Assignment Clause

An assignment clause is a clause in a contract which indicates whether a party can assign his rights, obligations or interests under the contract to a third person or entity. It gives the parties control over who can enter into contractual obligations and protects against undesirable transfers which could have an impact on business, legal or financial results.

How It Works

An assignment clause states whether assignments are permitted, prohibited or permitted only with the consent of the other party. The clause can apply to the entire agreement or to specific rights and obligations.

Some contracts are freely assignable, others require the prior written consent of the other party to be assigned or transferred. Assignment clauses are especially common in commercial contracts, vendor agreements, service agreements and intellectual property agreements where the identity of the contracting party is important.

To learn more about managing contract obligations and ownership throughout the contract lifecycle, see Contract Lifecycle Management Process.

Why It Matters for Legal & CLM Teams

Contracts are often made on the basis of the experience, reputation, financial stability or operational capabilities of a party. An assignment clause helps to ensure that those expectations are not altered without review. Assignment clauses help legal teams mitigate uncertainty in mergers, acquisitions, restructurings and vendor transitions.

Reviewing assignment provisions is an important part of contract negotiation and contract management because assignment restrictions can affect future business transactions.

Example Use Case

A software company hires a particular vendor for service. Two years later the vendor is bought by another company and the vendor wants to assign the agreement to the buyer. The transfer will not be automatic, as the contract includes an assignment clause requiring the customer’s consent. Before the contract goes ahead the customer is given a chance to look at the new party and decide if they are going to approve the assignment.

How It Relates to Adjacent Concepts

Assignment clauses are frequently discussed alongside change-of-control provisions, termination clauses and contractual governance requirements. They also handle master service agreements and vendor contracts with ongoing performance obligations from a specific party.

Law departments often review assignment restrictions as part of their due diligence, contract review and post-acquisition integration exercises to determine whether any agreements will need approval before ownership can change hands.

FAQs

What do we use the assignment clause for?

An assignment clause governs the ability to transfer contractual rights or obligations to another party and the

Can the contract be assigned without approval?

It depends on how the clause is worded. Some contracts allow assignments without approval, except for the prior written approval of the other party.

Does an assignment clause apply during acquisitions?

Yes. Many assignment clauses include language relating to mergers, acquisitions and other corporate transactions that might give rise to a transfer of contractual rights or obligations.

Related Terms

• Master Service Agreement
• Termination for Convenience vs Cause
• Non-Disclosure Agreement
• Dispute Resolution Clause
• Indemnification Clause
• Limitation of Liability

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