purchase agreement vs assignment agreement

M&A Transaction Structures: The Difference Between an Asset Sale and a Stock Sale

By: Jack R. Magee and Robert E. Futrell, Jr.

In any M&A transaction, one of the first questions for the parties to the transaction is how the deal should be structured. Whether to provide for the buyer to acquire the assets or the stock (or other equity interests) of the target company will impact virtually every aspect of the deal. At times, the choice for the optimal structure is apparent and quickly agreed; other times, parties can spend significant time and resources working to agree on this threshold determination. When the time comes to draft the definitive purchase agreement, there will be significant differences in the agreement depending on the type of transaction structure agreed upon by the buyer and the seller.

This article does not address the tax considerations involved in pursuing an asset deal versus a stock deal; however, the choice of structure often is driven by tax implications that are complex and deal specific. Involving tax counsel and accounting advisors early in an M&A process, ideally before negotiating a letter of intent or other acquisition proposal, can save time and money in the long run.

An asset sale transaction involves the sale of some or all of the assets used in a business from a selling company to a buyer. The purchased assets often encompass all or substantially all of the assets of the company; other times, the transferred assets include only those used in a specific division or certain selected assets of the company. In an asset deal, typically the buyer will assume only certain specified liabilities of the business from the selling company.

A benefit of an asset sale is that it allows the parties significant flexibility as to what assets and liabilities are included in the transaction. In particular, for a buyer this provides an opportunity to reduce its risk of assuming unknown liabilities of the acquired business. Additionally, an asset sale allows a buyer to avoid spending money on unwanted assets. For a seller, an asset sale is often not preferred over a stock sale, but in some instances it is ideal for allowing a seller to dispose of just a portion of its holdings. Asset sales often are used in connection with the sale of a distressed business, the sale of a business division, or in transactions where there are significant concerns regarding known and unknown liabilities of the business.

A stock or equity sale transaction involves the sale of the equity interests in a target company from the equity holders to a buyer. In a stock deal, instead of choosing specific assets and liabilities to acquire, the buyer purchases an ownership stake in the entire business. In effect, the buyer acquires the entity instead of acquiring the business from the entity.

A stock sale is often favored by the owners of a selling company because, in general, all of the known and unknown liabilities of the business are transferred to the buyer, and therefore the sellers avoid ongoing exposure to such liabilities (other than as expressly agreed with the buyer). Buyers often resist a stock sale transaction unless the company to be acquired has a clean operating history or there are significant practical difficulties in completing an asset sale, such as restrictions on the transfer of certain assets from the selling company to the buyer or burdensome third party consents needed to transfer the assets.

Though this article has used the term “stock sale” to describe the primary alternative to an asset sale, it should be noted that another common M&A transaction structure, a merger, provides another alternative. A merger is, in many ways, similar to a stock deal in that the buyer acquires the entire entity operating the business, including all of the assets and liabilities of the business. However, if the company has a significant number of stockholders, the stockholders are not easily accessible or there is a risk that all of the stockholders will not support the transaction, then a merger may be preferable to a stock sale. This is due to the fact that a stock sale requires each and every stockholder to agree to sell such holder’s equity, while a merger usually requires approval of less than all of the stockholders. There are other considerations, including tax considerations, to attend to in opting for a merger instead of a stock sale and any party to a potential M&A transaction should discuss these with its legal and tax advisors.

Drafting Considerations

Depending on whether an acquisition is structured as an asset sale or a stock sale (or merger), there will be significant differences in the transaction documents. A substantial portion of an asset purchase agreement is used to identify the assets to be acquired and the liabilities to be assumed by the buyer. Typically, the buyer will want the asset purchase agreement to provide that the buyer disclaims any obligations other than those liabilities that are expressly assumed. If the provisions describing the acquired assets and assumed liabilities are carefully written, then the representations and warranties from the seller can be limited to focus on items that have or might impact such assets and liabilities. In addition to an asset purchase agreement, other ancillary agreements will be required to transfer the assets from the seller to the buyer. These might include a bill of sale, assignment and assumption agreements, intellectual property assignments and corporate name change filings, as well as agreements providing for the hiring of the employees of the business by the buyer.

In a stock sale, the purchase agreement will not describe specific assets and liabilities of the business to be acquired since the entire spectrum of assets and liabilities of the business will transfer to the buyer along with the entity that is purchased. As such, typically the representations and warranties in a stock purchase agreement from the seller to the buyer will be more comprehensive and broader in scope, covering all aspects of the acquired business and the historical operations of the entity. While additional ancillary agreements are required in a stock sale, often fewer are needed than in an asset sale and, typically, the number of third party consents needed to complete the deal is much lower.

Deciding on the best deal structure for an M&A transaction requires evaluation of a number of factors, some of which are complex or deal specific. The determination of the optimal structure should be made as early as possible, since the decision will impact virtually all of the transaction documents. If you are considering a significant M&A transaction, whether as the potential buyer or seller, you should consult with your legal counsel and tax and accounting advisors early in the process to avoid potential delays and unnecessary expense.

* * * * * * *

Jack Magee and Rob Futrell are attorneys in the M&A practice group of Wyrick Robbins Yates & Ponton LLP, which represents clients across a broad range of industries in connection with their significant corporate transactions. The group publishes Practice Briefs periodically as a service to clients and friends. The purpose of this Practice Brief is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.

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Can the buyer assign the purchase agreement to another party.

Real Estate Law: Can the Buyer Assign the Purchase Agreement to Another Party?

In the world of real estate transactions, flexibility is often essential to accommodate the changing needs and circumstances of buyers and sellers. One way this flexibility is achieved is through the practice of assignment of purchase agreements. An assignment allows a party to transfer their rights and obligations under a contract to another party. But can the buyer assign the purchase agreement to another party in a real estate transaction? In this article, we will explore the concept of assignment of purchase agreements, its implications for buyers, sellers, and real estate agents, and the legal considerations surrounding this practice.

Understanding Assignment of Purchase Agreements:

An assignment of a purchase agreement is a contractual arrangement where one party (the assignor) transfers their rights and obligations as a buyer under a purchase agreement to another party (the assignee). The assignor essentially steps aside and allows the assignee to step into their shoes, assuming the rights and responsibilities outlined in the original purchase agreement. In essence, the assignee takes over the contract and becomes the new buyer.

Legal Considerations for Assignment:

Whether a buyer can assign a purchase agreement depends on the specific terms and conditions outlined in the original contract and applicable state laws. Some contracts expressly prohibit or restrict assignments, while others may allow it with certain conditions. Additionally, state laws can vary on the enforceability of assignment clauses.

In many real estate transactions, the inclusion of an assignment clause in the purchase agreement is standard. This clause addresses the parties’ rights and obligations regarding assignment and typically includes specific conditions or restrictions on whether and how assignments can take place.

Implications for the Buyer:

For a buyer, the ability to assign the purchase agreement can offer various advantages:

Flexibility: Assignment allows the buyer to enter into a purchase agreement with the intention of transferring the rights and obligations to another party. This flexibility can be valuable in situations where the buyer’s circumstances change or they are acting as an intermediary in the transaction.

Profit Potential: Some buyers enter into purchase agreements with the intention of assigning the contract to another party for a fee. This practice, known as wholesaling, can be a lucrative strategy for investors seeking to make a profit without taking ownership of the property.

Avoiding Liability: By assigning the contract, the buyer can transfer potential liability associated with the property to the assignee. This can be particularly advantageous if the buyer identifies unforeseen risks or issues after the contract is executed.

Implications for the Seller:

For a seller, the assignment of the purchase agreement can have both benefits and potential challenges:

Expedited Closing: If the seller is motivated to close the transaction quickly, accepting an assignment from a new buyer may speed up the process, as the original buyer steps aside.

Potential Changes to Contract Terms: Depending on the assignment agreement, the new buyer (assignee) may negotiate different terms, such as the purchase price or contingencies. This can present a challenge for the seller if the new terms are not favorable.

Understanding the New Buyer: Sellers should conduct due diligence on the new buyer (assignee) to ensure they are financially capable and qualified to complete the transaction.

Implications for Real Estate Agents:

For real estate agents, handling an assignment can add complexity to the transaction:

Disclosure and Communication: Real estate agents must ensure that all parties involved in the transaction are aware of the assignment and its implications. Clear communication and disclosure are essential to avoid misunderstandings and potential disputes.

Documentation: Agents should ensure that all assignment agreements are properly documented and executed in accordance with state laws and the original purchase agreement.

Timing and Contingencies: Agents need to be mindful of any time-sensitive contingencies, such as the loan contingency, to avoid delays in the closing process.

Limitations on Assignment:

While assignment can offer flexibility and convenience, it may not always be permissible or straightforward. Some factors that can limit or restrict the assignment of purchase agreements include:

Anti-Assignment Clauses: Some purchase agreements may include anti-assignment clauses, explicitly prohibiting or restricting assignments without the written consent of all parties involved.

Specific Performance: In some jurisdictions, the legal doctrine of specific performance may come into play, making it difficult or impossible for a buyer to assign a purchase agreement. Specific performance requires parties to fulfill their contractual obligations, and assignment may be seen as a way to avoid this obligation.

Non-Assignable Contracts: Certain contracts, particularly those involving personal services or unique considerations, may not be assignable by default.

Proper Procedure for Assignment:

If the original purchase agreement allows for assignment, the parties should follow the proper procedure to ensure the assignment is valid and legally enforceable:

Written Assignment Agreement: The buyer (assignor) and the new buyer (assignee) should enter into a written assignment agreement that clearly outlines the terms and conditions of the assignment, including any changes to the original contract.

Consent of All Parties: If the purchase agreement includes an anti-assignment clause, the buyer (assignor) must obtain the written consent of all parties involved in the transaction, including the seller.

Notice to the Seller: The buyer (assignor) should provide the seller with written notice of the assignment, notifying them of the new buyer (assignee) and the intention to assign the contract.

Earnest Money Deposit: The assignee should typically provide an earnest money deposit to the seller as a show of good faith and commitment to the transaction.

Conclusion:

The assignment of a purchase agreement can offer flexibility and convenience for buyers, sellers, and real estate agents in certain real estate transactions. However, whether a buyer can assign the purchase agreement depends on the specific terms and conditions outlined in the original contract and applicable state laws. If the purchase agreement allows for assignment, proper procedures must be followed to ensure the assignment is valid and legally enforceable.

Buyers interested in assigning a purchase agreement should carefully review the contract and consult with their real estate agent to understand any limitations or restrictions on assignment. Sellers should be aware of the potential implications of accepting an assignment, including changes to contract terms and the need to conduct due diligence on the new buyer.

Real estate agents play a crucial role in facilitating assignments, ensuring clear communication among all parties, and handling the necessary documentation. To navigate the complexities of assignment effectively, buyers, sellers, and real estate agents should seek legal advice and ensure compliance with all applicable laws and contractual obligations.

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal advice. Real estate laws and regulations may vary by jurisdiction, and buyers and sellers should consult with a qualified real estate attorney for advice specific to their circumstances.

