Assignment Clauses: Can You Transfer Your Contract to Someone Else?
Reading Time: 8 minutes
You're selling your business. The buyer wants your customer contracts—but those agreements contain assignment clauses requiring consent before transfer. Suddenly, a $50 million deal hinges on whether you can get vendors, clients, and landlords to sign off.
This article explains how assignment works, when consent is required, and how to structure deals when contracts can't freely transfer.
What Is Assignment? (And Delegation?)
Assignment transfers your rights under a contract to another party. Delegation transfers your obligations (duties) to another party.
The Key Difference
| Concept | What Transfers | Example |
|---|---|---|
| Assignment | Rights to receive performance | Right to receive payment, product delivery |
| Delegation | Duties to perform | Obligation to provide services, make payments |
| Novation | Both rights AND duties + release from liability | Complete substitution of new party |
Critical Point: Assignment alone doesn't release you from obligations. Delegation without a novation means you're still on the hook if the delegate fails to perform.
How Assignment Works
The Players
- Assignor: You (transferring rights)
- Assignee: The new party (receiving rights)
- Obligor: The original counterparty (who must now perform for assignee)
The Process
- Assignor executes assignment (often just notice to obligor)
- Obligor receives notice (usually required for assignee to enforce)
- Assignee steps into assignor's shoes (receives benefits)
- Assignor may retain liability (unless novation)
Anti-Assignment Clauses: The Consent Requirement
Most commercial contracts restrict assignment:
Standard Language
Neither party may assign this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably
withheld, conditioned, or delayed.
Common Variations
| Language | Effect |
|---|---|
| "Consent required" | Absolute veto power |
| "Consent not unreasonably withheld" | Implied reasonableness standard |
| "No assignment without consent" (no reasonableness) | Stronger veto |
| "Assignment void" | Attempted assignment is invalid, not just breach |
What Counts as Assignment?
Courts interpret broadly. These may trigger anti-assignment clauses:
- Asset sales: Selling business assets including contracts
- Mergers: Some courts treat mergers as assignments
- Stock sales: Usually NOT assignment (entity continues)
- Change of control: Often explicitly covered
- Security interests: UCC Article 9 assignments for financing
The Change of Control Trap
Many contracts include change of control provisions that function as stealth anti-assignment clauses:
A change of control of either party (whether by merger, acquisition,
stock sale, or otherwise) shall be deemed an assignment requiring consent.
Stock Sale vs. Asset Sale Distinction
| Transaction Type | Usually Assignment? | Why |
|---|---|---|
| Stock sale | NO | Same legal entity continues |
| Asset sale | YES | Rights transferred to new entity |
| Merger | MAYBE | Depends on structure and state law |
| Reverse merger | OFTEN YES | Treated as asset transfer |
M&A Surprise: Buyers often discover anti-assignment clauses late in due diligence—sometimes killing deals.
When Consent Can Be Withheld
Even with "consent not unreasonably withheld" language, counterparties can refuse consent for legitimate reasons:
Reasonable Grounds for Refusal
- Financial instability: Assignee lacks creditworthiness
- Reputation concerns: Assignee has poor business reputation
- Performance ability: Assignee lacks capability to perform
- Increased burden: Assignment creates additional obligations
Unreasonable Refusal
- Personal dislike of proposed assignee
- Seeking better economic terms (unless contract allows)
- Delaying without cause
Case Law Guidance
Schwab v. PIC and similar cases establish that:
- Reasonableness is fact-specific
- Good faith is required
- Economic self-interest alone may not justify refusal
Novation vs. Assignment: The Liability Difference
Assignment Without Novation
Company assigns its rights to ReceiveCo.
Company remains liable if ReceiveCo doesn't perform.
Novation
Company, Customer, and ReceiveCo agree that:
1. ReceiveCo assumes all of Company's obligations
2. Customer releases Company from liability
3. ReceiveCo receives all of Company's rights
Novation requires:
- All three parties' consent
- Clear intent to release original party
- New consideration (usually)
- Explicit language of release
IP License Assignment: Special Rules
Intellectual property licenses have unique assignment considerations:
Patent Licenses
Generally non-assignable without consent:
- Licenses are personal to the licensee
- Patent holders want control over who's practicing their invention
- Exception: Asset sales in bankruptcy may be different
Copyright Licenses
Depends on exclusivity:
- Exclusive licenses: Often treated like property transfers, more assignable
- Non-exclusive licenses: Usually personal to licensee, less assignable
Trademark Licenses
Quality control concerns dominate:
- Trademark owners must control quality of goods/services
- Assignment without consent may jeopardize trademark rights
- Naked licensing (assignment without quality control) can abandon trademarks
Practical Business Impacts
M&A Due Diligence
Assignment clauses affect:
- Valuation: Non-assignable contracts reduce value
- Structure: Stock vs. asset sale decision
- Conditionality: Consent requirements can delay closings
- Risk allocation: Who bears risk of non-consent?
Factoring and A/R Financing
Accounts receivable financing requires assignment of payment rights:
- Anti-assignment clauses can block factoring
- UCC Article 9 may override some restrictions
- Exception: Government contracts often restrict assignment of claims
Landlord-Tenant Context
Lease assignment rules are well-developed:
- Commercial leases usually require landlord consent
- Subletting differs from assignment (original tenant remains liable)
- Assignment transfers entire remaining lease term
Assignment Checklist for Business Sales
Before the Sale
- Review all material contracts for anti-assignment language
- Identify which require consent
- Determine stock vs. asset sale implications
- Assess change of control provisions
- Calculate value impact of non-assignable contracts
During the Sale Process
- Request consent letters early (can take months)
- Prepare standard consent request packages
- Negotiate permitted assigns for affiliates (future flexibility)
- Address IP license restrictions specifically
- Consider consent as closing condition vs. post-closing obligation
Consent Letter Contents
A proper consent letter should:
- Reference the original agreement
- Identify the assignee
- State consent is given
- Confirm agreement remains in effect
- Address any amendments
- Be signed by authorized parties
Negotiating Assignment Rights Upfront
When drafting new contracts, consider:
For Flexibility (If You Might Sell)
Assignment requires consent, not to be unreasonably withheld,
provided the assignee:
(i) has comparable creditworthiness;
(ii) assumes all obligations; and
(iii) is not a competitor of the non-assigning party.
For Control (If You Want to Vet Partners)
No assignment without prior written consent in each instance.
Consent may be withheld for any reason or no reason.
For Affiliates
Assignment to wholly-owned subsidiaries or parent companies
shall not require consent, provided the assignor remains liable.
The Bottom Line
Assignment clauses can make or break business transactions. They:
- Block M&A deals when consent can't be obtained
- Reduce company value when key contracts aren't transferable
- Create liability traps when delegation is confused with novation
- Complicate financing when receivables can't be assigned
Key Principles:
- Know your assignment rights before signing
- Plan early for consent requirements in sales
- Understand stock vs. asset sale implications
- Get true novation when you need to exit liability
- Protect assignment rights in your initial contract negotiations
TermsEx tracks assignment restrictions across your contract portfolio, flags consent requirements before M&A events, and identifies change-of-control provisions that could surprise you.
Related Reading:
- M&A Due Diligence: The Contract Review Checklist
- Change of Control Provisions: The Hidden M&A Landmine
- IP License Transfers: What You Can (and Can't) Assign