Assignment And Assumption Agreement: Practical Drafting Points For Growing Businesses

As your business grows or changes, you may need to transfer contracts to another party. This often happens during asset sales, restructures, or when bringing in new partners. An assignment and assumption agreement is the tool for this job. But many founders and operators run into trouble by skipping consent steps, misunderstanding liability, or using one-size-fits-all templates. This guide explains what an assignment and assumption agreement is, when you need one, what to include, and how state law can affect your deal. We also provide practical examples, checklists, and highlight common mistakes so you can avoid costly missteps.

What Is An Assignment And Assumption Agreement?

An assignment and assumption agreement is a contract that lets one party (the assignor) transfer its rights and obligations under an existing contract to another party (the assignee). The assignee then takes over the assignor's role in the original contract. These agreements are common in business sales, mergers, restructures, and asset transfers.

For example, suppose your startup is selling its customer contracts as part of an asset sale. You would use an assignment and assumption agreement to transfer those contracts to the buyer. The buyer (assignee) agrees to take on the duties, such as delivering services or making payments, while the seller (assignor) may be released from those obligations, depending on the terms of both the original contract and the assignment agreement.

Assignment and assumption agreements are not only for large deals. Small businesses may use them to transfer leases, vendor agreements, intellectual property licenses, or client contracts. For instance, if you move your business to a new entity for tax reasons, you may need to assign your existing supplier contracts to the new company.

• Assignor: The party transferring its rights and obligations.
• Assignee: The party receiving those rights and obligations.
• Counterparty: The other party to the original contract (may need to consent).

Not all contracts can be assigned. Some contracts prohibit assignment, require written consent, or have special rules for certain industries, such as government contracts or intellectual property licenses. For example, a software license may specifically ban assignment without the licensor's approval, or a government contract may require agency sign-off before it can be transferred.

When Do You Need An Assignment And Assumption Agreement?

You need an assignment and assumption agreement whenever you want to transfer a contract to another party and the original contract allows it. Here are some common business scenarios:

• Asset sales: Selling all or part of your business, including contracts with customers, suppliers, or landlords.
• Business restructures: Moving contracts from one entity to another within your group (for example, from an LLC to a corporation).
• Partnership changes: When a partner leaves or joins and contracts need to be reassigned.
• Franchise transfers: Assigning franchise agreements to new owners.
• Intellectual property deals: Assigning software licenses, patents, or other IP agreements.
• Commercial lease transfers: Assigning a lease to a new tenant when selling a business location.

Before drafting or signing an assignment and assumption agreement, always check the original contract for:

• Anti-assignment clauses: Some contracts strictly prohibit assignment or require the other party's consent.
• Notice requirements: The contract may require you to notify the other party before assigning.
• Change of control provisions: Some contracts treat a change in ownership as an assignment, triggering consent or notice requirements.

Under federal law, contracts are generally assignable unless the contract says otherwise or the assignment would materially change the duties of the other party. However, state contract law can affect enforceability, especially for certain types of contracts like real estate leases, government contracts, or personal service agreements. For example, in many states, you cannot assign a contract for personal services (like a consulting or design contract) without the other party's consent, because the counterparty relies on the specific skills of the original party.

Always check the governing law clause in your contract. If you are unsure, consult a qualified attorney in your state to avoid surprises.

Key Terms To Include In An Assignment And Assumption Agreement

To protect your business, your assignment and assumption agreement should be clear, specific, and tailored to the contract being assigned. Here are the key terms to include:

• Identification of the assigned contract: Clearly describe the contract being assigned (title, date, parties, and any amendments).
• Effective date: Specify when the assignment takes effect.
• Assignor's representations and warranties: State that the assignor has the right to assign and is not in default under the contract.
• Assumption of obligations: The assignee agrees to take on all (or specified) obligations from the effective date.
• Release of assignor: State whether the assignor is released from future liability, or remains liable if the assignee defaults (some contracts require both parties to remain liable).
• Consent of counterparty: If required, include a section for the other party to consent in writing.
• Governing law: Specify which state's law applies.
• Notices: Set out how notices must be given between the parties.
• Signatures: All relevant parties should sign, including the counterparty if their consent is needed.

Depending on the contract and the deal, you may also want to include:

• Payment terms: If the assignment involves a purchase price or fee.
• Indemnities: Protection if one party breaches the agreement or the underlying contract.
• Confidentiality: Especially if sensitive information is involved.
• Further assurances: A promise to do whatever is needed to complete the assignment.
• Transition arrangements: If the assignee needs help from the assignor to take over the contract smoothly.