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Don’t Confuse Change of Control and Assignment Terms

• David Tollen
• September 11, 2020

An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.

Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)

Here’s an assignment clause:

Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.

As you can see, that clause says no assignment is allowed, with one exception:

• Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).

Consider the following additional issues for assignment clauses:

• Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
• Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
• Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
• All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.

Change of Control

Here’s a change of control clause:

Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)

• Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.

Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).

Consider the following additional issues for change of control clauses:

• Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
• No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
• Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.

Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon  here , or purchase directly from its publisher, the American Bar Association, here.

Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has  options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team).   David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.

© 2020, 2022 by Tech Contracts Academy, LLC. All rights reserved.

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Government Contract Novation Vs Assignment of Contract & FAR 42.1204 Novation Clause

All should be aware that the contracting officer does not have to approve every assignment of contract transactions under the FAR 42.1204 contract novation clause .

• Avoid the costly mistake of assuming that the government must approve all novations.
• If done improperly, contractors can be found in breach of contract terms and can even face suspension or debarment .

Novation Agreement FAR 42.1204 Definition

In federal government contracting,  developing a novation can be somewhat unique because depending on the facts of each case, the original parties may still be responsible for performance to the government.  Whereas, in the commercial sector, the contract novation definition means that a new party to the contract essential substitutes the original party. In other words in the commercial sector, the original party’s obligation is discharged and substitution of an original party to a contract with a new party, or substitution of an original contract with a new contract.

Federal Government Contract Novation vs Assignment of Contract

Business Asset Purchase Agreement and Contract Assignment  Clause Issues

What is the difference between assignment and novation? Simply executing a business asset purchase agreement and a signed novation contact agreement  when buying or selling a business is not the end of the legal analysis when there is a government contract involved.  The contracting officer must approve the assignment of government contracts and or novation agreement . Your novation letter should address critical issues that answer the contracting officer’s concerns about the risk of performance. Novating government contracts is all about minimizing the risk to the agency.

In one case , SBA OHA ignored the argument that when novating a contract, its purchase and sale contract with the buyer had the legal effect of divesting the seller of any control over the current contracts. In that case, there was no formally approved novation agreement FAR contract. As a result, the whole transaction went to waste because the parties lacked a full understanding of the rules. A Government contract may not be automatically transferred to a third party. See 41 USC 15.

• In government contracting, if there is a performance problem, for example in construction, and a termination for default is an issue, or the surety is called upon for obligations under a performance bond, then the original party may not necessarily be discharged.
• Assignment of government contracts decisions, when there is a purchase and sale agreement involving a company that has existing government contracts, should be met with caution.

On the issue of contract novation vs assignment , although the FAR 42.1204 assignment novation clause allows the buying and selling parties to execute a novation vs assignment agreement due to an asset purchase or stock sale, companies should still assess legal issues related to violation of SBA small business size standards. 

• Companies should always keep the agency involved from the beginning of the process to the end.

41 USC 6305 – Contract Assignment Clause – Prohibition on transfer of contract and certain allowable assignments

Under the federal contract assignment clauses, when there are business sales that involve government contracts, the purchase and sale agreement suggests that the contracts would be transferred to the buyer either through a business asset purchase agreement sale or stock sale.

However, the reality is that although FAR 42.1204 allows for a novation of contract agreement, the contracting officer is not obligated to approve it.  A federal government contracting agency, only when it determines it to be in its interest, may accept a third party as the successor in interest when the third party’s interest in the contract arises out of the transfer of all of the contractor’s assets or the entire portion of the contractor’s assets involved in performing the contract. FAR 42.1204 (a). See also How Do Federal Government Contractors Deal With COVID-19 Problems ?

• The contracting officer is not forced to approve the  FAR novation clause language if the transaction is not in the government’s best interest.
• If the government declines to novate a contract, the original contractor is still responsible for performance. FAR 42.1204 (c) contract novation clause.
• If the assignment of contract is not recognized by the contracting officer, and the original contractor does not perform, the original contractor can be terminated for default.

Potential SBA Size Standard Violations

When assessing government novation contract law rules, the SBA found in one case that since there was no approved assignment of the contract through an approved government novation agreement, the two businesses were deemed affiliated through the identity of interest rule.

On appeal, OHA found that since there was no formal contract novation, the seller was still responsible for the contract performance, and both companies were in the same line of business. In that case, the SBA also found that there was no clear fracture between the buyer and seller. The two businesses were therefore also affiliated with the newly organized concern rule.

Help With Government Contracting Companies for Sale

Oftentimes, buyers and sellers do not understand the complex regulations involved with government contracting companies for sale. Not only are novation agreements a potential issue, the due diligence needed and the ability to address buyers’ other business relationships that can impact their small business size status can be a huge problem. Contact Theodore Watson at 720.941.7200 for immediate help.

Legal Issues Regarding Novation Vs Assignment 

Assignment vs novation. Know the difference: There are several legal issues that arise under federal contract novation agreement FAR law during the purchase and business sales, assignment and transfer of federal contracts when government contracts are involved.  Common issues that occur with the assignment novation clause terms include: (1) whether the seller is simply trying to sell the contract with no real assets, (2) how to structure the asset purchase agreement and whether wait for contracting officer novation approval first and (3) to what degree does the contracting officer have to approve the novation. The first step is to be proactive in the early stages of the asset purchase or stock sale process.

Having the right contract clauses in the sales agreement is critical in the event that the contracting officer does not approve the contract novation. Other issues with novating a contract include the buyer maintaining its small business status in the event of recertification or option year decisions. Find out more about Signs of Being Under Investigation (Federal)

For additional questions about what is the difference between assignment and novation for federal contractors buying and selling a business that includes an assignment and FAR novation agreement or assignment of contract issues under FAR 42.1204 novation clause, or need help with government contracting companies for sale, call Watson & Associates’ government  contract novation law lawyers for immediate help. Call 1-866-601-5518. FREE INITIAL CONSULTATION.

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Understanding the Basics of Assignment and Assumption Agreements

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Note: Links to our free templates are at the bottom of this long guide. Also note: This is not legal advice

Introduction

Understanding the importance of assignment and assumption agreements is essential for any business transaction. These agreements are legal documents which outline the transfer of ownership, rights, and obligations from one party to another in order to protect both parties from liabilities and disputes. Moreover, they help streamline the transition of ownership by providing a clear agreement between all involved.

At Genie AI, we understand that navigating these agreements can be difficult without legal expertise - but it doesn’t have to be! Our team provides free assignment and assumption agreement templates so that anyone can draft high-quality legal documents without paying hefty lawyer fees.

These agreements are crucial in corporate mergers, asset sales, and other business transactions as they protect both assignee and assignor from potential future disputes or disagreements. Furthermore, it helps everyone involved in the process come to an agreement about the transfer of assets or liabilities.

It’s also important for businesses to ensure that all records, documents, and information is properly transferred when assigning contracts - something which assignment and assumption agreements make simpler. Not only does this avoid any potential issues in the future but ultimately makes for a smoother transition when dealing with such matters.

In short, assignment and assumption agreements provide an invaluable service when it comes to safeguarding both parties involved in a business transaction while also simplifying their processes along the way. To learn more about how our team at Genie AI can help you on your way towards drafting these essential documents - read on below for our step-by-step guidance or visit us today to access our template library!

Definitions

Assignor: The party transferring the rights and liabilities. Assignee: The party receiving the rights and liabilities. Asset Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their ownership of a particular asset to another party. Liability Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their liability to another party. Contract Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their contractual obligations to another party. Lease Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their responsibilities under a lease to another party. Representations and Warranties: Promises made by the Assignor and Assignee in order to ensure they understand the risks associated with the transfer and are comfortable taking on the rights and liabilities. Indemnification: A clause outlining the terms under which the Assignor and Assignee are liable for any losses or damages due to the transfer. Choice of Law: A clause specifying which jurisdiction’s laws will govern the agreement. Severability: A clause outlining how the agreement will be enforced if any part of it is deemed unenforceable. Governing Law: A clause specifying which court will have jurisdiction over any disputes that arise out of the agreement. Notices: A clause outlining how notices between the parties will be delivered.

Definition of Assignment and Assumption Agreement

Overview of the different types of assignment and assumption agreements, asset assignment and assumption agreement, liability assignment and assumption agreement, contract assignment and assumption agreement, lease assignment and assumption agreement, the purpose of an assignment and assumption agreement, the process of negotiating an assignment and assumption agreement, identifying the parties involved, discussing the terms, drafting the agreement, final review and signing, key terms and clauses commonly found in assignment and assumption agreements, assignor & assignee, liabilities and obligations, representations and warranties, indemnification, choice of law, severability, governing law, potential issues that may arise when negotiating an assignment and assumption agreement, scope of liabilities, representations & warranties, dispute resolution, contractual limitations, practical considerations when drafting an assignment and assumption agreement, identifying contingent liabilities, understanding applicable laws, drafting clear & concise language, complying with any regulatory requirements, potential benefits of using an assignment and assumption agreement, risk reduction, asset protection, cost savings, potential pitfalls of using an assignment and assumption agreement, unforeseen risks, negotiating difficulties, regulatory non-compliance, conclusion and next steps, finalizing the agreement, implementing the agreement, documenting the outcome, get started.

• Understand the legal definition of an Assignment and Assumption Agreement: an agreement between two parties, which transfers one party’s rights, duties and obligations under a contract to another party
• Learn who can enter into an Assignment and Assumption Agreement: the parties to the original contract, or their successors
• Know what rights and obligations are transferred under an Assignment and Assumption Agreement: all rights, duties, and obligations that have been agreed upon in the original contract
• Be aware of the consequences of assigning and assuming obligations: the assignee is responsible for performing all duties and obligations of the contract, just as if they had originally entered into the contract.
• When you can check off this step: You will know you have a good understanding of the definition of an Assignment and Assumption Agreement when you can explain it in your own words and are aware of the rights and obligations transferred and the consequences of assigning and assuming obligations.
• Understand the three common types of assignment and assumption agreements: asset assignment and assumption agreement, contractual assignment and assumption agreement, and debt assignment and assumption agreement
• Learn the key features of each type, including the type of asset or obligation being assigned and assumed
• Determine the purpose of the agreement and the advantages of each type of agreement
• Check off this step when you feel confident that you understand the purpose and differences between the three types of assignment and assumption agreements.
• Research and understand the definitions of an asset assignment and assumption agreement
• Learn the different types of assets that can be assigned and assumed in an agreement
• Understand the purpose of an asset assignment and assumption agreement
• Research and review the legal elements of an asset assignment and assumption agreement, such as the parties involved, the assignor and assignee, the description of the assets to be assigned and assumed, the consideration for the assignment and assumption, the representations and warranties of both parties, the indemnification and other relevant provisions
• Draft an asset assignment and assumption agreement with the help of a qualified attorney
• When you are satisfied with the asset assignment and assumption agreement that you have drafted, execute the agreement according to the applicable law and have it notarized
• Check this off your list and move on to the next step, which is understanding liability assignment and assumption agreements.
• Research applicable state and federal laws to ensure the agreement is in compliance
• Draft a liability assignment and assumption agreement that assigns all liabilities of the transferor to the transferee
• Identify all liabilities to be assigned, including any and all warranty liabilities, product liabilities, and medical liabilities
• Include all necessary clauses that provide for the transfer of the liabilities, and state that the transferor will not be liable for any liabilities after the date of the agreement
• Get the agreement approved by the assigning and assuming parties
• Sign and date the agreement in the presence of a witness
• Once all parties have signed the agreement, you can check this off your list and move on to the next step of drafting the Contract Assignment and Assumption Agreement.
• Understand the difference between an assignment and an assumption agreement. An assignment agreement transfers the rights and obligations of the original contract from one party to another, while an assumption agreement transfers only the obligations of the original contract to the new party.
• Familiarize yourself with the language of the assignment and assumption agreement. The agreement should clearly state the terms of the assignment, the obligations assumed by the new party, and the liabilities being transferred.
• Draft the assignment and assumption agreement. Make sure to include all relevant details, such as the parties involved, the original contract being transferred, the new obligations assumed by the new party, and any other important information.
• Review the agreement with a legal professional. It is important to have a lawyer or other legal professional review the agreement to make sure it meets all legal requirements.
• Sign the agreement. Once both parties have signed the agreement, it is officially binding and the obligations of the original contract are now transferred to the new party.

