difference between assignment and assumption

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The definition of assignment & assumption agreement.

By Rebecca K. McDowell, J.D.

October 19, 2019

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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Land Contract Law in Florida

Assignments and assumptions are part of contract law and refer to the transfer of someone's duties and benefits in a contract to another. Assignments and assumptions are common with respect to contracts for loans or leases. A lender or lessor may assign its rights to another lender or lessor, and a borrower or lessee may find someone to assume the loan or lease and make the payments.

The Elements of a Contract

A contract is legally formed when two or more parties enter into an agreement with certain elements, which include:

An offer. For instance, in a mortgage transaction, the lender offers to loan money to the borrower.
Acceptance of the offer. The mortgage borrower agrees to borrow the money.
Consideration. Consideration in a contractual relationship means the things the two parties give to each other in exchange for entering the contract. A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract.
Mutuality. The parties must have come together and agreed upon the terms of the contract Read More: How Does a Contract Work?

Burdens and Benefits of a Contract

The contract sets forth what the parties are required to do during the contractual relationship. With a mortgage, the lender is required to loan the money and apply the payments correctly in accordance with the agreement, and then release the lien when the loan is paid. The borrower is required to pay the loan back with interest, pay the property taxes and make sure the property has insurance.

These contractual obligations create both burdens and benefits on both sides. The lender has the burden of making the loan and applying the payments correctly, but it has the benefit of receiving interest on the loan. The borrower has the burdens of making payments and insuring the property but has the benefit of owning the home.

Assigning a Contract

An assignment occurs when one party to a contract transfers, or assigns, its rights and obligations under the contract to another party. This happens frequently with mortgage loans, as lenders sell loans to other lenders. The lender will enter into an assignment agreement and assign the note and the mortgage to another party. The borrower then must make the payments to the assignee. The assignee's right and obligations under an assignment are the same as the assignor's rights and obligations and cannot be changed without a new contract.

Assuming a Contract

An assumption is the other side of the coin, in a sense. Assumptions are common with respect to leases and mortgages and typically occur when the borrower or lessee wants to transfer the property to someone else without paying off the loan or lease. Assumption means someone is taking over the side of the contract that requires payment.

If the contract allows it, another person can agree to assume the original party's obligations under the contract – the obligations to make monthly payments, etc. – in exchange for taking over the ownership or the lease.

Not every contract can be assumed. The language of the contract will state whether the borrower or lessee is allowed to transfer the property or lease by assumption.

Assignment and Assumption Agreements

Assignments and assumptions are both conducted by written agreement. Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens.

Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original position of the transferring party and the duties and benefits being transferred.

Bankrate: Assumable Mortgage: Take Over Seller's Loan
The Law Dictionary: What is Assumption?
Nolo: What Is an Assignment of Contract?
U.S. Legal: Elements of a Contract

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Assignment and assumption agreement

What is an assignment and assumption agreement?

An assignment and assumption agreement is a contract that allows one of the parties to transfer their contractual rights and duties to another party.

An assignment of contract is used after a previous agreement has been signed and one of the parties wants to pass on its obligations to a third party that wasn\’t originally part of the contract.

The parties involved in an assignment of contract are:

Uses of assignment agreements

Asset purchase transactions.

During mergers and acquisitions , the parties typically enter into additional agreements that are accessory to the purchase contract to evidence the transfer of assets. Among these ancillary documents is the assignment and assumption agreement, which may be required to make the Asset Purchase Agreement (APA) effective.

In the context of a business transaction, the assignment and assumption agreement is a shorter agreement than the APA. A buyer will use the assignment contract to evidence the ownership of the assigned assets, while the seller uses it to prove that it is the buyer who now has assumed all the rights and obligations related to the assigned asset.

In asset acquisitions, it is common to have several assignment agreements that are used to authenticate the property of different assets, such as patents, trademarks, or copyrights.

Opting out of a contract

If the party of a contract is no longer able to fulfill its obligations or wants to cede its rights to someone else, assignment agreements can come into place. Only if the terms of the original contract allow it, the assignor can transfer its property rights and obligations or debt to someone else.

An example could be a contractor who needs help to complete a job and assigns tasks and entitlements to a subcontractor.

Startup Assignment Agreements

Assignment contracts are typically used by newly formed businesses that rely on software, trademarks, or other sort of intellectual property. Since technology startups expect financing from outside investors, a technology attorney will usually recommend the use of assignment agreements as a means of ensuring third parties, such as shareholders, can profit from using their IP and make it easier to find funding for their businesses.

Conditions for an assignment contract to be valid

To be able to hand over the contractual obligations, the following criteria need to be met:

It’s essential to notice that, although assigning a contract will transfer the rights and duties to the receiving party, the assignor will not be released from any obligations that arose before the assignment. Before entering a contract assignment, ensure a contract review lawyer advises you it is safe to proceed, how to do it, and if you will be still liable for specific terms in the contract.

