Assignment of Contract: Rights, Limits, and Legal Steps

Key Takeaways

• An assignment of contract transfers one party’s rights and obligations to another, subject to notice and often consent from the other contracting party.
• Assignments can apply to real estate, loans, intellectual property, or business contracts, but may be limited by anti-assignment clauses or public policy.
• A valid assignment requires clear intent, proper documentation, and—where necessary—the consent of the non-assigning party.
• Certain obligations, like personal services or future wages, cannot legally be assigned.
• Understanding the distinction between assignment (rights) and delegation (duties) helps avoid invalid transfers or unintended liability.
• UpCounsel connects clients with experienced attorneys who can draft, review, or enforce assignment agreements.

What Is Assignment of Contracts?

Assignment of contracts is the legal transfer of the obligations and benefits of a contract from one party, called the assignor, to another, called the assignee. The assignor must properly notify the assignee so that he or she can take over the contractual rights and obligations. This can be done using a document called an assignment agreement, which allows you to protect your legal rights while transferring the contract.

An assignment agreement is appropriate for your needs if the following are true:

• You want to transfer your contractual rights, responsibilities, and obligations to another individual or company.
• You or your business is taking over a contract from another person or business.

The assignment agreement includes the names of the assignor and assignee, the name of the other party to the contract in question (known as the obligor), the contract's title and expiration date, whether the obligor needs to consent to the rights transfer based on the original terms of the contract, when the obligor consented, when the assignment agreement takes effect, and what state will govern the transferred contract. The assignment agreement may also be called the contract assignment, assignment contract, or assignment of contract.

While assignment contracts are typically only used for amounts of less than $5,000, you can assign a higher profit contract when both the buyer and seller agree. You cannot assign a contract if the original contract prohibits doing so. 

If you are assigning a contract, you may want to ask the obligor to sign a release, or waiver, agreement that releases you from contract liability. In addition to transferring rights and obligations, you can also use an assignment agreement to transfer an income stream to an assignee. However, when transferring rights to intellectual or personal property, it's best to instead use a trademark assignment, bill of sale, or assignment of trade name.

Key Elements of a Valid Assignment

For an assignment of contract to be legally enforceable, several elements must be satisfied:

1. Intent to Assign: The assignor must clearly express an intention to transfer their rights and duties to the assignee.
2. Identifiable Subject Matter: The contract being assigned must be described with sufficient detail so that all parties understand what’s being transferred.
3. Consideration: While not always required, consideration—such as payment or another benefit—can strengthen enforceability.
4. Notice to the Obligor: The party responsible for performance (the obligor) must be notified. Without notice, the obligor may continue performing under the original terms unaware of the change.
5. Compliance with Contract Terms: If the contract includes an anti-assignment clause or requires consent, those conditions must be met before the assignment is effective.

Courts typically look for clear, written evidence that both parties intended and agreed to the assignment. Oral assignments may be recognized but are harder to enforce, especially in complex transactions like real estate or business sales.

Common Types of Contract Assignments

Assignments of contract occur across many industries. Common types include:

• Real Estate Assignments: A wholesaler assigns their purchase rights in a property to an end buyer for a profit.
• Business Contracts: Companies assign service agreements, lease rights, or supply contracts during mergers or acquisitions.
• Sales Contracts: A seller may assign a supply agreement to another vendor to fulfill obligations.
• Loan Assignments: Lenders may assign promissory notes or loan agreements to another financial institution.
• Intellectual Property Licensing: Rights to use copyrighted works, patents, or trademarks may be assigned in licensing arrangements.

Each type may involve unique consent, notification, and legal obligations depending on the contract and jurisdiction.

Real-World Applications and Industry Examples

Assignments are common across multiple sectors:

• Construction Contracts: Developers may assign rights to subcontractors to complete specific portions of a project.
• Franchise Agreements: A franchise owner may assign operational rights to a new franchisee upon sale of the business, with franchisor approval.
• Loan Portfolios: Financial institutions routinely assign loans to other lenders or investors, transferring the right to collect payments.
• Commercial Leases: Tenants may assign their lease to another tenant, but landlords often require written consent before approval.
• Technology and IP Agreements: Licensing deals may include provisions allowing companies to assign rights to affiliates or successors in merger transactions.