You will know when you can check this off your list and move on to the next step when you have completed all steps in this section, including drafting, reviewing, and signing the agreement.

• Understand the basics of a lease assignment and assumption agreement
• Have an understanding of the parties involved in the agreement
• Know what is included in the agreement such as the particular lease, the transferor, the transferee, a consideration amount, date of assignment, and other related documents
• Have an understanding of the legal implications of the agreement as far as warranties, liabilities, and other related obligations
• Understand the process of executing the agreement and any other related steps required
• Be aware of any local or state laws that may affect the agreement

Once you have a thorough understanding of the lease assignment and assumption agreement, you can check off this step and move on to the next step in the guide: The Purpose of an Assignment and Assumption Agreement.

• Understand the purpose of an assignment and assumption agreement, which is to transfer rights and obligations from one party to another
• Learn the different types of assignment and assumption agreements, such as lease assignment and assumption agreements, purchase and sale agreements, and contracts
• Identify the parties involved in the agreement, what rights and obligations are being transferred, and how the agreement will be executed
• Once you understand the purpose of an assignment and assumption agreement, you can move on to the next step in the guide
• Research and determine the terms of the agreement that are appropriate for your situation
• Identify any potential legal issues that could arise from the assignment and assumption agreement
• Draft the agreement that outlines the terms, conditions, consideration, and liabilities
• Both parties must review and approve the agreement in its entirety
• Make sure the agreement is signed by both parties and that each party has a copy of the agreement
• When both parties have agreed upon and signed the agreement, the assignment and assumption agreement is officially enforceable
• You can check this step off your list and move onto the next step once the agreement is signed and all parties have a copy.
• Identify all parties involved in the agreement, including the assignor, the assignee, and any other third parties
• Be sure to document all of the parties in the agreement and provide contact information for each
• Get contact information for all parties involved, including names, addresses, and phone numbers
• Verify that all parties involved are of legal age and able to enter into a binding agreement
• Make sure that all parties understand their roles and obligations in the agreement

When you can check this off your list: When all parties have been identified, contact information has been provided, and all parties understand and accept their roles and obligations in the agreement.

• Learn the key terms used in assignment and assumption agreements, such as “assignor” and “assignee.”
• Understand the scope of the agreement and the rights and obligations of each party.
• Consider any potential restrictions that might be in place.
• Identify any laws or regulations that affect the agreement.

You can check this step off your list and move on to the next step when you have a basic understanding of the terms used in the agreement, and the scope of the agreement and the rights and obligations of each party.

• Determine the parties involved in the assignment and assumption agreement and obtain contact information for each.
• Draft the agreement and include all the agreed upon terms and conditions.
• Review the agreement with all parties to ensure the terms and conditions are accurately reflected.
• Revise the agreement as needed to reflect any changes or amendments.
• Once all parties have agreed to the agreement and all revisions have been made, the agreement is ready to be signed.
• Carefully review the agreement to ensure that all the details and clauses are accurately reflected
• Make sure all parties to the agreement have signed the document
• Have all parties to the agreement keep a signed copy of the document for their records
• Once all parties have signed the document, you can check this off your list and move on to the next step.
• Familiarize yourself with the language and terminology used in assignment and assumption agreements.
• Understand the components of the agreement, such as the assignor, assignee, consideration, and liabilities.
• Become familiar with the common clauses found in assignment and assumption agreements, such as the warranty clause, assignment clause, and liability clause.
• Review the agreement for accuracy and ensure that all of the terms and conditions are clear.
• Once you have a full understanding of the key terms and clauses in the agreement, you can move on to the next step in the process.
• Determine who is the assignor and who is the assignee - the assignor is the one who is transferring their rights and obligations to the assignee
• Know the difference between the assignor and assignee - the assignor is the party transferring the rights and obligations, and the assignee is the party receiving them
• Understand the implications of the assignment and assumption agreement - the assignor is no longer responsible for the rights and obligations they are transferring to the assignee
• Make sure that the assignor and assignee are both aware of their respective roles and responsibilities - this will ensure that the agreement is legally binding

Once you have determined who the assignor and assignee are, know the differences between them, understand the implications of the agreement, and make sure both parties are aware of their roles and responsibilities, you can move on to the next step.

• Identify and list out all of the liabilities and obligations that are being assigned in the agreement
• Ensure that all liabilities and obligations of the assignor that are to be assumed by the assignee are included in the agreement
• Specify the date on which the liabilities and obligations are to be assumed by the assignee in the agreement
• Make sure that the assignee is aware of and accepts the liabilities and obligations that are being assigned
• Confirm that the assignor is not liable for any of the liabilities and obligations that are being assigned to the assignee
• Make sure to include a clause in the agreement that states that the assignor will not be liable for any of the liabilities and obligations that are being assigned to the assignee

When you can check this off your list and move on to the next step:

• When the assignor and assignee have agreed on all of the liabilities and obligations that are being assigned in the agreement
• When the assignor has agreed to not be liable for any of the liabilities and obligations that are being assigned to the assignee
• When the agreement has been reviewed and approved by both the assignor and assignee
• Ensure that all statements made by the assignor and the assignee are accurate and current
• Identify all representations and warranties made by the assignor to the assignee
• Make sure that any representations and warranties made by the assignor are clear and enforceable
• Verify that any representations and warranties made by the assignee are accurate and up-to-date
• Determine the remedies for breach of any representations and warranties

You can check this off your list and move on to the next step when you have identified all representations and warranties, verified that they are accurate and up-to-date, and determined the remedies for breach.

• Assignor should agree to indemnify Assignee from any and all claims, losses and damages that arise from breach of representations and warranties
• Assignor should agree to pay Assignee’s legal fees and other costs associated with defending against any claim
• Assignee should agree to indemnify Assignor from any and all claims, losses, and damages that arise from the Assignee’s actions after the transfer of the subject matter
• Once these indemnification terms are set, you can check this step off your list and move on to the next step.
• Determine the state law that will govern the agreement. Generally, the state law that will be applicable is the state in which the agreement is executed.
• The state law that you choose should be clear and explicit. Consider consulting a lawyer or legal advisor if you are unsure of the applicable state law.
• Make sure to include the state law that has been agreed upon in the agreement.
• Check off this step when the applicable state law has been determined and included in the agreement.
• Read your agreement carefully to ensure that the severability clause is properly drafted
• The severability clause should state that if any portion of the agreement is found to be invalid or unenforceable, the remaining provisions will remain in full force and effect
• Familiarize yourself with the definitions of severability, enforceability, and invalidity
• Make sure that the agreement includes a severability clause that is tailored to the particular agreement
• Once you are confident that the severability clause is properly drafted, you can check this step off your list and move on to the next step.
• Research governing laws in the jurisdiction where the agreement will be signed and enforced
• Determine the laws that will govern the agreement and include them in the governing law clause
• This clause should include the state, country, or other jurisdiction
• Once you have determined the governing laws and included them in the clause, you can check this off your list and move on to the next step.
• Ensure that the agreement includes a provision specifying a proper notice address for each party
• Check that the notice provision includes the name and address of the recipient, the method of service (e.g., mail, e-mail, or fax), and the time period for responding
• Review the agreement to make sure that it includes a provision specifying the manner in which the parties will provide notice to each other
• Confirm that notice is defined correctly, as this is important for determining the time period for responding
• Once all of these points have been verified, you can check this off your list and move on to the next step.
• Review the agreement to make sure that the assignment language is drafted correctly and is broad enough to encompass all of the rights and obligations being assigned
• Ensure that the parties are not trying to assign any rights or obligations that are not legally assignable
• Make sure that the agreement is clear regarding the liabilities of the parties, as they will be assumed by the assignee
• Confirm that the assumptions being made by the assignee are clearly laid out in the agreement
• Ensure that the agreement is not assigning any rights or obligations that may be subject to the consent of a third party
• When all potential issues have been addressed, the agreement can be signed by both parties.
• Understand that an Assignment and Assumption Agreement (A&A) will transfer some of the liabilities from one party to another in a business transaction
• Identify which liabilities are to be transferred in the A&A
• Clarify which liabilities will remain with the original party
• Establish a timeline for the transfer of liabilities
• Decide which party is responsible for liabilities that occur after the transfer
• Make sure that the liabilities are accurately defined and described in the A&A

You will know that you can check this step off your list and move on to the next step when all liabilities have been properly identified, defined and described in the A&A, and all parties have agreed to the timeline for the transfer of liabilities.

• Understand the basics of Representations & Warranties and what they mean in the context of assignment and assumption agreements
• Learn what should be included in Representations & Warranties and the consequences of not making accurate representations
• Research different types of Representations & Warranties, such as those related to title, capacity, authority, and performance
• Check that all Representations & Warranties included in the agreement are accurate and up-to-date
• Once all Representations & Warranties have been reviewed and confirmed to be accurate, you can check this step off your list and move on to the next step of the guide.
• Understand that disputes under an Assignment and Assumption Agreement are generally handled by the parties involved
• Understand the purpose of an arbitration clause in the agreement, which is to resolve disputes quickly, fairly, and affordably
• Determine if the agreement should include a mediation clause, which is less formal than arbitration and may be more suitable for some disputes
• Consider whether the agreement should include a choice of law clause, which will determine the governing law of the agreement
• Know that the agreement should specify the venue for any potential dispute resolution proceedings
• Understand that the parties may need to provide notice to the other party before initiating a dispute resolution procedure
• When you have a full understanding of how disputes will be handled under the Assignment and Assumption Agreement, you can check this step off your list and move on to the next step.
• Understand the importance of the contractual limitations outlined in the agreement
• Make sure all parties involved in the agreement have agreed to the contractual limitations
• Know that contractual limitations are meant to protect the parties involved in the agreement
• Be aware that contractual limitations may include time limits, scope of duties, and other stipulations
• When all parties involved have agreed to the contractual limitations, you have completed this step and can move on to the next step.
• Familiarize yourself with the applicable laws in the jurisdiction in which the assignment and assumption agreement will be executed
• Make sure to include language in the agreement that will address any issues that may arise due to a conflict of laws
• Ensure that the agreement properly identifies and describes the rights, obligations, and interests that are being assigned and assumed
• Identify any contingencies that could affect the transfer of rights and obligations, and include language that addresses such contingencies
• Consider adding any additional provisions that may be necessary to ensure the successful completion of the transaction

You can check this off your list and move on to the next step when you have addressed any issues that may arise due to a conflict of laws, properly identified and described the rights, obligations and interests that are being assigned and assumed, identified any contingencies that could affect the transfer of rights and obligations, and considered adding any additional provisions that may be necessary to ensure the successful completion of the transaction.

