Assignment clause

What is an assignment clause?

An assignment clause controls whether a party can transfer its rights or obligations under the contract to someone else. It determines whether your carefully negotiated deal can end up in the hands of a company you've never heard of.

Without an assignment clause, the default position in most common law jurisdictions is that contractual rights can be assigned freely but obligations cannot be transferred without the other party's consent. That default rarely works well for either side. The clause replaces uncertainty with agreed rules.

Relevant legislation

Assignment is primarily governed by common law, with statutory rules in specific contexts:

• UK: common law assignment is permitted for contractual rights (choses in action) under the Law of Property Act 1925, s.136 for legal assignments. Obligations (the duty to perform) can't be assigned without consent; they require novation instead.
• US: common law and UCC Article 2 (for sale of goods). Most states follow the Restatement (Second) of Contracts, which permits assignment of rights unless the contract prohibits it or the assignment would materially change the obligor's duty. Anti-assignment clauses are generally enforceable, though UCC § 9-406 overrides them for certain receivables.
• Australia: common law principles plus state-based equivalents of the UK's Law of Property Act (e.g. Conveyancing Act 1919 (NSW), s.12).

What to look for

Check whether assignment requires consent and whether that consent can be unreasonably withheld. "Neither party may assign without prior written consent" is standard. Adding "such consent not to be unreasonably withheld" protects the assigning party from being blocked without justification. Without that qualifier, the other party can refuse for any reason or no reason.

Check the scope. Does the restriction cover assignment of rights only, or obligations too? A clause that prohibits "assignment" without specifying may be interpreted differently in different jurisdictions. Best practice is to address both explicitly.

Look for affiliate exceptions. Many contracts allow assignment to affiliates or group companies without consent. This is reasonable in principle but check the definition of "affiliate." If it includes any entity that the parent company controls, the contract could end up with a subsidiary in a different jurisdiction with different financial standing.

Check what happens on a change of control. An acquisition, merger, or restructuring may transfer the contract in practice even if the legal entity doesn't change. Some assignment clauses treat a change of control as a deemed assignment requiring consent. Others are silent, which means the contract continues with the new owner regardless of who they are.

Common pitfalls

Silent contracts are the biggest risk. If there's no assignment clause, the default rules apply, and those defaults vary by jurisdiction. In some, the other party can assign their rights (including payment rights) to a factor or debt purchaser without telling you.

Assignment clauses that don't address novation leave a gap. Assignment transfers rights; novation transfers obligations. If you want to prevent the other party from handing off their performance duties to a third party, the clause needs to address both assignment and novation.

Overly permissive affiliate exceptions can defeat the purpose of the restriction. A party that can assign to "any affiliate" can hand the contract to a shell company with no assets. If the affiliate's financial standing matters, add a condition that the affiliate must be capable of performing the obligations.

Anti-assignment clauses that are too absolute can create practical problems. If neither party can assign under any circumstances, routine corporate restructuring (merging two subsidiaries, for example) becomes a breach of contract. Build in reasonable exceptions for intra-group reorganisations.

Example clause

"Neither party may assign, novate, or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other party, such consent not to be unreasonably withheld or delayed. Notwithstanding the foregoing, either party may assign this Agreement to an affiliate or to a successor in connection with a merger, acquisition, or sale of all or substantially all of its assets, provided that the assignee assumes all obligations under this Agreement and has the financial capacity to perform them."

Frequently asked questions

What is the difference between assignment and novation?

Assignment transfers rights (the benefit of the contract) from one party to a third party. The original party remains liable for its obligations. Novation replaces one party entirely, transferring both rights and obligations to a new party. Novation requires the consent of all parties; assignment of rights may not, depending on the contract terms.

Can an anti-assignment clause be overridden?

In some contexts, yes. Under UCC § 9-406 in the US, anti-assignment clauses are ineffective against assignments of receivables (payment rights). In the UK, anti-assignment clauses are generally enforceable, but courts may find ways around them if they consider the restriction unreasonable. The safest approach is to draft the clause clearly and not rely on defaults.

Does a change of control trigger assignment?

Only if the clause says so. A change of control (where the company's ownership changes but the legal entity stays the same) is not technically an assignment. If you want the right to consent or terminate when the other party is acquired, the assignment clause or a separate change-of-control provision must say so explicitly.

How Clara helps

Clara identifies assignment and change-of-control provisions, flags missing consent requirements, overly broad affiliate exceptions, and clauses that don't address novation. It highlights where a silent contract leaves assignment rights at the mercy of default rules.