Guide to assignment
What is Assignment and what is a deed of assignment?
Contracts are entered into for everything in a business whether with customers, suppliers, landlords or employees. It is not unusual with some contracts for 1 of the original contracting parties to want to sell or transfer their rights in the contract to a 3rd party.
Where agreed (see below) the legal term and process for legally transferring rights is known as assignment. To formalise this, a deed of assignment will generally be needed. One of the most common forms of assignment is with commercial leases.
Can you assign a contract as of right?
Many people are surprised to note that generally speaking, at common law and subject to some exceptions, the answer is yes, unless a contract says otherwise, you can generally sell on or transfer your rights in that contract without the other party’s consent.
In many cases, the original parties to a contract would not want to deal with an individual or business they had not originally agreed to deal with. This is because trust is of course an important part of business and so many contracts have clauses about whether, and if so on what conditions, assignment is permitted.
Prohibition of assignment or assignment only with consent
Many contracts have clauses which either prohibit assignment or require prior consent of the other party, with conditions to be satisfied. The conditions vary between different types of contract and will often prove time consuming and expensive.
A very common example where assignment is only allowed with consent is with commercial property leases, where typically a tenant may want to leave and assign the lease to a replacement tenant. The Landlord’s consent will typically be required with a clause saying consent should not be “unreasonably withheld”. This can give Landlords a lot of scope as to whether to agree or not. The tenant will typically end up paying sometimes quite significant legal and other costs incurred by the Landlord as part of the process.
Important points to note about a Deed of Assignment
This legal document, once it is executed, assigns the rights and often obligations (see below) of the assignor, being the party that is assigning their rights and obligations, to the assignee, the party to which the rights and obligations are being assigned to.
A deed of assignment will ensure that you no longer have continuing obligations and rights. It is important to note that with a deed of assignment of contractual rights, unless otherwise agreed, the assignee will only have the rights which he/she/they would have had if they were the original contracting party i.e they take the contract as is.
Common situations where legal rights are assigned
Intellectual Property is another area where assignment of rights is very common. This can be for even very simple things such as you have had a logo created for you. The graphic designer would need to assign the copyright of that logo to you. In the same regard if you’re selling your business and the sale includes the business name, logo etc, the copyrights and intellectual property would need to be transferred to the buyer.
Risks of assigning contractual rights – what about the obligations?
Assignment relates to the legal transfer of benefits so what happens to the obligations of an original party to a contract who assigns all rights to a new party?
On the face of it the assignor will retain the burdens under the contract, unless this aspect is specifically dealt with. The options here can include :-
- Novation – which specifically transfers the burdens to the transferee but is different from assignment
- Release of the assignor – forma; release of the assignor from obligations as well as benefits in a deed of assignment
- Indemnity – where the assignee formally agrees to indemnify the assignor against any liabilities and claims under the contact
Our experienced team of lawyers can advise or assist you on any assignment rights, risks and issues and in drafting or reviewing or advising on a Deed of Assignment or its implications for you.