• Identify all contingent liabilities that must be assumed by the assignee, including any pending or potential claims and obligations
• Make sure the assignee is aware of, and willing to assume, the contingent liabilities
• Include language in the assignment and assumption agreement that outlines the assignee’s assumption of any contingent liabilities
• Check that the provisions in the agreement precisely identify the liabilities assumed by the assignee
• When all contingent liabilities have been identified and included in the agreement, you can move on to the next step of understanding applicable laws.
• Research applicable laws related to assignment and assumption agreements in your jurisdiction
• Understand the legal language and key elements of an assignment and assumption agreement
• Understand the process for filing and registering an assignment and assumption agreement
• Know what documents and information may be required to complete the registration process
• Understand the timeline for completion of the registration process
• Once you have a good understanding of the applicable laws and the process for registration, you can move on to the next step of identifying any contingent liabilities.
• Research the applicable law, and use language that is consistent with the requirements
• Draft a clear and concise agreement that covers all relevant topics
• Ensure that the language used is precise and unambiguous
• Define any legal terms used in the agreement
• Make sure that the agreement is in writing and all parties have signed it
• Review the agreement and make sure it is legally compliant
• When all of the above steps are completed, you can move on to the next step in the guide.
• Research applicable laws and regulations that may apply to the assignment and assumption agreement
• Obtain any necessary licenses or permits, such as a real estate license
• Ensure that all parties understand the regulations that apply to the agreement
• Determine if any state or federal laws need to be adhered to
• When all applicable laws and regulations have been taken into account and complied with, you can move on to the next step.
• Understand the potential advantages of using an Assignment and Assumption Agreement, including:
• Transferring existing contractual obligations and liabilities from one party to another
• Ensuring continuity in contractual agreements between parties
• Avoiding the need for a new contract
• When you have a solid understanding of the potential benefits of using an Assignment and Assumption Agreement, you can check off this step and move on to the next one, which is Risk Reduction.
• Identify the potential risks that are associated with an assignment and assumption agreement
• Analyze how the assignment and assumption agreement may reduce those risks
• Understand the legalities that would protect both parties in the agreement
• Be aware of the potential regulatory requirements that may apply
• When you have thoroughly assessed the risks and understand how an assignment and assumption agreement can protect both parties, you are ready to move on to the next step.
• Understand the definition of an assignment and an assumption agreement
• Learn the differences between the two agreements
• Familiarize yourself with the processes and procedures of an assignment and assumption agreement
• Understand the legal implications of an assignment and an assumption agreement
• Familiarize yourself with the potential benefits of an assignment and assumption agreement
• Understand how an assignment and assumption agreement can be used to protect assets

You’ll know you can check this off your list and move on to the next step when you have a good grasp of the processes and procedures associated with an assignment and assumption agreement, the legal implications of such an agreement, and the potential benefits of using one.

• Understand the different costs associated with the transfer of assets, such as attorney’s fees, recording fees, and transfer taxes
• Consider the potential cost savings of using an assignment and assumption agreement as opposed to other methods of transferring assets
• Determine the effect of the transfer on the financial statements of both parties
• Review the agreement to ensure all costs are accounted for

When you have a thorough understanding of the cost savings to be made and have reviewed the agreement to ensure all costs are accounted for, you can move on to the next step.

• Be aware of the potential conflicts of interest between the assignor and assignee when an Assignment and Assumption Agreement is used
• Consider applicable laws, regulations and contractual restrictions when determining if an Assignment and Assumption Agreement is the best option
• Understand that if an Assignment and Assumption Agreement is used, both the assignor and assignee will remain liable for any existing obligations
• Be aware that the assignee may not have the same rights as the assignor under the agreement and may not have direct access to the original contract
• Understand that the assignee may be liable for any damages or losses caused by the assignor’s breach of the agreement

You’ll know when you can check this off your list and move on to the next step when you have a good understanding of the potential pitfalls and responsibilities associated with using an Assignment and Assumption Agreement.

• Understand that when assuming liabilities, there are certain risks that may be unforeseen and difficult to calculate
• Be aware that the assignor of the agreement can still be held liable if any unanticipated risks arise
• Carefully review the agreement to ensure that the assignor and the assignee are both protected from unforeseen risks
• Discuss any potential risks with legal counsel to ensure that all parties understand the potential risks
• Have all parties sign the agreement to ensure that everyone is aware of the risks and agrees to them
• When all parties have signed, the agreement can be considered complete and all parties can move forward with the transfer of liabilities
• Understand the differences between the two parties and their respective interests
• Identify the areas where both parties can agree on specific terms and conditions
• Determine which party will be liable for any breaches of the agreement
• Negotiate a fair deal that both parties can agree to
• Consider any legal, financial, and tax implications for both parties
• Once negotiations are complete, have the parties sign the agreement
• Make sure that both parties understand the terms and conditions of the agreement
• Verify that both parties are in agreement and that all negotiations are complete
• Check that all the required legal documents are present and in order
• Check that all parties involved are aware of their respective responsibilities

You’ll know when you can check this off your list and move on to the next step when all parties have agreed to the terms and conditions of the agreement, all required legal documents have been provided and in order, and all parties have signed the agreement.

• Research the laws and regulations that apply to the transaction, including state and local statutes, to assess potential risks
• Check for any filing requirements or permits that need to be obtained
• Identify any restrictions that could occur due to the parties involved
• Document any potential regulatory non-compliance issues
• When all potential risks have been identified and documented, you can move on to the next step.
• Review the terms and conditions of the agreement, as well as any applicable regulations, to ensure that all parties have a clear understanding of the agreement as a whole.
• Seek legal counsel if there are any questions or concerns about the agreement.
• Finalize the agreement by signing and exchanging documents.
• After the agreement has been finalized, it will be legally binding and enforceable.
• Make sure all parties are aware of their responsibilities and obligations under the agreement.
• Monitor the agreement to ensure that all parties are complying with the terms and conditions of the agreement.
• Check off this step when the agreement has been finalized and all parties have signed and exchanged documents.
• Review the agreement carefully and make sure all parties have signed off
• Make sure all parties have received a copy of the agreement
• Ensure that all parties have received the agreed-upon consideration
• File the original agreement with all relevant documents with the appropriate government agency or court
• You will know that you have finished this step when all parties have signed the agreement, all parties have received a copy, and the original agreement has been filed with the appropriate government agency or court.
• Execute the agreement, making sure both parties have signed it and that all parties involved have read, understood, and accepted the terms and conditions of the agreement.
• Make sure that the agreement has been filed with the appropriate state or federal agency, if required.
• Start the process of transferring assets and obligations from the assignor to the assignee, as outlined in the agreement.
• Make sure that all parties have the necessary information to complete the assignment and assumption. This may include but is not limited to: legal documents, financial documents, contracts, and other pertinent information.
• Ensure that all parties have received the necessary payment for the assignment and assumption.
• Check that all parties have complied with the terms and conditions of the agreement.
• You can check this off your list once you have completed all the steps necessary for the successful implementation of the agreement.
• Ensure you have all relevant documents, such as the assignment and assumption agreement, and any other documents mentioned in the agreement
• Gather all necessary signatures from the parties involved
• Make copies of the signed documents for all parties
• File the original documents with the appropriate governmental agency or court
• Update any necessary records, including those within your company
• Verify that all documents have been properly filed
• You can check off this step and move on to the next step when all documents have been properly signed and filed.

Q: What is the difference between an Assignment and Assumption Agreement and a novation agreement?

Asked by Zane on 27th March 2022. A: An Assignment and Assumption Agreement is used to transfer contractual rights and obligations from one party to another, while a novation agreement is used to substitute one contracting party with another. In a novation agreement, all three parties must agree to the substitution, while in an Assignment and Assumption Agreement, only two parties are involved.

Example dispute

Lawsuit referencing assignment and assumption agreement.

• A plaintiff may raise a lawsuit referencing an assignment and assumption agreement when one party assumes the rights and obligations of another party in a contract.
• The lawsuit may be raised if the party that assumed the rights and obligations did not fulfill them or did not fulfill them in the manner agreed upon in the contract.
• The plaintiff must provide proof that the party failed to fulfill the rights and obligations of the contract in order to win the lawsuit.
• Settlement may be reached through a negotiated agreement between the parties.
• Damages may be awarded if the plaintiff can prove the losses incurred due to the breach of contract.

Templates available (free to use)

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Ultimate Checklist for Understanding Contract Assignment Rules

• February 28, 2024
• Moton Legal Group

In contracts, understanding assignment is key. Simply put, an assignment in contract law is when one party (the assignor) transfers their rights and responsibilities under a contract to another party (the assignee). This can include anything from leasing agreements to business operations. But why is this important? It’s because it allows for flexibility in business and personal dealings, a critical component in our world.

Here’s a quick rundown: – Contract Basics: The foundational agreements between parties. – Assignment Importance: Allowing the transfer of obligations and benefits to keep up with life’s changes.

Contracts are a staple in both personal and business worlds, acting as the backbone to many transactions and agreements encountered daily. Understanding the nuances, like assignments, can empower you to navigate these waters with confidence and ease. Whether you’re a business owner in the Southeast looking to expand or an individual managing personal agreements, grasp these basics, and you’re on the right path.

Understanding Contract Assignment

Contract Assignment sounds complicated, right? But, let’s break it down into simple terms. In contracts and legal agreements, knowing about assignment can save you a lot of headaches down the road. Whether you’re a business owner, a landlord, or just someone who deals with contracts, this is for you.

Legal Definition

At its core, contract assignment is about transferring rights or obligations under a contract from one party to another. Think of it as passing a baton in a relay race. The original party (the assignor) hands off their responsibilities or benefits to someone else (the assignee). But, there’s a twist – the race keeps going with the new runner without starting over.

Contract Law

In contract law, assignment comes into play in various ways. For example, if you’re a freelancer and you’ve agreed to complete a project but suddenly find yourself overbooked, you might assign that contract to another freelancer. This way, the job gets done, and your client is happy. However, not all contracts can be freely assigned. Some require the other party’s consent, and others can’t be assigned at all, especially if they involve personal skills or confidential trust.

Property Law

When it comes to property law, assignment often surfaces in landlord-tenant relationships. Say you’re renting a shop for your business, but you decide to move. If your lease allows it, you might assign your lease to another business. This means they take over your lease, stepping into your shoes, with all the rights and obligations that come with it.

