Commercial Law (ATP 108)
Kenya School of Law
Advocates Training Programme
Hire Purchase, A Comparative Analysis
1.0 SCOPE
This paper will go over five benefits that the Hire Purchase Act (Cap 507) provides to
transactions to which it applies. Some of these are inherent aspects of the agreement,
while others are unique to agreements subject to the Act.
The study will also explore five areas of the Hire Purchase Act that need revision, as
well as comparative analyses from other jurisdictions.
As one might assume, an advantage for a hirer may be seen as a disadvantage for the
seller or owner of the products, and vice versa. The ultimate value of the underlying
contract, however, is the additional possibilities that it provides to both buyers and
sellers, enabling the interchange of products and, as a result, boosting commercial
business.
1.1 INTRODUCTION
A Hire Purchase (HP) agreement is a method of purchasing merchandise such as motor
vehicles, furniture, or machinery in which the buyer takes immediate possession of the
item(s) after paying an initial deposit and completes the purchase by paying a series of
regular agreed-upon instalments. The vendor retains possession of the item throughout
this time until the final installment is paid. This definition is consistent with Hire
Purchase Act Section 2 (1) [1]. It is also a contract in which the owner of things lends
them out to another person for an agreed-upon periodic rent payment in installments
and provides him the option to purchase [2]. The process involves the drafting and
-1-
, signing of an agreement between the hirer (the consumer) and the owner (the lending
institution).
1.2 STANDARD PROVISIONS
An HP agreement must be in writing and signed by both parties to be valid. It must
explicitly state the following:
1. A detailed description of the goods.
2. The purchase price in cash.
3. HP price, i.e. the entire amount required to hire and subsequently purchase the
products.
4. The down payment.
5. Monthly payments (Most states mandate disclosure of the applicable interest rate and
control the rates and fees that can be applied in HP transactions.)
6. A suitably detailed summary of the parties' rights (which may include the right to
cancel the agreement after a "cooling-off" period)
7. The hirer's right to end the contract if he or she desires for a legal reason.
1.3. THE SELLER AND THE OWNER
If the seller has the resources and the legal permission to sell the items on credit (which
in most countries is based on a licensing system), the seller and the owner will be the
same individual. However, most sellers prefer to be paid in cash right away. To
accomplish this, the seller transfers ownership of the products to a finance firm, usually
at a reduced rate, and this company hires and sells the commodities to the buyer. The
presence of a third party complicates the transaction. Assume the seller makes
misleading statements about the quality and dependability of the items, inducing the
consumer to "buy."
-2-
Kenya School of Law
Advocates Training Programme
Hire Purchase, A Comparative Analysis
1.0 SCOPE
This paper will go over five benefits that the Hire Purchase Act (Cap 507) provides to
transactions to which it applies. Some of these are inherent aspects of the agreement,
while others are unique to agreements subject to the Act.
The study will also explore five areas of the Hire Purchase Act that need revision, as
well as comparative analyses from other jurisdictions.
As one might assume, an advantage for a hirer may be seen as a disadvantage for the
seller or owner of the products, and vice versa. The ultimate value of the underlying
contract, however, is the additional possibilities that it provides to both buyers and
sellers, enabling the interchange of products and, as a result, boosting commercial
business.
1.1 INTRODUCTION
A Hire Purchase (HP) agreement is a method of purchasing merchandise such as motor
vehicles, furniture, or machinery in which the buyer takes immediate possession of the
item(s) after paying an initial deposit and completes the purchase by paying a series of
regular agreed-upon instalments. The vendor retains possession of the item throughout
this time until the final installment is paid. This definition is consistent with Hire
Purchase Act Section 2 (1) [1]. It is also a contract in which the owner of things lends
them out to another person for an agreed-upon periodic rent payment in installments
and provides him the option to purchase [2]. The process involves the drafting and
-1-
, signing of an agreement between the hirer (the consumer) and the owner (the lending
institution).
1.2 STANDARD PROVISIONS
An HP agreement must be in writing and signed by both parties to be valid. It must
explicitly state the following:
1. A detailed description of the goods.
2. The purchase price in cash.
3. HP price, i.e. the entire amount required to hire and subsequently purchase the
products.
4. The down payment.
5. Monthly payments (Most states mandate disclosure of the applicable interest rate and
control the rates and fees that can be applied in HP transactions.)
6. A suitably detailed summary of the parties' rights (which may include the right to
cancel the agreement after a "cooling-off" period)
7. The hirer's right to end the contract if he or she desires for a legal reason.
1.3. THE SELLER AND THE OWNER
If the seller has the resources and the legal permission to sell the items on credit (which
in most countries is based on a licensing system), the seller and the owner will be the
same individual. However, most sellers prefer to be paid in cash right away. To
accomplish this, the seller transfers ownership of the products to a finance firm, usually
at a reduced rate, and this company hires and sells the commodities to the buyer. The
presence of a third party complicates the transaction. Assume the seller makes
misleading statements about the quality and dependability of the items, inducing the
consumer to "buy."
-2-