For example, if you are assigning a commercial lease, you may need to address landlord consent, security deposits, and local real estate laws. If you are assigning intellectual property, you may need to comply with federal registration requirements. Using a generic template can be risky because it may not capture these details or comply with state law.

Sample scenario: Imagine a founder sells a marketing agency and wants to assign all client contracts to the buyer. The assignment and assumption agreement should list each contract, specify the effective date, state that the buyer will deliver all services from that date, and clarify whether the seller is released from liability if the buyer fails to perform. If any client contract requires client consent, the agreement should include a section for the client to sign.

Common Mistakes And How To Avoid Them

Many businesses make avoidable mistakes with assignment and assumption agreements. Here are some of the most common, and how to avoid them:

• Ignoring anti-assignment clauses: Assigning a contract without required consent can make the assignment void or trigger a breach. Always check the original contract first.
• Failing to get written consent: Verbal consent is rarely enough. Get written consent from the counterparty if required.
• Not specifying which obligations are assigned: Be clear about what rights and duties are being transferred. Partial assignments can create confusion and disputes.
• Overlooking ongoing liability: Some assignments do not release the assignor from liability. Make sure the agreement states whether the assignor is released or remains liable.
• Missing state law requirements: Some states require specific language or formalities, especially for real estate, IP, or government contracts.
• Using outdated or generic templates: Templates may not reflect current law or your specific deal. Tailor the agreement to your situation.
• Failing to notify all parties: If the contract requires notice to other parties, make sure it is done properly and documented.
• Not documenting the assignment: Relying on informal emails or handshake deals can lead to disputes. Use a formal written agreement.
• Missing transition steps: Not planning for a smooth handover can disrupt business operations. Include transition support if needed.

Example: A founder selling a SaaS business tries to assign all customer contracts to the buyer. If the SaaS contracts have anti-assignment clauses, the founder must get each customer's written consent. Missing this step can delay the sale or lead to lost revenue if customers refuse to consent. In another case, assigning a commercial lease without landlord approval can result in eviction or loss of deposit. In some states, landlords have broad discretion to deny assignments. Always check local law and the lease terms.

Tip: Keep a checklist of all contracts to be assigned and track which ones require consent, notice, or special steps. This helps avoid missing a critical contract during a business sale or restructure.

Checklist: Drafting And Signing An Assignment And Assumption Agreement

Here is a practical checklist for founders, operators, and small business owners:

1. Review the original contract: Look for anti-assignment clauses, consent requirements, and notice provisions. Make a list of all contracts you plan to assign.
2. Get written consent if needed: Contact the counterparty and obtain written approval before proceeding. Some contracts require a specific form or language for consent.
3. Draft a tailored agreement: Clearly identify the contract, parties, effective date, and assigned rights and obligations. Include any required state law language.
4. Address liability: Specify whether the assignor is released or remains liable for future breaches. Consider including indemnity clauses for extra protection.
5. Include payment terms: If the assignment involves a fee or purchase price, set out how and when it will be paid. Specify any adjustments for deposits or prepaid amounts.
6. Comply with state law: Check if your state has special requirements for the type of contract being assigned. For example, some states require notarization for real estate assignments.
7. Sign and date the agreement: All relevant parties should sign, including the counterparty if their consent is needed. Keep copies of all signatures.
8. Give notice as required: Send formal notice to the other party if the contract requires it. Use the notice method specified in the original contract (mail, email, etc.).
9. Keep records: Store signed copies and any related correspondence for your records. This is important if there is a dispute later.
10. Plan for transition: If the assignee needs help taking over the contract, include a transition plan or support period in the agreement.

For complex deals, or if you are unsure about state law or industry-specific rules, consider seeking legal review before finalizing the agreement. This is especially important for contracts involving intellectual property, regulated industries, or real estate.

State Law And Industry-Specific Issues

While federal contract principles provide a baseline, state law often controls assignment and assumption agreements. Key differences can affect enforceability, required language, and formalities. Here are some examples:

• Real estate leases: Many states require landlord consent for lease assignments. Some states, such as California and New York, have statutes on when consent can be withheld. For example, in California, a landlord cannot unreasonably withhold consent to assign a commercial lease unless the lease says otherwise.
• Intellectual property: Assignments of patents, trademarks, and copyrights often require written agreements and may need to be recorded with the US Patent and Trademark Office or US Copyright Office. State law may also affect trade secret assignments. For example, California law requires a written assignment for patents and copyrights, and the assignment must be recorded to be effective against third parties.
• Government contracts: Assignments are often restricted or require agency approval. Federal Acquisition Regulation (FAR) rules may apply. For example, a government IT contract may require written approval from the contracting officer before assignment.
• Personal service contracts: Most states prohibit assignment of contracts for personal services (such as consulting or creative work) without consent, since the counterparty relies on the specific skills of the original party.