Each assignment type carries its own legal nuances, particularly when it comes to notice requirements and the assignor’s continuing liability.

How Do Assignments Work?

The procedure for assigning a contract depends on the language of that contract. For example, some contracts may disallow assignment, while others may allow it only when the obligor consents.  In some cases, the assignor is not relieved of contract liability. This occurs when the original contract has a clause that guarantees performance regardless of assignment.

If you want to buy a contract, look for sellers in newspaper ads, online marketing, and direct mail. In most cases, it makes the most sense to use multiple strategies. For real estate contracts, make sure you conduct a title search on the property in question to make sure there are no liens. You can hire a title company or real estate attorney to ensure that a title is clean before signing an assignment contract.

After you sign the assignment contract, you have interest in the property and can sell it to an end buyer. Market the property through a dedicated website. Once you find a potential buyer, require an earnest money deposit. This is nonrefundable and allows you to make a profit whether or not the deal is successfully completed. If the deal is completed, the end buyer wires funds to cover the sale price of the property along with your stated fee. 

In some cases, you can make a profit just by referring a buyer to an appropriate property and taking a finder's fee. With this strategy, you assign your rights to the buyer, allowing them to close on the property, after which you receive your fee. This is a low-risk endeavor if you have detailed information on exactly what each buyer is looking for. You'll also need to  have the resources to locate great properties before they hit the market. With those two components, you'll be able to make money as a real estate investor without risking your own capital.You can also close on the property yourself and immediately flip it to another investor.

Legal Consequences and Liabilities

When a contract is assigned, the assignee generally assumes both benefits and burdens of the contract. However, unless the contract or the obligor explicitly releases the assignor, the assignor remains secondarily liable if the assignee fails to perform.

In practice:

• If the assignee breaches the contract, the non-assigning party can often sue both the assignee and the original assignor.
• The assignor may also have a right of indemnification—the ability to recover losses from the assignee if the breach results in damages.
• Courts assess whether the assignment materially alters the obligor’s duties or risks; if so, the assignment may be invalid.

Example: If a contract for high-end, customized goods is assigned to a mass manufacturer, the assignment may be voided due to a substantial change in performance expectations.

Delegation vs. Assignment

It's important to distinguish between assignment and delegation:

• Assignment transfers contractual rights (such as the right to receive payment).
• Delegation transfers duties (such as delivering goods or services).

In many cases, both happen together—but they are legally distinct. A party may assign rights without delegating duties unless explicitly stated. Some duties, especially those involving unique personal services, cannot be delegated at all.

Example: If a contract is for a celebrity performance, the performer cannot delegate that duty to someone else without violating the contract.

When Delegation Is Prohibited

Certain obligations cannot be delegated, even when the contract itself is assignable. Duties that depend on personal skill, reputation, or trust—such as artistic performance, legal counsel, or medical services—are generally non-transferable.

To avoid confusion, contracts often include dual restriction clauses, such as:

“Neither party may assign or delegate any rights or obligations without prior written consent.”

This ensures the original parties retain control over who performs the contract’s obligations. Delegation without authorization can constitute breach of contract, exposing the delegating party to damages.

Steps to Execute an Assignment of Contract

Here’s a general overview of how to assign a contract:

1. Review the Original Contract
   Check for clauses that prohibit or limit assignments.
2. Obtain Consent (if required)
   If the contract requires the obligor's consent, secure it in writing.
3. Draft an Assignment Agreement
   Include:
   • Names of assignor, assignee, and obligor
   • Description of the contract
   • Effective date
   • Any required representations or warranties
4. Notify the Obligor
   Provide formal written notice of the assignment.
5. Obligor Response (if applicable)
   Some assignments require acknowledgment or a release of liability.
6. Record and Store
   Keep a signed copy of the assignment agreement and any correspondence.

