Contract Assignment Clause: Everything You Need to Know
A contract assignment clause is one of the most important terms when creating a contract with a seller.3 min read
2. What Is an Anti-Assignment Clause?
3. What to Look Out for With Non-Assignment Clauses in Commercial Contracts
A contract assignment clause is one of the most important terms when creating a contract with a seller. In real estate, it can mean two different kinds of clauses depending on who is drafting the contract:
- It could be a clause saying the assignor has no representations or warranties about the agreement or property, and that the assignee agrees to the assignment after independently investigating the property and agreement.
- It could be a clause saying the assignee will not hold the assignor at fault. Furthermore, it could protect the assignor from any claims, costs, liabilities, damages, or other expenses associated with the agreement after the date it becomes effective.
What Should an Assignment Agreement Look Like?
There are a few other important aspects you should always include in an assignment agreement. First of all, you always need to mention and describe the property being talked about in the contract.
You'll want to include an acceptance provision. While these can vary, consider the following example:
- Investor, known as the assignee, will accept the aforementioned and foregoing Assignment of Contract dated Month, Day, Year by the assignor, and the seller and admits to undertake all the responsibilities and burdens of the assignor under the Contract.
You will need to include language in the contract that deals with earnest money. For example, a provision that states the assignee will reimburse the assignor for any money paid upfront is always a good idea. Having the assignee breach the agreement would mean the assignor will lose earnest money.
Also, use the agreement to describe when you should receive your assignment fee. You should avoid having your fee paid out of the escrow because most lenders won't let this transaction go through. However, if the assignee is reluctant to pay your fee as soon as the agreement is accepted, then escrow might be a better option.
Make sure the wording here is precise, as it's the only thing protecting you from losing your fee if the deal falls through. You'll also want to include a provision that protects you if the seller breaches the contract.
Don't refer to your fee as a finder's fee in the agreement. This is a much different concept than an assignment and could get you into legal trouble.
Finally, you'll need to make sure you include a provision that alerts the seller of the assignment. This ensures everyone communicates with the assignee from this point forward, so there are no missed dialogues.
Regardless of what you decide to include or keep out of a contract assignment, always make sure you write it down. This makes it far easier to enforce the contract in a legal dispute.
What Is an Anti-Assignment Clause?
An anti-assignment clause theoretically protects a person's right to choose who they work for. Most people mistakenly believe this type of clause prevents them from being assigned, so they go about their business with this in mind. However, unless the anti-assignment clause specifically states that an assignment is in violation of the agreement, it can be enforced.
What to Look Out for With Non-Assignment Clauses in Commercial Contracts
Sometimes, parties will try to sneak in non-assignment clauses at the end of commercial contracts. Keep an eye out for some of the following language and provisions:
- A clause defining a change of control in the company. While the company might have the same external structure, internally, the business may have a new owner or manager. If you're getting into business with another company and make an agreement with the current owner of the company, make sure to include a clause like this to protect yourself in case that owner is removed from his or her duties.
- A clause talking about corporate reorganization. Most businesses include subsidiary and parent companies all owned by a single group or person. For tax purposes, these owners might frequently restructure or reorganize these aspects of a business. A corporate reorganization clause means the owners might be in breach if they try to reorganize without the permission of the company. In most cases, other parties should not care as long as the management team remains the same, but they can still raise objections unless this clause is a part of the contract.
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