Assigning a contract

Transferring a contract must be done correctly to avoid confusion and the contract becoming unenforceable.

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What does ‘assigning’ mean?

There may be situations where one party wishes to leave a contract and transfer their role to a new, incoming party. Transferring a contract from one party to another is known as ‘assigning’ a contract or ‘an assignment’ of the contract. 

Check the contract first

A contract will usually contain provisions concerning assignment. The contract may: prevent any assignment; allow an assignment but only by agreement between the parties; allow either party to assign to any new (third) party whenever they wish.

If the contract is silent on the subject, it is better to obtain the agreement of the existing parties before assignment takes place and a new party is introduced.

Who is involved?

An assignment ends one party’s involvement in the contract and transfers all of their contractual rights and obligations to a new party, who wishes to take on all of the obligations of the contract. 

How does the assignment take place?

Provided the contract allows it, or by the agreement of the existing parties, a document known as a ‘letter of assignment’ can be used.

It is signed by all outgoing and the incoming parties. It contains special provisions to transfer all of the rights and responsibilities under the contract to the incoming party.

The outgoing party is protected by a promise by the incoming party to indemnify them should anything go wrong in the future. The signed letter of assignment is sent to all existing parties. Stakeholders, such as banks or customers, are notified of the change.

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