An assignment will not be enforced if:

Elements of an Assignment Agreement

Details on the existing agreement: Provides identification data on the existing contract, such as its date of execution and purpose.

Additionally, the assignment contract will contain provisions related to indemnification and governing law.

In M&A, when in need to prove the ownership of specific assets, or if you are facing difficulties in fulfilling your contractual obligations, an assignment and assumption agreement will demonstrate you are the right owner and keep your business’s credibility intact.

Understanding the Basics of Assignment and Assumption Agreements

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Introduction

Understanding the importance of assignment and assumption agreements is essential for any business transaction. These agreements are legal documents which outline the transfer of ownership, rights, and obligations from one party to another in order to protect both parties from liabilities and disputes. Moreover, they help streamline the transition of ownership by providing a clear agreement between all involved.

At Genie AI, we understand that navigating these agreements can be difficult without legal expertise - but it doesn’t have to be! Our team provides free assignment and assumption agreement templates so that anyone can draft high-quality legal documents without paying hefty lawyer fees.

These agreements are crucial in corporate mergers, asset sales, and other business transactions as they protect both assignee and assignor from potential future disputes or disagreements. Furthermore, it helps everyone involved in the process come to an agreement about the transfer of assets or liabilities.

It’s also important for businesses to ensure that all records, documents, and information is properly transferred when assigning contracts - something which assignment and assumption agreements make simpler. Not only does this avoid any potential issues in the future but ultimately makes for a smoother transition when dealing with such matters.

In short, assignment and assumption agreements provide an invaluable service when it comes to safeguarding both parties involved in a business transaction while also simplifying their processes along the way. To learn more about how our team at Genie AI can help you on your way towards drafting these essential documents - read on below for our step-by-step guidance or visit us today to access our template library!

Definitions

Assignor: The party transferring the rights and liabilities. Assignee: The party receiving the rights and liabilities. Asset Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their ownership of a particular asset to another party. Liability Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their liability to another party. Contract Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their contractual obligations to another party. Lease Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their responsibilities under a lease to another party. Representations and Warranties: Promises made by the Assignor and Assignee in order to ensure they understand the risks associated with the transfer and are comfortable taking on the rights and liabilities. Indemnification: A clause outlining the terms under which the Assignor and Assignee are liable for any losses or damages due to the transfer. Choice of Law: A clause specifying which jurisdiction’s laws will govern the agreement. Severability: A clause outlining how the agreement will be enforced if any part of it is deemed unenforceable. Governing Law: A clause specifying which court will have jurisdiction over any disputes that arise out of the agreement. Notices: A clause outlining how notices between the parties will be delivered.

Definition of Assignment and Assumption Agreement

Overview of the different types of assignment and assumption agreements, asset assignment and assumption agreement, liability assignment and assumption agreement, contract assignment and assumption agreement, lease assignment and assumption agreement, the purpose of an assignment and assumption agreement, the process of negotiating an assignment and assumption agreement, identifying the parties involved, discussing the terms, drafting the agreement, final review and signing, key terms and clauses commonly found in assignment and assumption agreements, assignor & assignee, liabilities and obligations, representations and warranties, indemnification, choice of law, severability, governing law, potential issues that may arise when negotiating an assignment and assumption agreement, scope of liabilities, representations & warranties, dispute resolution, contractual limitations, practical considerations when drafting an assignment and assumption agreement, identifying contingent liabilities, understanding applicable laws, drafting clear & concise language, complying with any regulatory requirements, potential benefits of using an assignment and assumption agreement, risk reduction, asset protection, cost savings, potential pitfalls of using an assignment and assumption agreement, unforeseen risks, negotiating difficulties, regulatory non-compliance, conclusion and next steps, finalizing the agreement, implementing the agreement, documenting the outcome, get started.

