The long-term benefits of a contract may provide security; however, conditions may transform. If one of the parties decide to end the contract, the risks of not adhering to it or terminating it could result in legal action against them.
As a safer option, transferring the contract to another person or company is possible.
To ensure a secure transition and understanding of rights and obligations, it’s essential to become familiar with the relevant laws related to the contract assignment.
What does assignment of a contract mean?
In business contracts, assignment refers to transferring an agreement's rights, obligations, and property to another party.
For example, most commercial tenancy agreements include a clause allowing the tenant to assign their lease to a third party, and that third party becomes the new tenant.
Unfortunately, assigning a contract does not provide you with complete security. You remain responsible for obligations and liabilities incurred before the assignment.
Let's look at the assignment of a commercial property. The person assigning the contract (the assignor) will be liable to pay the rent owed under the tenancy agreement if the new tenant (the assignee) defaults on payment.
Can the burden of a contract be assigned?
The burden of the contract cannot be assigned. If the assignee fails to perform any of the contractual obligations, the other party can turn to you and demand you undertake any outstanding performance responsibilities.
If you want to transfer the burden of the contract along with its benefits, the agreement must be novated. Novation extinguishes the original contract and replaces it with another, under which a third party takes up rights and obligations, duplicating those of one of the parties to the original contract.
The outgoing party surrenders its rights and is released from its obligations.
How do I assign a contract?
Contracts are normally assigned to a subsidiary, a business owned by another business, or a successor, the business that emerges from a sale, merger, or acquisition.
Say you run a catering business that merges with a small hotel. The contracts held by the party may be assigned to the new business arising from the catering company/hotel merger.
A clause providing the right to assign a contract can be inserted into a commercial contract or real estate, as can a term prohibiting assignment, called an anti-assignment clause. The assignor and the assignee must carefully read the assignment's terms and follow the agreement's process.
Can a contract be assigned without consent?
If the contract is silent on whether or not the benefit of the agreement can be assigned, then in principle, assignment can take place without the other contracted party’s consent.
However, certain contracts cannot be assigned, for example, contracts with personal rights, such as an agreement between an author and a publisher or a sportsperson and their agent.
You must obtain consent from all parties to the original contract and the third party agreeing if you want to novate a contract.
Can you assign part of a contract?
You cannot assign part of a contract if the benefit is a ‘chose in action’.
A ‘chose in action’ refers to the personal rights over property that can only be claimed or enforced via legal action. For example, you cannot assign only the intellectual property rights of a contract, as these can only be enforced by bringing a claim to court.
A ‘chose in action’ is sometimes called the ‘right to sue’. This is a highly complex area of law, and you must speak to one of our Contract Law Solicitors before making any attempt to assign a contract.
Does the assignment of contracts need to be notarised?
No, the assignment does not have to be notarised to be a valid assignment.
Can I leave a contract assignment early?
Technically, you can leave early, as the burden of the contract cannot be assigned; you could walk away, leaving the assignor to carry out their remaining responsibilities under the original agreement.
However, the other party to the contract and the assignor may bring a claim against you for other breaches related to the original agreement or the assignment.
Get legal assistance from LawBite
When considering the risk associated with assigning a contract, seeking professional legal advice is highly recommended.
Starting at just £180 + (VAT) for a small review, our expert contract lawyers will be able to look through your contract precisely to determine whether assigning it is possible. With our expertise, you can trust that your rights and interests will be safeguarded. Book a free 15 minute consultation or call us on 020 3808 8314.
