When people think of property, they picture land, buildings, cars, or shares. When it comes to business, value is not only found in bricks and mortar — sometimes, the most significant asset is the one you cannot see or touch: goodwill.
What is Goodwill as property in Kenya?
Goodwill refers to the reputation, customer loyalty, brand recognition, and other non-physical attributes that contribute to a business’s continued patronage and profitability. In contrast to real estate, which can be seen, felt, or valued separately, goodwill is ingrained in a company’s reputation, especially the possibility that current clients will keep using its products or services.
In the case of Heineken East Africa Import Company Limited & another v Maxam Limited (Civil Appeal E403 & E404 of 2020 (Consolidated)) [2024] KECA 625 (KLR), Heineken East Africa, a Kenyan subsidiary of Heineken International B.V., signed a distributorship agreement with Maxam Limited. Maxam became the exclusive distributor of Heineken beer in Kenya. Maxam invested heavily and rented warehouses, bought trucks, and hired staff to build a distribution network specifically for Heineken. This investment was based on the expectation of a long-term partnership. Heineken EA later through Heineken BV, sent Maxam a termination notice, abruptly ending their distributorship agreement. Maxam sued Heineken EA and Heineken BV (collectively Heineken) challenging the validity of the termination. The Court of Appeal held that investments made by distributors in Kenya may give rise to irrebuttable goodwill, which would then qualify as property. The Court acknowledged that goodwill:
- Can be created through investment, branding, marketing, and customer relations.
- Has economic value and can be subject to compensation or loss claims.
- Deserves protection under the law, especially where one party’s actions unjustly deprive another of goodwill developed over time.
What is Goodwill as property in Kenya?
Some of the factors that can influence the goodwill of a property in a real estate transaction include the property’s location, its brand reputation, the condition of its physical assets, the level of customer loyalty, and the strength of its employee relations.
Is goodwill recognized as property under the Constitution?
In the case of Jovet (Kenya) Limited v Bavaria NV (Petition E039 of 2024) [2025], Bavaria N.V. (Bavaria) (now Swinkels Family Brewers N.V.) entered into a distribution agreement with Jovet (Tanzania) Limited (Jovet Tanzania) giving it the right to exclusive distribution of its branded non-alcoholic beverages in Kenya and Tanzania. Jovet (Kenya) Limited (Jovet Kenya) later entered into a private arrangement with Jovet Tanzania which allowed it to market and distribute Bavaria’s products in Kenya. In 2015, when Bavaria did not renew its distribution agreement with Jovet Tanzania in relation to the Kenyan market, Jovet Kenya filed suit seeking exclusive distributorship of Bavaria’s products in Kenya and orders that it had acquired goodwill in relation to the products in Kenya. Jovet Kenya further asserted that its significant investment in the marketing and distribution of the said products generated goodwill that constitutes property protected under Article 40 of the Constitution of Kenya. In considering whether goodwill is intangible property that ought to be protected under Article 40 of the Constitution, the Supreme Court held that goodwill qualifies as property only when it is identifiable, whether independently or alongside other assets and when a measurable value can be attributed to it. Accordingly, this form of goodwill is entitled to protection under Article 40 of the Constitution.
What is the way forward for businesses with regards to goodwill?
- Need for clear agreements – Businesses, especially in multi-layer distribution or agency models, should engage legal professionals who will ensure such agreements and contracts address goodwill.
- Strategic risk management: Untested assumptions about “informal” or undocumented arrangements can lead to loss of goodwill without remedy.
In conclusion, the recognition of goodwill as property in Kenya underscores a shift toward more nuanced protection of intangible assets. Whether you are a manufacturer, distributor, franchisor, or investor, it is time to start treating goodwill like the property it is — valuable, protectable, and enforceable.
Should you require any further information, do contact us at info@cfllegal.com.