Understand the legal definition of an Assignment and Assumption Agreement: an agreement between two parties, which transfers one party’s rights, duties and obligations under a contract to another party
Learn who can enter into an Assignment and Assumption Agreement: the parties to the original contract, or their successors
Know what rights and obligations are transferred under an Assignment and Assumption Agreement: all rights, duties, and obligations that have been agreed upon in the original contract
Be aware of the consequences of assigning and assuming obligations: the assignee is responsible for performing all duties and obligations of the contract, just as if they had originally entered into the contract.
When you can check off this step: You will know you have a good understanding of the definition of an Assignment and Assumption Agreement when you can explain it in your own words and are aware of the rights and obligations transferred and the consequences of assigning and assuming obligations.
Understand the three common types of assignment and assumption agreements: asset assignment and assumption agreement, contractual assignment and assumption agreement, and debt assignment and assumption agreement
Learn the key features of each type, including the type of asset or obligation being assigned and assumed
Determine the purpose of the agreement and the advantages of each type of agreement
Check off this step when you feel confident that you understand the purpose and differences between the three types of assignment and assumption agreements.
Research and understand the definitions of an asset assignment and assumption agreement
Learn the different types of assets that can be assigned and assumed in an agreement
Understand the purpose of an asset assignment and assumption agreement
Research and review the legal elements of an asset assignment and assumption agreement, such as the parties involved, the assignor and assignee, the description of the assets to be assigned and assumed, the consideration for the assignment and assumption, the representations and warranties of both parties, the indemnification and other relevant provisions
Draft an asset assignment and assumption agreement with the help of a qualified attorney
When you are satisfied with the asset assignment and assumption agreement that you have drafted, execute the agreement according to the applicable law and have it notarized
Check this off your list and move on to the next step, which is understanding liability assignment and assumption agreements.
Research applicable state and federal laws to ensure the agreement is in compliance
Draft a liability assignment and assumption agreement that assigns all liabilities of the transferor to the transferee
Identify all liabilities to be assigned, including any and all warranty liabilities, product liabilities, and medical liabilities
Include all necessary clauses that provide for the transfer of the liabilities, and state that the transferor will not be liable for any liabilities after the date of the agreement
Get the agreement approved by the assigning and assuming parties
Sign and date the agreement in the presence of a witness
Once all parties have signed the agreement, you can check this off your list and move on to the next step of drafting the Contract Assignment and Assumption Agreement.
Understand the difference between an assignment and an assumption agreement. An assignment agreement transfers the rights and obligations of the original contract from one party to another, while an assumption agreement transfers only the obligations of the original contract to the new party.
Familiarize yourself with the language of the assignment and assumption agreement. The agreement should clearly state the terms of the assignment, the obligations assumed by the new party, and the liabilities being transferred.
Draft the assignment and assumption agreement. Make sure to include all relevant details, such as the parties involved, the original contract being transferred, the new obligations assumed by the new party, and any other important information.
Review the agreement with a legal professional. It is important to have a lawyer or other legal professional review the agreement to make sure it meets all legal requirements.
Sign the agreement. Once both parties have signed the agreement, it is officially binding and the obligations of the original contract are now transferred to the new party.

You will know when you can check this off your list and move on to the next step when you have completed all steps in this section, including drafting, reviewing, and signing the agreement.

Understand the basics of a lease assignment and assumption agreement
Have an understanding of the parties involved in the agreement
Know what is included in the agreement such as the particular lease, the transferor, the transferee, a consideration amount, date of assignment, and other related documents
Have an understanding of the legal implications of the agreement as far as warranties, liabilities, and other related obligations
Understand the process of executing the agreement and any other related steps required
Be aware of any local or state laws that may affect the agreement

Once you have a thorough understanding of the lease assignment and assumption agreement, you can check off this step and move on to the next step in the guide: The Purpose of an Assignment and Assumption Agreement.

Understand the purpose of an assignment and assumption agreement, which is to transfer rights and obligations from one party to another
Learn the different types of assignment and assumption agreements, such as lease assignment and assumption agreements, purchase and sale agreements, and contracts
Identify the parties involved in the agreement, what rights and obligations are being transferred, and how the agreement will be executed
Once you understand the purpose of an assignment and assumption agreement, you can move on to the next step in the guide
Research and determine the terms of the agreement that are appropriate for your situation
Identify any potential legal issues that could arise from the assignment and assumption agreement
Draft the agreement that outlines the terms, conditions, consideration, and liabilities
Both parties must review and approve the agreement in its entirety
Make sure the agreement is signed by both parties and that each party has a copy of the agreement
When both parties have agreed upon and signed the agreement, the assignment and assumption agreement is officially enforceable
You can check this step off your list and move onto the next step once the agreement is signed and all parties have a copy.
Identify all parties involved in the agreement, including the assignor, the assignee, and any other third parties
Be sure to document all of the parties in the agreement and provide contact information for each
Get contact information for all parties involved, including names, addresses, and phone numbers
Verify that all parties involved are of legal age and able to enter into a binding agreement
Make sure that all parties understand their roles and obligations in the agreement

When you can check this off your list: When all parties have been identified, contact information has been provided, and all parties understand and accept their roles and obligations in the agreement.

Learn the key terms used in assignment and assumption agreements, such as “assignor” and “assignee.”
Understand the scope of the agreement and the rights and obligations of each party.
Consider any potential restrictions that might be in place.
Identify any laws or regulations that affect the agreement.

You can check this step off your list and move on to the next step when you have a basic understanding of the terms used in the agreement, and the scope of the agreement and the rights and obligations of each party.