The concept might seem straightforward, but there are important legal requirements and potential pitfalls to be aware of. For instance, an assignment could be prohibited by the contract itself, or it may significantly change the original deal’s terms in a way that’s not allowed. Plus, when you’re dealing with something that requires a unique skill set, like an artist or a consultant, those services typically can’t be passed on to someone else without agreement from all parties involved.

To navigate these complexities, understanding the fundamentals of assignment in contract law and property law is crucial. It ensures that when you’re ready to pass that baton, you’re doing it in a way that’s legal, effective, and doesn’t leave you tripping up before you reach the finish line.

The goal here is to make sure everyone involved understands what’s happening and agrees to it. That way, assignments can be a useful tool to manage your contracts and property agreements, keeping things moving smoothly even when changes come up.

For more detailed exploration on this topic, consider checking the comprehensive guide on Assignment (law)). This resource dives deeper into the nuances of contract assignment, offering insights and examples that can help clarify this complex area of law.

By grasping these basics, you’re well on your way to mastering the art of contract assignment. Whether you’re dealing with leases, business deals, or any agreement in between, knowing how to effectively assign a contract can be a game-changer.

Key Differences Between Assignment and Novation

When diving into contracts, two terms that often cause confusion are assignment and novation . While both deal with transferring obligations and rights under a contract, they are fundamentally different in several key aspects. Understanding these differences is crucial for anyone involved in contract management or negotiation.

Rights Transfer

Assignment involves the transfer of benefits or rights from one party (the assignor) to another (the assignee). However, it’s important to note that only the benefits of the contract can be assigned, not the burdens. For instance, if someone has the right to receive payments under a contract, they can assign this right to someone else.

Novation , on the other hand, is more comprehensive. It involves transferring both the rights and obligations under a contract from one party to a new party. With novation, the original party is completely released from the contract, and a new contractual relationship is formed between the remaining and the new party. This is a key distinction because, in novation, all parties must agree to this new arrangement.

Obligations Transfer

Assignment doesn’t transfer the original party’s obligations under the contract. The assignor (the original party who had the rights under the contract) might still be liable if the assignee fails to fulfill the contract terms.

In contrast, novation transfers all obligations to the new party. Once a novation is complete, the new party takes over all rights and obligations, leaving the original party with no further legal liabilities or rights under the contract.

Written Agreement

While assignments can sometimes be informal or even verbal, novation almost always requires a written agreement. This is because novation affects more parties’ rights and obligations and has a more significant impact on the contractual relationship. A written agreement ensures that all parties are clear about the terms of the novation and their respective responsibilities.

In practice, the need for a written agreement in novation serves as a protection for all parties involved. It ensures that the transfer of obligations is clearly documented and legally enforceable.

For example, let’s say Alex agrees to paint Bailey’s house for $1,000. Later, Alex decides they can’t complete the job and wants Chris to take over. If Bailey agrees, they can sign a novation agreement where Chris agrees to paint the house under the same conditions. Alex is then relieved from the original contract, and Chris becomes responsible for completing the painting job.

Understanding the difference between assignment and novation is critical for anyone dealing with contracts. While both processes allow for the transfer of rights or obligations, they do so in different ways and with varying implications for all parties involved. Knowing when and how to use each can help ensure that your contractual relationships are managed effectively and legally sound.

For further in-depth information and real-life case examples on assignment in contract law, you can explore detailed resources such as Assignment (law) on Wikipedia).

Next, we’ll delve into the legal requirements for a valid assignment, touching on express prohibition, material change, future rights, and the rare skill requirement. Understanding these will further equip you to navigate the complexities of contract assignments successfully.

Legal Requirements for a Valid Assignment

When dealing with assignment in contract law , it’s crucial to understand the legal backbone that supports a valid assignment. This ensures that the assignment stands up in a court of law if disputes arise. Let’s break down the must-know legal requirements: express prohibition, material change, future rights, and rare skill requirement.

Express Prohibition

The first stop on our checklist is to look for an express prohibition against assignment in the contract. This is a clause that outright states assignments are not allowed without the other party’s consent. If such language exists and you proceed with an assignment, you could be breaching the contract. Always read the fine print or have a legal expert review the contract for you.

Material Change

Next up is the material change requirement. The law states that an assignment cannot significantly alter the duties, increase the burdens, or impair the chances of the other party receiving due performance under the contract. For instance, if the contract involves personal services tailored to the specific party, assigning it to someone else might change the expected outcome, making such an assignment invalid.

Future Rights

Another important aspect is future rights . The rule here is straightforward: you can’t assign what you don’t have. This means that a promise to assign rights you may acquire in the future is generally not enforceable at present. An effective assignment requires that the rights exist at the time of the assignment.

Rare Skill Requirement

Lastly, let’s talk about the rare skill requirement . Some contracts are so specialized that they cannot be assigned to another party without compromising the contract’s integrity. This is often the case with contracts that rely on an individual’s unique skills or trust. Think of an artist commissioned for a portrait or a lawyer hired for their specialized legal expertise. In these scenarios, assignments are not feasible as they could severely impact the contract’s intended outcome.

Understanding these legal requirements is pivotal for navigating the complexities of assignment in contract law. By ensuring compliance with these principles, you can effectively manage contract assignments, safeguarding your interests and those of the other contracting party.

For anyone looking to delve deeper into the intricacies of contract law, you can explore detailed resources such as Assignment (law) on Wikipedia).

Moving forward, we’ll explore the common types of contract assignments, from landlord-tenant agreements to business contracts and intellectual property transfers. This will give you a clearer picture of how assignments work across different legal landscapes.

Common Types of Contract Assignments

When we dive into assignment in contract law , we find it touches nearly every aspect of our business and personal lives. Let’s simplify this complex topic by looking at some of the most common types of contract assignments you might encounter.

Landlord-Tenant Agreements

Imagine you’re renting a fantastic apartment but have to move because of a new job. Instead of breaking your lease, you can assign your lease to someone else. This means the new tenant takes over your lease, including rent payments and maintenance responsibilities. However, it’s crucial that the landlord agrees to this switch. If done right, it’s a win-win for everyone involved.

Business Contracts

In the business world, contract assignments are a daily occurrence. For example, if a company agrees to provide services but then realizes it’s overbooked, it can assign the contract to another company that can fulfill the obligations. This way, the project is completed on time, and the client remains happy. It’s a common practice that ensures flexibility and efficiency in business operations.

Intellectual Property

Intellectual property (IP) assignments are fascinating and complex. If an inventor creates a new product, they can assign their patent rights to a company in exchange for a lump sum or royalties. This transfer allows the company to produce and sell the invention, while the inventor benefits financially. However, it’s critical to note that with trademarks, the goodwill associated with the mark must also be transferred to maintain its value.

Understanding these types of assignments helps clarify the vast landscape of contract law. Whether it’s a cozy apartment, a crucial business deal, or a groundbreaking invention, assignments play a pivotal role in ensuring these transitions happen smoothly.

As we navigate through the realm of contract assignments, each type has its own set of rules and best practices. The key is to ensure all parties are on the same page and that the assignment is executed properly to avoid any legal pitfalls.

Diving deeper into the subject, next, we will explore how to execute a contract assignment effectively, ensuring all legal requirements are met and the process runs as smoothly as possible.

How to Execute a Contract Assignment Effectively

Executing a contract assignment effectively is crucial to ensure that all legal requirements are met and the process runs smoothly. Here’s a straightforward guide to help you navigate this process without any hiccups.

Written Consent

First and foremost, get written consent . This might seem like a no-brainer, but it’s surprising how often this step is overlooked. If the original contract requires the consent of the other party for an assignment to be valid, make sure you have this in black and white. Not just a handshake or a verbal agreement. This ensures clarity and avoids any ambiguity or disputes down the line.

Notice of Assignment

Next up, provide a notice of assignment to all relevant parties. This is not just common courtesy; it’s often a legal requirement. It informs all parties involved about the change in the assignment of rights or obligations under the contract. Think of it as updating your address with the post office; everyone needs to know where to send the mail now.

Privity of Estate

Understanding privity of estate is key in real estate transactions and leases. It refers to the legal relationship that exists between parties under a contract. When you assign a contract, the assignee steps into your shoes, but the original terms of the contract still apply. This means the assignee needs to be aware of and comply with the original agreement’s requirements.

Secondary Liability

Lastly, let’s talk about secondary liability . Just because you’ve assigned a contract doesn’t always mean you’re off the hook. In some cases, the original party (the assignor) may still hold some liability if the assignee fails to perform under the contract. It’s essential to understand the terms of your assignment agreement and whether it includes a release from liability for the assignor.

Executing a contract assignment effectively is all about dotting the I’s and crossing the T’s . By following these steps—securing written consent, issuing a notice of assignment, understanding privity of estate, and clarifying secondary liability—you’re setting yourself up for a seamless transition.

The goal is to ensure all parties are fully informed and agreeable to the changes being made. This not only helps in maintaining good relationships but also in avoiding potential legal issues down the line.

We’ll dive into some of the frequently asked questions about contract assignment to clear any lingering doubts.

Frequently Asked Questions about Contract Assignment

When navigating contracts, questions often arise, particularly about the concepts of assignment and novation. Let’s break these down into simpler terms.

What does assignment of a contract mean?

In the realm of assignment in contract law , think of assignment as passing the baton in a relay race. It’s where one party (the assignor) transfers their rights and benefits under a contract to another party (the assignee). However, unlike a relay race, the original party might still be on the hook for obligations unless the contract says otherwise. It’s like handing off the baton but still running alongside the new runner just in case.

Is an assignment legally binding?

Absolutely, an assignment is as binding as a pinky promise in the playground – but with legal muscle behind it. Once an assignment meets the necessary legal criteria (like not significantly changing the obligor’s duties or having express consent if required), it’s set in stone. This means both the assignee and the assignor must honor this transfer of rights or face potential legal actions. It’s a serious commitment, not just a casual exchange.

What is the difference between assignment and novation?

Now, this is where it gets a bit more intricate. If assignment is passing the baton, novation is forming a new team mid-race. It involves replacing an old obligation with a new one or adding a new party to take over an old one’s duties. Crucially, novation extinguishes the old contract and requires all original and new parties to agree. It’s a clean slate – the original party walks away, and the new party steps in, no strings attached.

While both assignment and novation change the playing field of a contract, novation requires a unanimous thumbs up from everyone involved, completely freeing the original party from their obligations. On the other hand, an assignment might leave the original party watching from the sidelines, ready to jump back in if needed.

Understanding these facets of assignment in contract law is crucial, whether you’re diving into a new agreement or navigating an existing one. Knowledge is power – especially when it comes to contracts.

As we wrap up these FAQs, the legal world of contracts is vast and sometimes complex, but breaking it down into bite-sized pieces can help demystify the process and empower you in your legal undertakings.

Here’s a helpful resource for further reading on the difference between assignment and cession.

Now, let’s continue on to the conclusion to tie all these insights together.

