Key Takeaways

  • An assignment clause determines if and how rights, duties, or interests under a contract can be transferred to another party.
  • Without an express restriction, most contract rights are generally assignable under U.S. law.
  • Common restrictions include requiring written consent, prohibiting assignment entirely, or allowing assignment only under limited conditions.
  • Exceptions often apply in sensitive contexts, such as intellectual property licenses or contracts involving personal services.
  • Courts may impose a duty of reasonableness on parties withholding consent to assignment.
  • Drafting variations—such as absolute prohibitions, conditional consents, or carve-outs for financial assignments—can significantly change the effect of the clause.

An assignment clause spells out which contractual obligations, rights, and duties may be transferred from one of the contractual parties to another party. The assignment may be in whole or in part, and the clause also details the conditions under which a party can assign these duties.

U.S. law dictates that most contractual rights can be freely assigned or delegated, unless an agreement states otherwise.

The assignment clause often overlaps with two other clauses:

  • Parties in Interest
  • Successors and Assigns

These control who assumes contractual rights and obligations.

Legal Background and Freely Assignable Rights

When one party in a contract “assigns” the agreement to someone else, this means the first party — the assignor — transfers its contractual rights and obligations to the second party — the assignee.

In some instances, one party will not want the other contractual party to freely assign its duties. Contracts will then include language that states this.

One exception to the general assignability rule is intellectual property licenses. Legally, a licensor must first give consent before an IP licensee can assign or delegate its rights or obligations, even in the case where the license agreement is silent.

Common Types of Assignment Clauses

Assignment clauses are not one-size-fits-all. They can take several different forms depending on how much control each party wants over the transfer of contractual rights:

  • Absolute Prohibition: The contract explicitly forbids assignment under any circumstances.
  • Consent Required: Assignments are allowed, but only with prior written consent of the non-assigning party.
  • Consent with Exceptions: Assignments are generally prohibited, except in situations like mergers, acquisitions, or transfers to affiliates.
  • Financial Assignment Carve-Out: Some clauses permit assignments related to payment obligations (e.g., collateral or absolute assignments to lenders) without requiring consent.

Understanding which type of assignment clause governs your contract is critical, as the enforceability and business consequences differ significantly

Requirements for Assignment Consent

There are different ways to say the same thing in a contract. Some people prefer lengthier statements, and others like to keep things brief. The following are various ways to make the same points.

  • One contractual party isn't allowed to assign its agreement to another person without prior written consent of the other contractual party, except as provided for in the contract. If an assignment is made without this consent, it won't be considered valid.
  • One party may not assign any interest or right arising out of this contract — in whole or in part — without prior consent.
  • To keep all doubts at bay, no consent is required for an assignment — including collateral, absolute, or other — for a contractual right to payment.

These are the takeaways from these stipulations:

  • This type of requirement for an assignment clause can create obstacles for the non-assigning party in corporate reorganizations or future mergers.
  • The party that's being asked to consent to an assignment clause requirement may want to negotiate its position. For instance, it may find negotiations helpful in a situation when the assignment involves a substantial sale.

Exceptions and Non-Assignable Rights

Even when contracts are silent, certain rights are considered non-assignable by law. Examples include:

  • Personal Service Contracts: Agreements that rely on unique skills, trust, or reputation (e.g., employment contracts, artist agreements).
  • Government Contracts: Many public contracts include statutory restrictions on assignment.
  • Intellectual Property Licenses: Most IP licenses require explicit consent for transfer, even if the agreement doesn’t state so.

These limitations exist to protect the expectations of the non-assigning party. For instance, a company may not be compelled to accept a substitute service provider with different expertise or business reputation

A Party May Not Unreasonably Withhold or Delay Consent

It's not permissible to hold up consent to unreasonable delays.

Other ways to state this include:

  • To avoid doubt, a party that suffers damage due to the unreasonable delay or withholding of consent by the other party can treat them as direct damages.
  • To avoid doubt, damages that arise to one party from the unreasonable delay or withholding of consent by the other party aren't excluded from remedies.

Even when these provisions aren't in place, the law may still impose a reasonableness requirement. This requirement may not hold a lot of practical value, whether it's implied by the law or contractual. A reasonableness requirement can't guarantee that the non-assigning party will give consent when the assigning party wants it. By the time a case has worked its way through the court system to a decision, the deal that the assigning party was working on could have fallen through or otherwise be negated or moot.

However, this provision for unreasonable withholding should get the non-assigning party to carefully consider taking too much time due to the prospect of being held liable for damages. This can result in costly consequences.

On the other hand, having an unreasonable delay provision could create conflict with the provision concerning material breach of contract.

When you enter into a contract, it's important that you know what your rights and obligations are, as well as the other party's rights and obligations. If you don't want certain outcomes — assignment of duties, for instance — you must usually make it clear in the agreement. Getting help from a legal professional in the contract law field is a good idea when writing up a contract. That way, you increase the chances of covering everything you want covered, from the finer points to the bigger ones.

Drafting Tips and Practical Examples

When drafting or negotiating an assignment clause, parties should carefully consider future business needs. A few practical approaches include:

  • Carve-Out for Corporate Transactions: Allow assignments in mergers, sales, or internal reorganizations without consent.
  • Notice Requirement Instead of Consent: Replace “consent required” with an obligation to notify the non-assigning party.
  • Sample Clause (Pro-Assignee):
    “This Agreement may be assigned by either party to any successor by merger or acquisition, or to an affiliate, upon written notice to the other party.”
  • Sample Clause (Pro-Non-Assigning Party):
    “Neither party may assign this Agreement or any rights hereunder without the prior written consent of the other party, which may be withheld in such party’s sole discretion.”

Including tailored assignment provisions reduces disputes and provides clarity during reorganizations, financing, or acquisitions.

Frequently Asked Questions

1. What is the purpose of an assignment clause?

It defines whether a party can transfer its contractual rights and obligations to another, ensuring stability and predictability in business agreements.

2. Are all contracts assignable by default?

Most contracts are assignable unless they involve personal services, intellectual property licenses, or have express prohibitions.

3. Can a party refuse consent to assignment?

Yes, but many contracts and courts impose a duty not to unreasonably withhold or delay consent.

4. What happens if a contract is assigned without consent?

The assignment may be invalid, and the non-assigning party could seek remedies, including termination or damages.

5. How should businesses draft assignment clauses?

They should balance flexibility and protection, considering carve-outs for mergers, reorganizations, or financing, while ensuring non-assigning parties remain protected.

If you need help with contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.