Determine the parties involved in the assignment and assumption agreement and obtain contact information for each.
Draft the agreement and include all the agreed upon terms and conditions.
Review the agreement with all parties to ensure the terms and conditions are accurately reflected.
Revise the agreement as needed to reflect any changes or amendments.
Once all parties have agreed to the agreement and all revisions have been made, the agreement is ready to be signed.
Carefully review the agreement to ensure that all the details and clauses are accurately reflected
Make sure all parties to the agreement have signed the document
Have all parties to the agreement keep a signed copy of the document for their records
Once all parties have signed the document, you can check this off your list and move on to the next step.
Familiarize yourself with the language and terminology used in assignment and assumption agreements.
Understand the components of the agreement, such as the assignor, assignee, consideration, and liabilities.
Become familiar with the common clauses found in assignment and assumption agreements, such as the warranty clause, assignment clause, and liability clause.
Review the agreement for accuracy and ensure that all of the terms and conditions are clear.
Once you have a full understanding of the key terms and clauses in the agreement, you can move on to the next step in the process.
Determine who is the assignor and who is the assignee - the assignor is the one who is transferring their rights and obligations to the assignee
Know the difference between the assignor and assignee - the assignor is the party transferring the rights and obligations, and the assignee is the party receiving them
Understand the implications of the assignment and assumption agreement - the assignor is no longer responsible for the rights and obligations they are transferring to the assignee
Make sure that the assignor and assignee are both aware of their respective roles and responsibilities - this will ensure that the agreement is legally binding

Once you have determined who the assignor and assignee are, know the differences between them, understand the implications of the agreement, and make sure both parties are aware of their roles and responsibilities, you can move on to the next step.

Identify and list out all of the liabilities and obligations that are being assigned in the agreement
Ensure that all liabilities and obligations of the assignor that are to be assumed by the assignee are included in the agreement
Specify the date on which the liabilities and obligations are to be assumed by the assignee in the agreement
Make sure that the assignee is aware of and accepts the liabilities and obligations that are being assigned
Confirm that the assignor is not liable for any of the liabilities and obligations that are being assigned to the assignee
Make sure to include a clause in the agreement that states that the assignor will not be liable for any of the liabilities and obligations that are being assigned to the assignee

When you can check this off your list and move on to the next step:

When the assignor and assignee have agreed on all of the liabilities and obligations that are being assigned in the agreement
When the assignor has agreed to not be liable for any of the liabilities and obligations that are being assigned to the assignee
When the agreement has been reviewed and approved by both the assignor and assignee
Ensure that all statements made by the assignor and the assignee are accurate and current
Identify all representations and warranties made by the assignor to the assignee
Make sure that any representations and warranties made by the assignor are clear and enforceable
Verify that any representations and warranties made by the assignee are accurate and up-to-date
Determine the remedies for breach of any representations and warranties

You can check this off your list and move on to the next step when you have identified all representations and warranties, verified that they are accurate and up-to-date, and determined the remedies for breach.

Assignor should agree to indemnify Assignee from any and all claims, losses and damages that arise from breach of representations and warranties
Assignor should agree to pay Assignee’s legal fees and other costs associated with defending against any claim
Assignee should agree to indemnify Assignor from any and all claims, losses, and damages that arise from the Assignee’s actions after the transfer of the subject matter
Once these indemnification terms are set, you can check this step off your list and move on to the next step.
Determine the state law that will govern the agreement. Generally, the state law that will be applicable is the state in which the agreement is executed.
The state law that you choose should be clear and explicit. Consider consulting a lawyer or legal advisor if you are unsure of the applicable state law.
Make sure to include the state law that has been agreed upon in the agreement.
Check off this step when the applicable state law has been determined and included in the agreement.
Read your agreement carefully to ensure that the severability clause is properly drafted
The severability clause should state that if any portion of the agreement is found to be invalid or unenforceable, the remaining provisions will remain in full force and effect
Familiarize yourself with the definitions of severability, enforceability, and invalidity
Make sure that the agreement includes a severability clause that is tailored to the particular agreement
Once you are confident that the severability clause is properly drafted, you can check this step off your list and move on to the next step.
Research governing laws in the jurisdiction where the agreement will be signed and enforced
Determine the laws that will govern the agreement and include them in the governing law clause
This clause should include the state, country, or other jurisdiction
Once you have determined the governing laws and included them in the clause, you can check this off your list and move on to the next step.
Ensure that the agreement includes a provision specifying a proper notice address for each party
Check that the notice provision includes the name and address of the recipient, the method of service (e.g., mail, e-mail, or fax), and the time period for responding
Review the agreement to make sure that it includes a provision specifying the manner in which the parties will provide notice to each other
Confirm that notice is defined correctly, as this is important for determining the time period for responding
Once all of these points have been verified, you can check this off your list and move on to the next step.
Review the agreement to make sure that the assignment language is drafted correctly and is broad enough to encompass all of the rights and obligations being assigned
Ensure that the parties are not trying to assign any rights or obligations that are not legally assignable
Make sure that the agreement is clear regarding the liabilities of the parties, as they will be assumed by the assignee
Confirm that the assumptions being made by the assignee are clearly laid out in the agreement
Ensure that the agreement is not assigning any rights or obligations that may be subject to the consent of a third party
When all potential issues have been addressed, the agreement can be signed by both parties.
Understand that an Assignment and Assumption Agreement (A&A) will transfer some of the liabilities from one party to another in a business transaction
Identify which liabilities are to be transferred in the A&A
Clarify which liabilities will remain with the original party
Establish a timeline for the transfer of liabilities
Decide which party is responsible for liabilities that occur after the transfer
Make sure that the liabilities are accurately defined and described in the A&A

