the Hire Purchase Price.
5. RIGHT OF HIRER TO TERMINATE: The Hirer may, at any time before the final payment under this
Agreement falls due, terminate this Agreement by giving the Owner prior written notice of the Hirer’s
intention to terminate this Agreement in the prescribed form set out in Part VI of the Schedule and by
returning the Goods to the Owner. Thereafter, the Hirer shall:
a) be liable to pay any amount, if any, by which one half of the Hire Purchase Price exceeds the total of
the sums paid and the sums, which were due by the Hirer in respect of the Hire Purchase Price
immediately before the termination; and
b) shall return the Goods to the Owner at the Hirer’s own expense to the premises from which they were
originally delivered to the Hirer or to such other place as the Owner may direct. The Owner shall
reimburse the Hirer for any additional expense incurred in returning the Goods to premises other than
those from which they were originally supplied.
6. HIRER’S RIGHT TO COMPLETE: The Hirer may at any time during the continuance of this
Agreement or within 28 days after the Owner has taken possession of the Goods give notice in writing to
the Owner of the Hirer’s intention to complete the purchase of the Goods.
7. RIGHTS IN BANKRUPTCY: Without prejudice to the Owner’s right to terminate this Agreement, if the
Hirer is adjudged bankrupt, the rights and duties of the Hirer shall vest in his trustee. The trustee shall pay
to the Owner each Monthly Instalment in respect of the Hire Purchase Price which becomes due under this
Agreement during the period the Goods are so used.
8. REPRESENTATIONS & WARRANTIES: The Hirer represents and warrants that all the particulars set
out in this Agreement and all the information provided to the Owner are true and accurate in all material
respects and that he has not withheld disclosure to the Owner of any material facts which would affect the
Owner’s decision to agree to enter into this Agreement with the Hirer. The Hirer confirms that no statement
representation or warranty has induced him to hire the Goods other than on the terms and conditions in this
Agreement.
9. GENERAL: No failure or delay by the Owner in exercising any right or remedy shall operate as a waiver
thereof. Besides, each of the provisions of this Agreement is severable and distinct from the others and if at
any time one or more of such provisions is or becomes invalid or unenforceable, the validity and
enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.
10. NOTICES: Any notice or demand for payment by the Owner shall be deemed to have been properly
served on the Hirer 3 days following the day of posting by:
a) delivering the said notice or demand personally; or
b) leaving the said notice or demand at the Hirer’s place of abode; or
c) posting the said notice or demand addressed to the Hirer at the Hirer’s last known place of abode or
business in Kenya.
11. CHANGE IN CIRCUMSTANCES: If any change in applicable law or regulation or in the application or
interpretation thereof by any governmental authority charged with the administration thereof shall: a)
impose or modify the computation of the Hire Purchase Price; b) change the amounts of instalments by
which the Hire Purchase Price is to be paid by the Hirer; or c) modify the rate of interest and/or charges,
then the Hirer shall pay to the Owner on demand such amount as will compensate the Owner for reduced
receipts.
12. LAW: This Agreement shall be governed by and construed in accordance with the laws of the Republic of
Kenya.

IN WITNESS WHEREOF the Owner and the Hirer have executed this Agreement as of the day and year first
hereinbefore written.

……………………………………... ……………………………………...
For and on behalf of the OWNER For and on behalf of the HIRER
In the presence of: In the presence of:
Witness Signature ………………………… Witness Signature …………………………
Witness name: ………………………… Witness name: …………………………
Full Address ………………………… Full Address …………………………
Occupation ………………………… Occupation …………………………

Dr. Ratemo Tom

Kenyatta University School of Law, Parklands, Nairobi.
16
 THE SCHEDULE
PART I - THE HIRER
Particulars of the Hirer
Where Hirer a natural person:
Full Name: (First) ……………. (Middle) ……………. (Last) …………….
Passport /National l. D. Card No. ……………. Driving Licence No. ……………. PIN No. …………….
Postal Address: P. O. Box ……………. (Post Code) ……………. Physical Residential Address: (Road/Street)
……………. (House No.) ……………. (Estate) ……………. (City/Town) ……………. (Province)
……………. (District) ……………. (Location) ……………. (Sub-Location) …………….
(if Employed)
Occupation: …………….…………….
Name of Employer: …………….…………….
Name of Immediate Supervisor: …………….…………….
Monthly Salary: …………….…………….
Employer's Postal Address: P. O. Box ……………. (Post Code) …………….
Employers Physical Address: (Building) ……………. (Road/Street) ……………. (City/Town) ……………
(Province) ……………. (District) ……………. (Location) ……………. (Sub-Location) …………….
(If Self Employed)
Name of Business: …………….…………….…………….
Full Postal and Physical Business Address: P. O. Box ……………. (Post Code) ……………. (Building)
……………. (Road/Street) ……………. (City/Town) ……………. (Province) ……………. (District)
……………. (Location) ……………. (Sub-Location) …………….
Address where the Goods will be kept:
(Building) ……………. (Road/Street) ……………. (House No.) ……………. (Estate) …………….
(City/Town) ……………. (Province) ……………. (District) ……………. (Location) ……………. (Sub-
Location) …………….

PART II - THE GOODS

Motor Vehicles
Make ……………. Model ……………. H.P or C.C ……………. Year of Manufacture ……………. Chassis
No. ……………. Engine No. ……………. Registration No. ……………. Type of Body ……………. New or
Used ……………. Petrol or C.I …………….
Full Details of Accessories: …………….…………….
Insurer: …………….…………….
Policy/Cover Note No: …………….…………….
Type of Cover: …………….…………….
Other: …………….…………….
Other Goods: …………….…………….

Dr. Ratemo Tom

Kenyatta University School of Law, Parklands, Nairobi.
17