Always check the governing law clause in the original contract. If the contract is silent, state law where the contract was made or performed may apply. If you are dealing with contracts across multiple states, or regulated industries, legal review is especially important.

Some states have unique rules. For example:

• California: Generally favors the free assignability of contracts, but allows parties to prohibit assignment by contract. Landlord consent for lease assignments cannot be unreasonably withheld in many cases. For intellectual property, assignments must be in writing and recorded for public notice.
• Texas: Enforces anti-assignment clauses as written. Assignments of oil and gas leases may have special requirements, such as filing with the county clerk.
• New York: Recognizes anti-assignment clauses and has specific rules for certain financial contracts. For real estate, assignments must comply with local recording requirements.
• Florida: Allows assignment of most contracts unless the contract prohibits it, but has strict rules for assignment of insurance policies and certain real estate interests.

Industry-specific rules may also apply. For example, healthcare, insurance, and financial services contracts often have regulatory restrictions on assignment. In the insurance industry, many states require regulator approval before an insurance policy can be assigned. In healthcare, assignments of provider agreements may require state agency consent.

For intellectual property, the federal government requires assignments of patents and trademarks to be in writing and recorded with the appropriate office. If you are assigning a software license, check both the contract and the licensor's policies, as many licenses prohibit assignment without consent.

Practical example: A New York-based SaaS company wants to assign its customer contracts to a buyer. The contracts are governed by New York law and require customer consent for assignment. The company must obtain written consent from each customer and comply with New York's rules for contract assignments. If any customers are in California, the company should also check if California law applies to those contracts, especially for data privacy or IP issues.

Tip: If your business operates in multiple states or industries, create a matrix listing each contract, the governing law, consent requirements, and any special state or industry rules. This helps ensure you do not miss a critical step during an assignment.

FAQs

Can I assign any contract using an assignment and assumption agreement?

No. Not all contracts can be assigned. Many contracts include anti-assignment clauses, require written consent, or prohibit assignment for personal services or regulated industries. Always review the original contract and applicable state law before attempting an assignment. For example, a consulting contract may not be assignable if the client hired your business for your specific expertise.

Does the assignor remain liable after the assignment?

It depends on the agreement and the original contract. Some assignments release the assignor from future liability, while others require the assignor to remain liable if the assignee defaults. Make sure your agreement clearly states whether the assignor is released or remains liable. For example, in many commercial leases, the landlord may require the original tenant to guarantee the new tenant's performance.

Is written consent from the counterparty always required?

Not always, but it is common. If the original contract has an anti-assignment clause or requires consent, you must obtain written approval from the counterparty. Even if not required, written consent can help avoid disputes. For example, a landlord may not be required to consent to a lease assignment, but getting their written approval can prevent future disagreements.

What happens if I assign a contract without following the required steps?

If you assign a contract without required consent or notice, the assignment may be void, unenforceable, or trigger a breach. This can lead to legal disputes, lost revenue, or termination of the contract. For example, if you assign a government contract without agency approval, the government may terminate the contract and bar you from future contracts.

Do I need a lawyer to draft an assignment and assumption agreement?

For simple assignments, a well-drafted agreement may be sufficient. However, for high-value contracts, regulated industries, or contracts with complex terms, legal review is recommended. State law and industry rules can affect enforceability, so professional advice can help avoid costly mistakes. For example, a lawyer can help ensure your agreement complies with local recording requirements for real estate or IP assignments.

Key Takeaways

• An assignment and assumption agreement lets you transfer contract rights and obligations to another party, but only if the original contract and state law allow it.
• Always check for anti-assignment clauses, consent requirements, and state-specific rules before proceeding. Missing these steps can void the assignment or trigger a breach.
• Clearly identify the contract, parties, effective date, assigned obligations, and liability in your agreement. Tailor the agreement to your specific deal and state law.
• Get written consent from the counterparty if required, and comply with any notice or formalities set out in the original contract. Keep detailed records of all consents and notices.
• For complex or high-value deals, or where state or industry rules apply, consider seeking legal review before finalizing the agreement. This can help avoid costly disputes or unenforceable assignments.

Assignment and assumption agreements are a practical tool for growing businesses, but they require careful attention to contract terms and state law. If you have questions or need support with drafting or reviewing an assignment and assumption agreement, contact our team at (888) 449-8437 or team@sprintlaw.com. Where legal services are required, they are delivered by licensed lawyers at trusted US law firms through the Sprintlaw platform.