Navigating assignment in contract law can seem like a daunting task at first glance. However, with the right information and guidance, it becomes an invaluable tool in ensuring that your rights and obligations are protected and effectively managed in any contractual relationship.

At Moton Legal Group, we understand the intricacies of contract law and are dedicated to providing you with the expertise and support you need to navigate these waters. Whether you’re dealing with a straightforward contract assignment or facing more complex legal challenges, our team is here to help. We pride ourselves on our ability to demystify legal processes and make them accessible to everyone.

The key to successfully managing any contract assignment lies in understanding your rights, the obligations involved, and the potential impacts on all parties. It’s about ensuring that the assignment is executed in a way that is legally sound and aligns with your interests.

If you’re in need of assistance with a contract review, looking to understand more about how contract assignments work, or simply seeking legal advice on your contractual rights and responsibilities, Moton Legal Group is here for you. Our team of experienced attorneys is committed to providing the clarity, insight, and support you need to navigate the complexities of contract law with confidence.

For more information on how we can assist you with your contract review and other legal needs, visit our contract review service page .

In the constantly evolving landscape of contract law, having a trusted legal partner can make all the difference. Let Moton Legal Group be your guide, ensuring that your contractual dealings are handled with the utmost care, professionalism, and expertise. Together, we can navigate the complexities of contract law and secure the best possible outcomes for your legal matters.

Thank you for joining us on this journey through the fundamentals of assignment in contract law. We hope you found this information helpful and feel more empowered to handle your contractual affairs with confidence.

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Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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Assignment and assumption agreement

What is an assignment and assumption agreement?

An assignment and assumption agreement is a contract that allows one of the parties to transfer their contractual rights and duties to another party.

An assignment of contract is used after a previous agreement has been signed and one of the parties wants to pass on its obligations to a third party that wasn\’t originally part of the contract.

The parties involved in an assignment of contract are:

Uses of assignment agreements

Asset purchase transactions.

 During mergers and acquisitions , the parties typically enter into additional agreements that are accessory to the purchase contract to evidence the transfer of assets. Among these ancillary documents is the assignment and assumption agreement, which may be required to make the Asset Purchase Agreement (APA) effective. 

In the context of a business transaction, the assignment and assumption agreement is a shorter agreement than the APA. A buyer will use the assignment contract to evidence the ownership of the assigned assets, while the seller uses it to prove that it is the buyer who now has assumed all the rights and obligations related to the assigned asset.

In asset acquisitions, it is common to have several assignment agreements that are used to authenticate the property of different assets, such as patents, trademarks, or copyrights. 

Opting out of a contract

If the party of a contract is no longer able to fulfill its obligations or wants to cede its rights to someone else, assignment agreements can come into place. Only if the terms of the original contract allow it, the assignor can transfer its property rights and obligations or debt to someone else.

An example could be a contractor who needs help to complete a job and assigns tasks and entitlements to a subcontractor.   

Startup Assignment Agreements

Assignment contracts are typically used by newly formed businesses that rely on software, trademarks, or other sort of intellectual property. Since technology startups expect financing from outside investors, a technology attorney will usually recommend the use of assignment agreements as a means of ensuring third parties, such as shareholders, can profit from using their IP and make it easier to find funding for their businesses. 

Conditions for an assignment contract to be valid

To be able to hand over the contractual obligations, the following criteria need to be met:

It’s essential to notice that, although assigning a contract will transfer the rights and duties to the receiving party, the assignor will not be released from any obligations that arose before the assignment. Before entering a contract assignment, ensure a contract review lawyer advises you it is safe to proceed, how to do it, and if you will be still liable for specific terms in the contract.

An assignment will not be enforced if:

Elements of an Assignment Agreement

Details on the existing agreement: Provides identification data on the existing contract, such as its date of execution and purpose. 

Additionally, the assignment contract will contain provisions related to indemnification and governing law.  

In M&A, when in need to prove the ownership of specific assets, or if you are facing difficulties in fulfilling your contractual obligations, an assignment and assumption agreement will demonstrate you are the right owner and keep your business’s credibility intact. 

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FAQ About Assignments of Agreements of Purchase and Sale

What is an assignment?

An assignment simply refers to the transfer of one’s contractual rights and obligations from one person (the “ assignor ”) to another (the “ assignee ”). The specific features and terms of an assignment are usually set out in a separate assignment contract, which refers to the rights and obligations in an original contract. As a result, assignments generally involve at least two related contracts: the Original Contract and the Assignment Contract. Often, assignments are seen in the context of long-term obligations, such as commercial leases or agreements to purchase pre-construction properties.

• Are Assignments Permitted?
• Why Would An Assignor Assign Their Interest?
• Why Would An Assignee Prefer An Assignment?
• How Can Assignors And Assignees Protect Themselves?

Are assignments permitted?

Speaking generally, either party to a contract may assign their rights and obligations unless the terms of the said contract suggest otherwise. For instance, in most agreements of purchase and sale for pre-construction property, builders will place strict limits on the purchaser’s rights to assign by requiring the purchaser to obtain the builder’s consent to do so. Going one step further, builders commonly prohibit purchasers from advertising an assignment on any platform.

Even when a builder consents to an assignment, they may impose additional terms and conditions which can be costly and burdensome for a purchaser looking to assign. For example, the builder can refuse to release the original purchaser from their obligations notwithstanding the assignment.

Why would an assignor assign their interest?

Assignments by assignors generally occur for one of two reasons: (1) the assignor intends to make a quick(er) profit by “realizing” or selling their contractual rights before closing with the builder, or (2) the assignor cannot or no longer wishes to meet their obligations under the Original Contract. Assignors who wish to see early returns on their investment hope to take advantage of a seller’s market by assigning their contractual rights to an assignee – for a profit, of course. On the other hand, assignors who cannot or no longer wish to meet their obligations with the builder have usually experienced a change in their circumstances or plans which would make meeting their obligations infeasible.

Why would an assignee prefer an assignment?

Assignments may be attractive to assignees looking to buy into a specific development which has already been completely sold but not closed. Those looking to invest may yet make substantial gains (on final closing with the builder) if the market is on the rise – even if the assignee ends up paying the assignor’s fee in addition to the builder’s sale price. Also, because of the builder’s restrictions on advertising assignments and perhaps because of a general unfamiliarity with assignments among the public, it may be less likely that assignments are the subject of bidding wars.

How can assignors and assignees protect themselves?

The concerns of assignors and assignees vary greatly from situation to situation, so seeking the advice of an experienced real estate lawyer is crucial throughout the assignment process. At Hummingbird Lawyers LLP, our experienced team of Real Estate lawyers can help you:

• Draft or review assignment contracts to protect your interests;
• Identify and even minimize potential costs and risks;
• Review and explain the builder’s terms of assignment;
• Guide you through the assignment process; and
• Ensure that you have the right paperwork needed to finalize the assignment.

For more information, please get in touch with our firm. There is always a Toronto real estate lawyer or a Vaughan real estate lawyer available to help.

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Articles & Resources

An Assignment of an Agreement of Purchase and Sale is when an original purchaser under an Agreement of Purchase and Sale permits a different party to take over the contract. New homes, condominiums and even re-sale properties can be assigned.  

Purchasers usually assign their Agreement of Purchase and Sale with the view of making a profit. 

For example, if the original purchaser signed the Agreement of Purchase and Sale at $100,000.00 but they are now transferring the contract to the third party for $150,000.00 they have profited $50,000.00.

Other reasons?

• Keep in mind, when a purchaser signs the contract, closing may not take place for another year or longer;
• They no longer want the home (i.e. they’ve found something better);

Does this mean that the original purchaser walks away free after the Assignment Agreement has been signed? No.

Most, if not all, Assignment agreements will have a clause to the effect of “(original) buyer assumes continuing liability for the “covenants, agreements and obligations” contained the original agreement”

What is the benefit to the new buyer?

• The new buyer may be able to buy into a desirable neighborhood at a time when there are no more units available to be purchased directly from the builder;
• Even taking the original buyer’s profit into account, the assignment may give the new buyer a price advantage over other properties that are currently on the market; and
• Depending on the timing of the assignment, the new buyer may be positioned to choose finishes and make minor changes to the yet-to-be-built home.

Common Terms

Assignor: Original Buyer

Assignee: New Buyer

Vendor: Builder

Consent: Permission from the Builder to transfer the contract to the Assignee. Absolutely Necessary. 

Can an Agreement of Purchase and Sale be assigned?

Most Agreement of Purchase and Sales state that the Agreement of Purchase and Sale cannot be assigned without the Vendor’s consent which may be withheld arbitrarily. What this means is that the Builder has the ability to deny any requests for assigning the APS at its sole discretion. 

However, at times, the Assignor may have already signed an Amendment to the Agreement of Purchase and Sale permitting one Assignment of the APS. In these circumstances, there may be little to no barrier in assigning the APS. In any event, reference will still need to be made to the APS to make sure that there are no conditions to an assignment [i.e. 90% of units have to be sold (if condo) before an Assignment will be permitted]. 

Responsibility to Obtain Consent:

Clause 15 in the Assignment of Agreement of Purchase and Sale sets out that the responsibility to obtain consent remains with the Assignor and all costs are to be paid for by him/her. However, costs can be split by modifying Schedule A.  

“ The Assignee acknowledges and agrees that the Developer’s Agreement contains a provision prohibiting the purchase and the sale of the within unit without the Developer’s consent and accordingly the Assignee and Assignor shall execute and deliver to the Developer Consent documents as required. This Agreement of Purchase and Sale shall be conditional upon the Assignor obtaining the written consent of the Developer to the assignment herein until XYZ date, failing which the Agreement herein shall be null and void and all deposits returned to the Assignee, unless otherwise extended in writing by the Assignee and Assignor ”

Note: While there will be an Assignment of Agreement of Purchase and Sale to be executed between the Assignor and Assignee, the Vendor will also draft their own consent to assign which will contain their terms and conditions. 

Adjustments

Who is responsible for paying additional costs arising in the Statement of Adjustments? Very important to advise client accordingly depending on if Assignor or Assignee. 

If we are acting for an Assignor, we want to make sure that there are no clauses in Schedule A or any other Schedule which makes them responsible for adjustments. 

Keep in mind, we will not know what the actual adjustments are until well after the Assignment Agreement has been signed. At times, these costs can be significant (i.e. increase in development charges). 

At all times, it is the responsibility of the Assignor and Assignee to be diligent in ensuring that they are aware of what’s being contracted for.

Please note the content on this web site is provided for general information purposes only and does not constitute legal or other professional advice of any kind.

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Transfer And Assignment Agreement

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What is a transfer and assignment agreement.

A transfer and assignment agreement is a legal document that outlines the terms and conditions of the transfer of an employee from one company to another. It also includes the assignment of all rights and obligations, including any IP or confidential information. This document can be used to protect both the employee and the employer in case of any disputes. When negotiating a transfer and assignment agreement, it is important to consider all potential risks and liabilities.

Common Sections in Transfer And Assignment Agreements

Below is a list of common sections included in Transfer And Assignment Agreements. These sections are linked to the below sample agreement for you to explore.