When Are Assignments Not Enforced?

An assignment agreement is not enforced if the original contract contains a clause that prohibits assignment. If performance is affected, value is decreased, or risk is increased for the obligor, few courts will enforce the assignment. These circumstances are referred to as a material alteration in the contract.

Contract assignments are also prohibited by some state laws. In many states, an employee is prohibited from assigning future wages. Certain claims against the federal government are also prohibited from an assignment. Some assignments violate public policy rather than law, such as assignment of personal injury claims. This is not allowed because it could encourage litigation.

Common Grounds for Invalid Assignment

Courts may refuse to enforce an assignment of contract for several reasons beyond simple prohibition clauses:

• Material Alteration: The assignment changes the nature, value, or risk of the original agreement.
• Statutory Prohibition: Federal law restricts the assignment of government claims and some contracts under federal programs.
• Public Policy Violations: Assignments of personal injury claims or child support rights are often void because they commodify personal legal interests.
• Fraud or Coercion: If the assignment was executed under duress or deceit, it is unenforceable.

Assignments made in violation of bankruptcy law or without required consent may also be reversed or set aside in court.

Anti-Assignment Clauses and Their Legal Impact

An anti-assignment clause is a contractual provision that restricts one or both parties from assigning the agreement to another party. These are commonly found in:

• Service agreements
• Employment contracts
• Commercial leases
• IP licensing contracts

Some clauses outright ban assignment, while others allow it only with prior written consent. Even if there's no clause, a court may still void an assignment if it materially changes the nature or value of the original agreement or increases risks for the obligor.

Example clause:“Neither party may assign or delegate its rights or obligations under this Agreement without prior written consent from the other party.”

Violating such clauses can render the assignment void or trigger penalties.

Drafting Tips for Assignment Clauses

When drafting or reviewing a contract, it’s essential to anticipate whether assignment might occur in the future. To ensure clarity:

• Specify Assignability: Include a clause stating whether assignment is allowed, prohibited, or conditional upon consent.
• Define Scope: Indicate whether restrictions apply only to rights, duties, or both.
• Add Successor Language: Businesses often include a clause allowing assignment to “successors or assigns” in mergers or acquisitions.
• Clarify Liability After Assignment: Specify whether the assignor remains responsible after transfer.

These clauses prevent disputes by clearly defining when and how contractual interests can be transferred.

Legal Limitations and Public Policy Restrictions

Aside from contract language, certain types of assignments are restricted by law or public policy:

• Future Wages: Most states prevent employees from assigning their future wages to creditors.
• Government Claims: Claims against the federal government often can’t be assigned without permission.
• Personal Injury Claims: Typically cannot be assigned because they are closely tied to the injured individual and to prevent profit-driven litigation.

These restrictions exist to protect individuals, prevent fraud, and preserve fairness in the legal system.

Differences Between Assignment, Novation, and Delegation

While assignment transfers contractual rights, novation is a more complete substitution—it creates a new contract that replaces the original one.

Parties often prefer novation when they want a clean release of liability for the outgoing party, such as during business sales or mergers.

Frequently Asked Questions

1. Can a contract be assigned without a written agreement?
   Yes, but written documentation is strongly recommended for clarity and enforcement, especially in high-value transactions.
2. What is the difference between novation and assignment of contract?
   An assignment transfers rights and possibly duties, but the assignor remains liable; novation substitutes a new party and fully releases the original one.
3. Are anti-assignment clauses always enforceable?
   Most are, but courts may override them if the clause unreasonably restrains trade or contradicts public policy.
4. Who is liable if the assignee breaches the contract?
   Unless expressly released, the assignor remains secondarily liable for the assignee’s nonperformance.
5. How can a lawyer help with a contract assignment?
   An attorney can review the contract for restrictions, draft enforceable assignment terms, and ensure compliance with state and federal laws.

If you need help with assignment of contract, 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.