You will know that you can check this step off your list and move on to the next step when all liabilities have been properly identified, defined and described in the A&A, and all parties have agreed to the timeline for the transfer of liabilities.

Understand the basics of Representations & Warranties and what they mean in the context of assignment and assumption agreements
Learn what should be included in Representations & Warranties and the consequences of not making accurate representations
Research different types of Representations & Warranties, such as those related to title, capacity, authority, and performance
Check that all Representations & Warranties included in the agreement are accurate and up-to-date
Once all Representations & Warranties have been reviewed and confirmed to be accurate, you can check this step off your list and move on to the next step of the guide.
Understand that disputes under an Assignment and Assumption Agreement are generally handled by the parties involved
Understand the purpose of an arbitration clause in the agreement, which is to resolve disputes quickly, fairly, and affordably
Determine if the agreement should include a mediation clause, which is less formal than arbitration and may be more suitable for some disputes
Consider whether the agreement should include a choice of law clause, which will determine the governing law of the agreement
Know that the agreement should specify the venue for any potential dispute resolution proceedings
Understand that the parties may need to provide notice to the other party before initiating a dispute resolution procedure
When you have a full understanding of how disputes will be handled under the Assignment and Assumption Agreement, you can check this step off your list and move on to the next step.
Understand the importance of the contractual limitations outlined in the agreement
Make sure all parties involved in the agreement have agreed to the contractual limitations
Know that contractual limitations are meant to protect the parties involved in the agreement
Be aware that contractual limitations may include time limits, scope of duties, and other stipulations
When all parties involved have agreed to the contractual limitations, you have completed this step and can move on to the next step.
Familiarize yourself with the applicable laws in the jurisdiction in which the assignment and assumption agreement will be executed
Make sure to include language in the agreement that will address any issues that may arise due to a conflict of laws
Ensure that the agreement properly identifies and describes the rights, obligations, and interests that are being assigned and assumed
Identify any contingencies that could affect the transfer of rights and obligations, and include language that addresses such contingencies
Consider adding any additional provisions that may be necessary to ensure the successful completion of the transaction

You can check this off your list and move on to the next step when you have addressed any issues that may arise due to a conflict of laws, properly identified and described the rights, obligations and interests that are being assigned and assumed, identified any contingencies that could affect the transfer of rights and obligations, and considered adding any additional provisions that may be necessary to ensure the successful completion of the transaction.

Identify all contingent liabilities that must be assumed by the assignee, including any pending or potential claims and obligations
Make sure the assignee is aware of, and willing to assume, the contingent liabilities
Include language in the assignment and assumption agreement that outlines the assignee’s assumption of any contingent liabilities
Check that the provisions in the agreement precisely identify the liabilities assumed by the assignee
When all contingent liabilities have been identified and included in the agreement, you can move on to the next step of understanding applicable laws.
Research applicable laws related to assignment and assumption agreements in your jurisdiction
Understand the legal language and key elements of an assignment and assumption agreement
Understand the process for filing and registering an assignment and assumption agreement
Know what documents and information may be required to complete the registration process
Understand the timeline for completion of the registration process
Once you have a good understanding of the applicable laws and the process for registration, you can move on to the next step of identifying any contingent liabilities.
Research the applicable law, and use language that is consistent with the requirements
Draft a clear and concise agreement that covers all relevant topics
Ensure that the language used is precise and unambiguous
Define any legal terms used in the agreement
Make sure that the agreement is in writing and all parties have signed it
Review the agreement and make sure it is legally compliant
When all of the above steps are completed, you can move on to the next step in the guide.
Research applicable laws and regulations that may apply to the assignment and assumption agreement
Obtain any necessary licenses or permits, such as a real estate license
Ensure that all parties understand the regulations that apply to the agreement
Determine if any state or federal laws need to be adhered to
When all applicable laws and regulations have been taken into account and complied with, you can move on to the next step.
Understand the potential advantages of using an Assignment and Assumption Agreement, including:
Transferring existing contractual obligations and liabilities from one party to another
Ensuring continuity in contractual agreements between parties
Avoiding the need for a new contract
When you have a solid understanding of the potential benefits of using an Assignment and Assumption Agreement, you can check off this step and move on to the next one, which is Risk Reduction.
Identify the potential risks that are associated with an assignment and assumption agreement
Analyze how the assignment and assumption agreement may reduce those risks
Understand the legalities that would protect both parties in the agreement
Be aware of the potential regulatory requirements that may apply
When you have thoroughly assessed the risks and understand how an assignment and assumption agreement can protect both parties, you are ready to move on to the next step.
Understand the definition of an assignment and an assumption agreement
Learn the differences between the two agreements
Familiarize yourself with the processes and procedures of an assignment and assumption agreement
Understand the legal implications of an assignment and an assumption agreement
Familiarize yourself with the potential benefits of an assignment and assumption agreement
Understand how an assignment and assumption agreement can be used to protect assets