Transfer And Assignment Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.7 10 dex107.htm FORM OF SALE, TRANSFER AND ASSIGNMENT AGREEMENT , Viewed April 26, 2022, View Source on SEC .

Who Helps With Transfer And Assignment Agreements?

Lawyers with backgrounds working on transfer and assignment agreements work with clients to help. Do you need help with a transfer and assignment agreement?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate transfer and assignment agreements. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

Meet some of our Transfer And Assignment Agreement Lawyers

I am a corporate attorney with offices in Rock Hill, SC, and Lavonia, GA. My practice is focused on contracts, tax, and asset protection planning. I act as a fractional outside general counsel to over 20 businesses in 6 countries. When not practicing law, I can usually be found training my bird dogs.

Oklahoma attorney focused on real estate transactions, quiet title lawsuits, estate planning, probates, business formations, and all contract matters.

International-savvy technology lawyer with 35years+ in Silicon Valley, Tokyo, Research Triangle, Silicon Forest. Outside & inside general counsel, legal infrastructure development, product exports, and domestic & international contracts for clients across North America, Europe, and Asia. Work with Founders to establish startup and continuous revenue, sourcing and partnering with investors to attract funding, define success strategy and direct high-performing teams, advising stakeholders and Boards of Directors to steer company growth.

Licensed to practice law in the states of Missouri and Kansas. Have been licensed to practice law for 44 years. Have been AV rated by Martindale Hubbel for almost 30 years.

Real estate and corporate attorney with over 30 years of experience in large and small firms and in house.

David Alexander advises clients on complex real estate transactions, including the acquisition, disposition, construction, financing and leasing of shopping centers, office buildings and industrial buildings throughout the U.S. An experienced real estate attorney, David reviews, drafts and negotiates all manner of retail, office and industrial real estate agreements, including purchase and sale agreements, construction contracts, leases and financing documentation.

Managing partner at Patel & Almeida and has over 22 years of experience assisting clients in the areas of intellectual property. business, employment, and nonprofit law.

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What is a Purchase and Sale Agreement? Know the Basics

A purchase and sale agreement, also called a sales and purchase agreement or a purchase and sales contract , is a legally binding document that parties in a transaction use to stipulate the terms and conditions that will guide the sale and transfer of goods or property.

A key thing about a purchase and sale agreement is that it does not transfer the property or goods that the parties are negotiating. What it does is create an obligation for the seller to sell, and an obligation for the buyer to buy.

Transactions that use purchase and sale agreements, such as real estate transactions, are complex transactions that may span into weeks and involve lots of processes and stages. These agreements provides a clear roadmap so parties know what they can expect at each point.

A purchase and sale agreement is not the same as a purchase agreement . A purchase agreement is the final document used to transfer a property from the seller to the buyer, while a purchase and sale agreement specifies the terms of the transaction. Parties will sign a purchase agreement after both parties have complied with the terms of the purchase and sale agreement.

A purchase and sale agreement is also not a purchase order . A purchase order is a document that contains a list of supplies or products a buyer wants to buy from a seller.

• What is the purpose of a purchase and sale agreement?

A purchase and sale agreement is used to document the parties’ intentions and the terms they have agreed will govern the transaction. You can include specific terms like the product or property, the price of the product or property, conditions for the delivery of the product, and the date of product delivery.

Writing these things down protects each party’s interests by ensuring that there is a legally binding agreement they can resort to if there is a dispute. It also protects any deposit the buyer makes on the transaction and secures their commitment.

In real estate transactions , parties use these agreements to make provisions for the buyer to inspect the property. It also details any defects the property has that are known to the seller. The contracts usually contain conditions that could lead to the termination of the agreement; for example, if the buyer is not satisfied after inspecting the property.

• When do I need a purchase and sale agreement?

We mentioned earlier that they are commonly used in real estate transactions; however, you can also use them in other t ypes of property transactions , like vehicle sales.

Purchase and sale agreements are also used in the transactions of company stock . Parties can also use them where a business is acquiring another business .

• Elements of a purchase and sale agreement

To write a purchase and sale agreement, you’ll need to include the following elements:

• Identity of the parties: Include the names of the parties in the transaction. Parties in the agreement may be individuals or organizations. Ensure that you write their full legal names and their contact information.
• Description of the property or products:  Describe the property or the product in absolute detail. Make sure that the description identifies the property without any ambiguity. If the subject matter is a product, state the quality of the product and specifications.
• The purchase price:  State the price the parties have agreed on for the purchase of the property or product.
• Type of payment:  State how the buyer will pay the seller for the product or property. Payment can be in cash, shares, financing, etc.
• Terms of delivery:  Write when and how the seller will supply the product. In the case of a property transaction, it would instead be how and when the seller will transfer property ownership.
• Closing date for the sale:  State the date the parties will come together to close the sale. Closing involves the signing of the document to transfer the property from the seller to the buyer.
• Definition of terms:  Include the definition of the meaning of key terms used in the agreement. Parties may use some terms differently or may want to limit or expand the meaning of certain words. A definition section will help you to do that.
• Warranties: Detail any warranties that the seller is making in the agreement. A seller in an agreement for the sale of goods may make certain warranties as to the quality of the product. In a real estate transaction, a seller might make warranties on ownership and possession of the property.
• The deposit amount:  Agree on the amount of money the buyer will pay as deposit or earnest money  and where it will be held in escrow. The deposit is put in an escrow account pending when parties complete the transaction or if the transaction falls through.
• Dispute resolution:  Decide how parties will resolve any dispute relating to the agreement. Parties can opt for arbitration or mediation.
• Contingencies:  State any conditions that any party must meet before the transaction can be completed. For example, you can provide an inspection contingency that will allow the buyer to back off if, during the inspection, they discover something about the property that they cannot overlook. Other contingencies can be financial, title, or appraisal.
• Penalty:  Agree on the consequences if any party defaults or fails to follow through with the agreement without a valid reason.
• Managing a purchase and sale agreement

To manage your agreements efficiently, you need to pay close attention, as the stakes are often high. Various transactions are rarely the same. A purchase and sale agreement is also not the final document, so parties can (and usually will) renegotiate some terms before closing the transaction.

You’ll need to monitor the agreement closely to ensure that parties follow the terms or to discover when you may renegotiate more favorable terms. Often, parties may use an addendum to change the terms of the agreement or to add additional terms.

You can use an addendum to change the closing date, inspection periods, or purchase price. For instance, in a business purchase transaction the buyer might discover that the business is worth a lot less than the price they offered because it has a high employee turnover. The buyer may then decide to continue with the transaction but will offer a lower price. Parties will renegotiate on price and use an addendum to modify the new cost. You may have several addenda to one purchase and sale agreement.

• Using contract lifecycle management software to streamline agreements

Managing a purchase and sale agreement is more challenging if your organization does not use a contract lifecycle management (CLM) software in managing your contracts. This type of agreement is unique in that it facilitates a transaction.

Any lack of contract visibility, poor communication between stakeholders, or inefficient tracking of contract key deadlines—which are common in the traditional method of contract management —will adversely affect the outcome. This is why innovative businesses use contract lifecycle management software to manage their purchase and sale agreements, as well as their other business contracts.

Using a contract management software will automate your contract workflows , which will help you create agreements faster, communicate efficiently with both internal and external stakeholders, and stay on top of your obligations and key timelines.

• Master purchase and sale agreement with Ironclad CLM

Ironclad’s CLM is an enterprise-grade contract management software designed to handle all contract management lifecycle stages  for organizations of all sizes.

With Ironclad’s CLM, you can increase your contracting efficiency by creating templates of workflows for your organization’s purchase and sale agreement. You can save time and resources by using Ironclad’s central platform for creating, approving, revising, editing, negotiating, and redlining your purchase and sale agreement.

Ironclad’s central repository  ensures you and your team can have access to and track your purchase and sale agreements without hassle. Our CLM software can also help you create an addendum to your purchase and sale agreement conveniently if it’s needed.

Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.

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The definition of assignment & assumption agreement.

By Rebecca K. McDowell, J.D.

October 19, 2019

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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• Land Contract Law in Florida

Assignments and assumptions are part of contract law and refer to the transfer of someone's duties and benefits in a contract to another. Assignments and assumptions are common with respect to contracts for loans or leases. A lender or lessor may assign its rights to another lender or lessor, and a borrower or lessee may find someone to assume the loan or lease and make the payments.

The Elements of a Contract

A contract is legally formed when two or more parties enter into an agreement with certain elements, which include:

• An offer. For instance, in a mortgage transaction, the lender offers to loan money to the borrower.
• Acceptance of the offer. The mortgage borrower agrees to borrow the money.
• Consideration. Consideration in a contractual relationship means the things the two parties give to each other in exchange for entering the contract. A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract.
• Mutuality. The parties must have come together and agreed upon the terms of the contract Read More: How Does a Contract Work?

Burdens and Benefits of a Contract

The contract sets forth what the parties are required to do during the contractual relationship. With a mortgage, the lender is required to loan the money and apply the payments correctly in accordance with the agreement, and then release the lien when the loan is paid. The borrower is required to pay the loan back with interest, pay the property taxes and make sure the property has insurance.

These contractual obligations create both burdens and benefits on both sides. The lender has the burden of making the loan and applying the payments correctly, but it has the benefit of receiving interest on the loan. The borrower has the burdens of making payments and insuring the property but has the benefit of owning the home.

Assigning a Contract

An assignment occurs when one party to a contract transfers, or assigns, its rights and obligations under the contract to another party. This happens frequently with mortgage loans, as lenders sell loans to other lenders. The lender will enter into an assignment agreement and assign the note and the mortgage to another party. The borrower then must make the payments to the assignee. The assignee's right and obligations under an assignment are the same as the assignor's rights and obligations and cannot be changed without a new contract.

Assuming a Contract

An assumption is the other side of the coin, in a sense. Assumptions are common with respect to leases and mortgages and typically occur when the borrower or lessee wants to transfer the property to someone else without paying off the loan or lease. Assumption means someone is taking over the side of the contract that requires payment.

If the contract allows it, another person can agree to assume the original party's obligations under the contract – the obligations to make monthly payments, etc. – in exchange for taking over the ownership or the lease.

Not every contract can be assumed. The language of the contract will state whether the borrower or lessee is allowed to transfer the property or lease by assumption.

Assignment and Assumption Agreements

Assignments and assumptions are both conducted by written agreement. Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens.

Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original position of the transferring party and the duties and benefits being transferred.

• Bankrate: Assumable Mortgage: Take Over Seller's Loan
• The Law Dictionary: What is Assumption?
• Nolo: What Is an Assignment of Contract?
• U.S. Legal: Elements of a Contract

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Sales and Purchase Agreement (SPA): What It Is, With Examples

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

Investopedia / Zoe Hansen

What Is a Sales and Purchase Agreement (SPA)?

A sales and purchase agreement (SPA) is a binding legal contract between two parties that obligates a transaction to occur between a buyer and seller. SPAs are typically used for real estate transactions, but they are found in other areas of business. The agreement finalizes the terms and conditions of the sale, and it is the culmination of negotiations between the buyer and the seller.

