Key Takeaways

  • An assignment and assumption agreement allows one party to transfer its contractual rights and obligations to another party.
  • These agreements are common in business asset sales, mergers, and real estate transactions.
  • Key components include consent requirements, representations and warranties, and indemnity clauses.
  • Parties must review the original contract for restrictions on assignment and obtain proper consent.
  • Assignments may not release the original party from liability unless explicitly stated.

“What is an assignment and assumption agreement?” is a question that you may find yourself asking if you intend to end your involvement in contract by letting another person step into your shoes. An assignment and assumption agreement is an agreement for transferring contractual duties and rights. It is a separate agreement from the one being transferred. The original contract may contain certain terms and conditions regarding assignments and assumptions, so it is important for the parties involved to review the contract carefully before proceeding with the transfer.

What Is an Assignment and Assumption Agreement?

Also referred to as an assignment and assumption, an assignment and assumption agreement is an agreement that is established when one party of a contract wishes to transfer his or her contractual obligations and rights to another party. The party who is transferring his or her rights is called the assignor, while the one receiving them is known as the assignee.

In some situations, an assignor will not be completely released from liability even after he or she has assigned the contract. The parties should look closely at the specific language in the contract to determine the restrictions and terms that apply to assignments and assumptions. An agreement for an assignment and assumption is a document that is separate from the contract it transfers.

When Is an Assignment and Assumption Agreement Used?

Assignment and assumption agreements are commonly used in several business scenarios. These include:

  • Business acquisitions: When a company acquires another, it may take on the seller’s existing contracts with customers, vendors, or landlords.
  • Mergers and reorganizations: To consolidate contracts under a newly formed or surviving entity.
  • Real estate transactions: To transfer lease agreements from the seller to the buyer.
  • Commercial contract transfers: When outsourcing or subcontracting obligations.
  • Financing arrangements: Such as transferring loan obligations or credit agreements to a new borrower.

The agreement ensures a clean transition of duties and protects all parties from disputes over who holds rights and responsibilities.

Reasons for Creating an Assignment and Assumption Agreement

After two parties enter into a contract, a change in business climate, one party's equity, or other factors may make it necessary to assign the contract. If both parties agree to the assignment and sign the necessary documents to transfer existing duties and interests, an agreement may be assigned to and assumed by another party.

A business may lose its foothold in the marketplace or one of contracting parties may fail to perform its contractual obligations due to changing local laws. Instead of leaving parties bound to an irrelevant or dated agreement, an assignment makes it possible for struggling or incapable parties to be replaced with parties that are more capable of responding to the requirements and goals of the contract. The process of assignment itself enables the parties to continue a dialogue, which can help develop and solidify a successful business relationship.

Legal Considerations and Consent Requirements

Not all contracts are assignable. Many contracts contain anti-assignment clauses that restrict transfers without the other party’s consent. Before entering into an assignment and assumption agreement, parties should:

  • Review the original contract for any restrictions or conditions on assignment.
  • Seek written consent from the non-transferring party if required.
  • Check for legal prohibitions—some contracts, especially in employment or personal service agreements, cannot be assigned by law.

Failure to obtain consent where necessary can render the assignment invalid and expose the parties to breach of contract claims.

A Guide to Creating an Assignment and Assumption Agreement

Sometimes, a contract may have specific rules regarding what type of assignment is permitted, who can receive the assignment, and how the assignment should be processed. It is essential that you read the original contract to ensure that all contracting parties have met all the requirements for assignments and assumptions. Each party should be given enough time to review both the initial agreement and the assignment. This will help prevent the situation where one party claims that he or she does not understand the terms and their effect on the agreement or his or her rights and duties.

In addition, you and the other party should carefully review the assignment to make sure that it includes all relevant deal points. Avoid assuming that both parties have agreed to certain terms or expectations even if they are not clearly stated in the document. It is better to over-include than under-include terms in the agreement. Since the terms of the initial agreement are still effective, both parties should continue to fulfill their contractual obligations until the assignment is signed and completed.

Three copies of the assignment and assumption agreement must be signed: two for the initial contracting parties and one for the assignee. Your copy of the signed assignment agreement should be kept with the original agreement. Once the assignment is created and signed, it will become part of the initial contract and should be treated as such. Depending on the terms of the agreement, you may want to have the assignment witnessed or notarized. By doing so, you can avoid the situation where someone challenges the validity of a signature.

Essential Terms and Provisions

To be effective and enforceable, an assignment and assumption agreement should clearly define the rights and obligations being transferred. Key provisions include:

  • Description of the assigned contract: Including the name, date, and involved parties.
  • Effective date: When the transfer of obligations becomes active.
  • Consent confirmation: Whether third-party consent was required and obtained.
  • Assumption clause: The assignee’s express agreement to take on all responsibilities.
  • Indemnification: Who is responsible if issues arise related to the original contract.
  • Governing law: Which jurisdiction’s laws apply to the agreement.

These provisions provide clarity and protect both the assignor and assignee in the event of a dispute.

What to Include in an Assignment and Assumption Agreement

An assignment and assumption agreement can be written in many different ways. In many instances, such an agreement includes the following:

  • Names of assignor and assignee
  • Whereas clause stating that both assignor and assignee have agreed to the assignment
  • Statement of assignment
  • Statement of assumption
  • Effective date of assignment
  • Statement about future transfers and assignments to permitted successors
  • Declaration that the agreement can be executed in counterparts
  • Statement confirming the presence of witnesses
  • Signatures of the assignor and assignee

Risks and Liabilities for Assignors and Assignees

While an assignment and assumption agreement transfers duties, it may not always absolve the assignor of liability unless explicitly released. Key considerations include:

  • Continuing liability: The assignor may remain secondarily liable if the assignee defaults, unless the original party provides a full release.
  • Warranties and representations: The assignor may warrant that the contract is valid and in good standing.
  • Due diligence: The assignee should confirm that the assignor has fulfilled all prior obligations under the contract.

Being thorough during the negotiation and drafting process helps minimize legal exposure for both parties.

Frequently Asked Questions

1. What is an assignment and assumption agreement used for? It is used to transfer contractual rights and obligations from one party to another, commonly in mergers, acquisitions, and real estate transactions.

2. Do you need consent for an assignment and assumption agreement? Often yes. Many contracts require the non-transferring party to consent before an assignment is valid.

3. Does an assignment and assumption agreement release the original party from liability? Not necessarily. The assignor remains liable unless the agreement or original contract expressly releases them.

4. Is an assignment and assumption agreement legally binding? Yes, provided it meets legal requirements, includes key terms, and all parties consent as needed.

5. Can any contract be assigned using this agreement? No. Contracts with personal service obligations or anti-assignment clauses may not be transferable.

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