You’ll know you can check this off your list and move on to the next step when you have a good grasp of the processes and procedures associated with an assignment and assumption agreement, the legal implications of such an agreement, and the potential benefits of using one.

Understand the different costs associated with the transfer of assets, such as attorney’s fees, recording fees, and transfer taxes
Consider the potential cost savings of using an assignment and assumption agreement as opposed to other methods of transferring assets
Determine the effect of the transfer on the financial statements of both parties
Review the agreement to ensure all costs are accounted for

When you have a thorough understanding of the cost savings to be made and have reviewed the agreement to ensure all costs are accounted for, you can move on to the next step.

Be aware of the potential conflicts of interest between the assignor and assignee when an Assignment and Assumption Agreement is used
Consider applicable laws, regulations and contractual restrictions when determining if an Assignment and Assumption Agreement is the best option
Understand that if an Assignment and Assumption Agreement is used, both the assignor and assignee will remain liable for any existing obligations
Be aware that the assignee may not have the same rights as the assignor under the agreement and may not have direct access to the original contract
Understand that the assignee may be liable for any damages or losses caused by the assignor’s breach of the agreement

You’ll know when you can check this off your list and move on to the next step when you have a good understanding of the potential pitfalls and responsibilities associated with using an Assignment and Assumption Agreement.

Understand that when assuming liabilities, there are certain risks that may be unforeseen and difficult to calculate
Be aware that the assignor of the agreement can still be held liable if any unanticipated risks arise
Carefully review the agreement to ensure that the assignor and the assignee are both protected from unforeseen risks
Discuss any potential risks with legal counsel to ensure that all parties understand the potential risks
Have all parties sign the agreement to ensure that everyone is aware of the risks and agrees to them
When all parties have signed, the agreement can be considered complete and all parties can move forward with the transfer of liabilities
Understand the differences between the two parties and their respective interests
Identify the areas where both parties can agree on specific terms and conditions
Determine which party will be liable for any breaches of the agreement
Negotiate a fair deal that both parties can agree to
Consider any legal, financial, and tax implications for both parties
Once negotiations are complete, have the parties sign the agreement
Make sure that both parties understand the terms and conditions of the agreement
Verify that both parties are in agreement and that all negotiations are complete
Check that all the required legal documents are present and in order
Check that all parties involved are aware of their respective responsibilities

You’ll know when you can check this off your list and move on to the next step when all parties have agreed to the terms and conditions of the agreement, all required legal documents have been provided and in order, and all parties have signed the agreement.