Key Takeaways

• A sales and purchase agreement (SPA) is a binding legal contract that obligates a buyer to buy and a seller to sell a product or service.
• SPAs are often used in real estate deals or when two parties are transacting a large item or a large number of items.
• A SPA details important information including the asset, sales price, and payment terms of the sale.
• A SPA also outlines due diligence periods, conditions that must be met before the sale, and what remediation is available if the product is damaged before the sale.
• A SPA may include language around confidentiality, contingent sales, and broker commissions.

Understanding a Sales and Purchase Agreement (SPA)

Before a transaction can occur, the buyer and the seller negotiate the price of the item to be sold and the conditions for the transaction. The SPA is a framework for the negotiation process. The SPA is often used in cases of a large purchase, such as a piece of real estate, or frequent purchases over a period.

Once signed, the SPA is a legally-binding document between the parties. Typically, the SPA will be prepared and overseen by an independent third-party to facilitate the transactions closing. The agreement also records when the final sale is to occur.

Depending on the size of the transaction, there may be a substantial amount of content within a single SPA. Here are some examples of what you may see in a SPA.

Asset Identification

A SPA outlines the specific asset that is being sold. In the case of real property, the physical location (i.e. address, parcel numbers) are identified. This section is less robust for the sale of duplicative goods that can easily be interchanged.

Purchase Price and Conditions

A SPA defined the exchange price of the transaction. In addition, the agreement outlines what portion of the sale price is due as an upfront deposit as well as how that deposit will be made. This section of the agreement also outlines how the remaining balance (total purchase price less deposit) will be paid.

SPA or PSA?

A 'sale and purchase agreement' may also be referred to as 'purchase and sale agreement'. In this context, a SPA is the exact same as a PSA.

Due Dilligence

For the sale of larger assets, there is often a section within the SPA requiring the purchaser to acknowledge their due diligence within the process. The PSA may outline additional due diligence periods that may correspond to additional deposits or upfront payments.

This section also likely includes indemnification statements and the purchaser's acknowledgment of the condition of the assets. The purchaser also usually certifies their right to terminate the deal under certain circumstances. Last, this section may include clarification on who within the purchaser's team has the authority to make representations on behalf of the company.

Covenants/Conditions Prior to Close

A SPA generally outlines the next steps in the transactions. These conditions of the sale must occur in order for the sale to be legally binding; any inaction or fail to follow these conditions is considered a breach of contract. Under these circumstances, the purchaser may have the right to terminate the sale (if such rights are identified in the section prior).

Many of these covenants surround risk mitigation and protection of the asset. This section often outlines what a seller must do if there is any unforeseen litigation impacting the transaction. It also outlines what insurance requirements should cover the asset through sale, what warranties will continue to exist, and certifies the exclusivity of the asset being sold.

Damages/Remedies

There may be circumstances in which communication is needed to explain what each party will do if the asset being sold is damaged prior to sale or during transit. This section often defines different levels of damage such as minor damage and major damage. Then, the contract outlines various remedies for each level of damage.

Other Sections

If applicable, there may be other sections to a SPA. Real estate transactions will often include title and survey information regarding the property. Specific covenants and conditions may include language involving existing tenants or current conditions of the space.

A SPA often outlines applicable broker commissions. Including the dollar amount to be paid, a SPA also details who is responsible for paying commissions as well as the process and timing of issuing those payments.

A SPA can be a single page or it can span hundreds of pages with dozens of supporting exhibits. The purpose of a SPA is to outline at relevant terms and conditions. If there aren't many, the document may be short; if there are many, expect lots of reading.

For transactions that require confidentiality, a SPA outlines the conditions of the deal. This includes the stipulations around public or press releases, use of promotional materials referencing the sale, and remedies in the event one party breaches this aspect of the contract.

If the sale is contingent on other transactions, a SPA will outline the effects of termination in any sale should the other deal fall through. For example, imagine a real estate developer attempting to purchase two properties side-by-side with the intention of demolishing both to create one building. The developer may include language in one SPA holding the deal contingent on the execution of the other SPA.

Examples of SPAs in the Marketplace

One of the most common SPAs occurs during real estate transactions. As part of the negotiation process, a final sales price is agreed upon by both parties. Additionally, other items relevant to the transaction, such as a closing date or contingencies , are also included.

SPAs are used by large, publicly traded companies in their supply chains. A SPA may be used when obtaining a large number of materials from a supplier or in the case of a large-scale single purchase. For example, a company may enter into a SPA with a supplier to purchase a defined quantity of goods for a specific price.

A SPA may also function as a contract for revolving purchases such as a monthly delivery of raw materials, inventory, or other tangible goods. The purchase/selling price can be set in advance, even if the delivery is set at a later date or spread out over time. SPAs are set up to help suppliers and purchasers forecast demand and costs, and they become more critical as the transaction size increases.

In another example, a SPA is often required during a transaction in which one business is acquiring another . Because the SPA specifies the exact nature of what is being bought and sold, the agreement may allow a business to sell its tangible assets to a buyer without selling the naming rights associated with the business.

What Is a Sales and Purchase Agreement?

A sales and purchase agreement is a legally binding agreement obligating a buyer and a seller to terms of a transaction. The SPA outlines all of the terms and conditions of the exchange and must be signed by both parties.

Do I Need a Sales and Purchase Agreement?

In the exchange of goods, a SPA protects both the buyer and seller. While a SPA is technically not required, it is often a very good idea to have terms and conditions outlined in a legal document prior to the transaction occurring. You will often have no legal recourse in a failed transaction without a contract in place.

Are SPAs Legally Binding?

Yes, SPAs are legally binding. Often the last document furnished as part of the purchase or sale of an asset, it is signed by authorized representatives from both parties when both sides are prepared to execute the deal.

RedFin.com. " What is a Purchase and Sale Agreement? "

Template.net. " 20+ Purchase and Sale Agreement Templates ."

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• Short Sales vs. Foreclosures: What's the Difference? 29 of 46
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• Will Your Home Sale Leave You With Tax Shock? 31 of 46
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• What Is an Affidavit of Title? Definition, Purposes, Contents 35 of 46
• Best and Final Offer: Definition, Strategies for Buyers & Sellers 36 of 46
• Gift of Equity: What It Is, How It Works, Taxes, and Pros & Cons 37 of 46
• Multiple Listing Service (MLS): Definition, Benefits, and Fees 38 of 46
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Arizona School of Real Estate and Business

Assignments of Buyer’s Rights Under Purchase Agreements

June 16, 2014, by michael t. denious.

Often in the course of a real estate transaction, the named buyer under the purchase agreement will seek to assign its rights as buyer to another party, referred to as the assignee. In connection with such assignment, the assignor/buyer transfers any and all rights as buyer under the subject purchase agreement to the assignee, usually in exchange for payment or other consideration given by the assignee to the assignor. As a result, the initial “buyer” is making its profit as of or prior to the closing of the sale, rather than having to take ownership and resell the property to a new buyer. This practice is often referred to as “wholesaling,” and is growing more and more prevalent, including in “short sale” transactions in which the existing mortgage holders agree to accept less than the full amount owed on the mortgage(s) and the seller does not receive any proceeds from the sale (other than those funds paid toward commissions, closing costs and the mortgage(s)).

The general rule under Arizona law is that a buyer’s interest in a real estate purchase agreement is freely assignable, absent restrictions or prohibitions in the underlying purchase agreement to the contrary. Many real estate purchase agreements, especially those drafted in a seller-oriented fashion, will contain such restrictions or prohibitions, such as restrictions against assignments to any other party except for affiliated or related entities, or a flat out prohibition against any assignments without seller’s prior written consent. Many other real estate purchase contract forms, however, including the standard form AAR purchase agreements (including the one used for residential real estate transactions with the “short sale” addendum) contain no such prohibition or restriction.

In the absence of restrictions or prohibitions against assignment in the underlying purchase agreement, and assuming there are no grounds for the seller to object or condition such an assignment, an assignment may be accomplished in as simple as one sentence. The buyer assigns any and all rights, title, and/or interest in the underlying purchase agreement, the escrow, and the underlying real property, to the named assignee. In many cases, however, there may be various reasons, both due to concerns of the buyer/assignor and the new assignee/buyer, that make various additional provisions in an assignment document advisable. What follows is a sample format that addresses various issues that would be of concern to the assignor (original buyer) when assigning the buyer’s rights over to an assignee buyer, including in the context of a “short sale” transaction in which the assignor (original buyer) is a “wholesaler” who seeks to make a profit from the assignment rather than closing on the purchase of the property.

THIS Assignment and Assumption of Buyer’s Rights Under Purchase Contract and Seller’s Consent (“Assignment”) is entered into between ________________, (“Assignor”); and _______________________ (“Assignee”), for Ten Dollars ($10.00) and other valuable consideration, with the consent of the undersigned Seller, and on the following terms and conditions:

1. This Assignment shall be effective as of _________, 2008 (“Assignment Effective Date”).

2. This Assignment pertains to that certain Residential Resale Real Estate Purchase Contract dated as of _____________, and any Addenda or Amendments thereto (hereinafter together the “Purchase Contract”), under which Assignor is Buyer and __________________ are Seller; and under which Buyer has the right to purchase that real property identified as the “Property” therein. The Purchase Contract is being administered pursuant to an escrow (the “Escrow”) established by Assignor and Seller _________________ (the “Escrow”).

3. Assignor hereby nominates Assignee as the substitute “Buyer” under the Purchase Contract. Assignor further assigns to Assignee Assignor’s entire right, title and interest in, to and under the Purchase Contract, the Property and the Escrow.

4. Assignor further assigns to Assignee any of its right, title and interest in or to any and all “Earnest Money” deposited in the Escrow pursuant to the Purchase Contract.

5. Seller acknowledges and agrees that Assignor is not in default under the Purchase Contract, and that the Purchase Contract remains enforceable in accordance with its terms.

6. Assignee hereby accepts the foregoing assignment and agrees to be bound by the terms and conditions of the Purchase Contract and assume the obligations of Buyer under the Purchase Contract.

7. This Assignment shall relieve Assignor of any and all duties, obligations or liabilities under the Purchase Contract.

8. Except as otherwise expressly modified herein, the terms and provisions of the Purchase Contract shall remain in full force and effect.

9. By its signature hereto, Seller consents to the terms of this Assignment, and represents and warrants that to the best of Seller’s knowledge there are no grounds to claim a default of Buyer under the Purchase Contract, and that the Purchase Contract remains enforceable in accordance with its terms as of the Assignment Effective Date.

10. Seller further expressly acknowledges that in connection with this Assignment, Assignor is acting on its own account and not on behalf of Seller, and is receiving separate consideration from Assignee, and therefore is receiving a profit from this transaction. Seller claims no interest in such consideration.

[Signatures of parties to follow]

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• Practical Law

Asset purchases: assignment and subcontracting, or novation?

Practical law resource id a-124-4286  (approx. 3 pages).

• Asset Acquisitions