Management 202: Hire Purchase



Hire Purchase Law

A person who wants to buy goods but does not have sufficient money consideration as the price may enter into an arrangement with the owner of goods so that the goods are given to him on hire with intention of finally purchasing them. This arrangement is known as a hire purchase agreement.

A hire Purchase agreement means an agreement whereby the owner agrees to lend out the goods on hire to the hirer on condition that the hirer will pay certain periodic installments. The person who lets out goods on hire is called the owner while the person to whom the goods are given on hire is the hirer.

Hire purchase agreement matters in Kenya are regulated by the provisions of the hire purchase Act (Cap 507) This Act came into operation on 2nd November 1970. It contains rules regulating hire purchase Agreement, their licensing and other matters connected with such agreements.

A hire purchase agreement may also include a contract of Guarantee. This is a contact entered into at the request of the Hirer to guarantee the hirer’s performance of his obligations under a hire purchase.


Like every other contract, a hire purchase agreement must contain all the essential elements of an ordinary contract such as offer and acceptance, lawful objectives, lawful consideration, capacity to contract and so on.

Under a hire purchase agreement, the hirer agrees to pay for the goods by periodic installments. On signing the agreement only possession of the goods is passed to the hirer. However ownership of goods remains with the owner until the hirer pays the final installmemt.

Under the hire purchase agreement, if the hirer fails to pay any installment, the owner has the right to reposses the goods from the Hirer and the hirer will have no right to reclaim the installments paid. Such installments as already paid are treated as the cost of hiring the goods and using them.

In a hire purchase agreement, the hirer has the right to terminate the agreement at any time before its due date and return the goods to the owner after fullfiling certain conditions.

In a hire purchase agreement the sale becomes complete and effective only when the hirer pays the final installment. On payment of the last and final installment ownership of goods is automatically trnasfered from the owner to the hirer. Untill then it’s a contract of hiring goods only.



© 2016 Management Tutorials Africa




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