Research the laws and regulations that apply to the transaction, including state and local statutes, to assess potential risks
Check for any filing requirements or permits that need to be obtained
Identify any restrictions that could occur due to the parties involved
Document any potential regulatory non-compliance issues
When all potential risks have been identified and documented, you can move on to the next step.
Review the terms and conditions of the agreement, as well as any applicable regulations, to ensure that all parties have a clear understanding of the agreement as a whole.
Seek legal counsel if there are any questions or concerns about the agreement.
Finalize the agreement by signing and exchanging documents.
After the agreement has been finalized, it will be legally binding and enforceable.
Make sure all parties are aware of their responsibilities and obligations under the agreement.
Monitor the agreement to ensure that all parties are complying with the terms and conditions of the agreement.
Check off this step when the agreement has been finalized and all parties have signed and exchanged documents.
Review the agreement carefully and make sure all parties have signed off
Make sure all parties have received a copy of the agreement
Ensure that all parties have received the agreed-upon consideration
File the original agreement with all relevant documents with the appropriate government agency or court
You will know that you have finished this step when all parties have signed the agreement, all parties have received a copy, and the original agreement has been filed with the appropriate government agency or court.
Execute the agreement, making sure both parties have signed it and that all parties involved have read, understood, and accepted the terms and conditions of the agreement.
Make sure that the agreement has been filed with the appropriate state or federal agency, if required.
Start the process of transferring assets and obligations from the assignor to the assignee, as outlined in the agreement.
Make sure that all parties have the necessary information to complete the assignment and assumption. This may include but is not limited to: legal documents, financial documents, contracts, and other pertinent information.
Ensure that all parties have received the necessary payment for the assignment and assumption.
Check that all parties have complied with the terms and conditions of the agreement.
You can check this off your list once you have completed all the steps necessary for the successful implementation of the agreement.
Ensure you have all relevant documents, such as the assignment and assumption agreement, and any other documents mentioned in the agreement
Gather all necessary signatures from the parties involved
Make copies of the signed documents for all parties
File the original documents with the appropriate governmental agency or court
Update any necessary records, including those within your company
Verify that all documents have been properly filed
You can check off this step and move on to the next step when all documents have been properly signed and filed.

Q: What is the difference between an Assignment and Assumption Agreement and a novation agreement?

Asked by Zane on 27th March 2022. A: An Assignment and Assumption Agreement is used to transfer contractual rights and obligations from one party to another, while a novation agreement is used to substitute one contracting party with another. In a novation agreement, all three parties must agree to the substitution, while in an Assignment and Assumption Agreement, only two parties are involved.

Example dispute

Lawsuit referencing assignment and assumption agreement.

A plaintiff may raise a lawsuit referencing an assignment and assumption agreement when one party assumes the rights and obligations of another party in a contract.
The lawsuit may be raised if the party that assumed the rights and obligations did not fulfill them or did not fulfill them in the manner agreed upon in the contract.
The plaintiff must provide proof that the party failed to fulfill the rights and obligations of the contract in order to win the lawsuit.
Settlement may be reached through a negotiated agreement between the parties.
Damages may be awarded if the plaintiff can prove the losses incurred due to the breach of contract.

Templates available (free to use)

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assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm.

Ignite Success with an Effective Assignment and Assumption Agreement: A Comprehensive Guide

LegalGPS : July 29, 2024 at 9:05 AM

Running a successful business is all about staying on top of your game—and that includes being able to navigate legally complex situations with ease. One concept that often comes up in the world of contracts is the assignment and assumption agreement. If you're a business owner who needs a quick yet comprehensive rundown of what an assignment and assumption agreement is and how to create one, you've come to the right place.

Assignment and Assumption Agreement Template

Legal GPS templates are drafted by top startup attorneys and fully customizable.

In this guide, we'll walk you through the ins and outs of assignment and assumption agreements, and even provide you with a step-by-step explanation of how to put one together. So grab your favorite cup of coffee and let's get started!

Being able to efficiently manage and transfer contractual rights and obligations is crucial for businesses of all sizes. Whether you're selling a portion of your company or entering into a new partnership, having a solid assignment and assumption agreement in place can save you time, resources, and potential legal headaches down the line.

That being said, it's important to ensure that your assignment and assumption agreement is accurate, comprehensive, and tailored to suit your specific needs. And that's where this guide comes in. We'll help you understand the role of assignment and assumption agreements in your business and give you the tools you need to create one with confidence.

What is an Assignment and Assumption Agreement?

Before we dive into the nitty-gritty of creating an assignment and assumption agreement, it's important to understand what it is and why it's important for your business. In simple terms, an assignment and assumption agreement is a legal document that transfers the rights and obligations of one party (the "assignor") in an existing contract to another party (the "assignee"). Essentially, it allows one party to step out of a contract and another party to step in, taking over the original party's rights and responsibilities.

An assignment and assumption agreement typically serves a few key purposes, including:

Transferring ownership or control of assets

Refinancing debt or other financial arrangements

Splitting or consolidating business entities

A well-crafted agreement not only helps ensure a smooth transition but also protects all parties involved from potential misunderstandings and disputes.

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The Importance of an Accurate Assignment and Assumption Agreement

Now that you have an idea of what an assignment and assumption agreement entails, let's talk about why it's so important to get it right. Without a solid agreement in place, both the assignor and the assignee can face a whole host of problems, from miscommunications to legal disputes.

For one, an unclear or vague agreement can leave both parties open to misinterpretation and misunderstanding, which can result in disputes down the line. This is especially true when considerable assets or financial interests are at stake—having an accurate agreement in place helps protect both parties from future legal battles.

Moreover, without an agreement that specifically assigns rights and obligations to the assignee, the original parties to the contract may still be bound by its terms. This can give rise to unwanted legal complications and may even defeat the purpose of entering into the assignment and assumption agreement in the first place.

In short, a well-written assignment and assumption agreement protects both parties and helps prevent future misunderstandings and disputes.

How to Write an Assignment and Assumption Agreement: Step-by-Step Guide

Now that we've covered why having an accurate assignment and assumption agreement is so crucial, let's walk through how to write one. Keep in mind that every contract is unique, so your agreement should be tailored to your specific situation.

Step 1: Identifying Parties and their Roles

The first step in creating an assignment and assumption agreement is to clearly identify the parties involved and their respective roles. This typically includes the assignor, assignee, and the original counterparty to the contract (the "obligor"). Be sure to include the legal names and contact information for each party, including any business entities, individuals, or other parties that may be involved.

Moreover, all parties should be represented by a lawyer who is licensed to practice law in the state where the property is located.

Step 2: Describing the Original Contract

The next step is to describe the original contract being assigned and assumed, also known as the "underlying contract." This should include a brief description of the terms and conditions of the underlying contract, as well as the date on which it was executed. You may also want to include a reference to the specific section(s) of the underlying contract that permit assignment, if applicable.

For example, if the underlying contract is a lease agreement, you may want to point out that the lease allows for assignment.

Step 3: Detailing the Assignment and Assumption

Now, it's time to get into the heart of the agreement—the actual assignment and assumption. In this section, you'll need to outline the specific rights and obligations being transferred from the assignor to the assignee, including any limitations or conditions related to the transfer.

You should also identify the effective date of the assignment and assumption, which may be the date on which the agreement is executed, or a later date specified by the parties. In some cases, you may also need to consider any rights or obligations that will remain with the assignor after the assignment and assumption take effect.

Step 4: Consent of the Obligor

In some cases, the assignment and assumption of a contract may require the consent of the obligor. If this is the case, you should include a section in your agreement describing the obligor's consent, including any conditions or limitations on the consent, if applicable.

This is important because if the obligor does not consent or if there are conditions on the consent, it may prevent your assignment and assumption from taking effect.

Step 5: Governing Law and Jurisdiction

It's crucial to establish which laws will govern your assignment and assumption agreement, in case any disputes arise later on. Include a section specifying the state or country whose laws will apply to the agreement, as well as the jurisdiction where any legal disputes will be resolved.

However, make sure the law you choose is not one that would be considered unfair to either party. For example, if one of your companies is based in a state that has laws favorable to creditors and the other company is based in a state with more favorable laws for debtors, it may be best to choose another state as your governing law.

Step 6: Signatures

Finally, the last step in creating an assignment and assumption agreement is to have all parties sign and date the document. This is typically done at the end of the agreement, after all terms and conditions have been outlined. Be sure to include lines for the signatures of the assignor, assignee, and the obligor (if their consent is required), as well as a space for each party to print their name and title, if applicable.

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Pros and Cons of Using an Assignment and Assumption Agreement Template

When it comes to creating an assignment and assumption agreement, you might be considering using a contract template. While templates definitely have their advantages, such as saving time and ensuring that you cover all of the necessary legal bases, there are also some potential downsides to be aware of.

One major advantage of using a template is that it can save you time by providing a well-structured starting point for your agreement. Templates also generally include the essential sections and clauses that most agreements need, helping to ensure that your agreement is legally compliant and thorough.

The main disadvantage of using a generic template is that it may not be tailored precisely to your specific needs. This can result in an agreement that doesn't fully address the nuances of your situation or provide adequate protection for all parties involved. If you're unsure about whether a template is appropriate for your situation, you should consider consulting a legal professional or purchasing a customizable contract template that can be adapted to your specific circumstances.

The Benefits of Choosing Our Contract Template

There's no doubt that a well-designed contract template can be a game-changer when it comes to drafting assignment and assumption agreements. And that's where our expertly crafted template comes into play. Here's what sets our template apart:

Simplified language for easier understanding

Customizable to suit your specific needs and requirements

By choosing our contract template, you can feel confident knowing that you're getting a legally compliant and strategically sound agreement that's tailored to your situation. So why wait? Purchase our expertly designed assignment and assumption agreement template and ensure your business's success today!

In the world of business, contracts play a crucial role in protecting your assets and interests. And when it comes to assignment and assumption agreements, accuracy and clarity are key. We hope this comprehensive guide has given you the tools and understanding you need to confidently create your own assignment and assumption agreements.

Ready to make your life easier? Grab our expertly designed assignment and assumption agreement template today and streamline your business operations with confidence!

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Assignment vs Novation: Everything You Need to Know

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. 4 min read updated on September 19, 2022

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. The party transferring their rights and duties is the assignor; the party receiving them is the assignee. Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of the original counterparty.

The transfer of a benefit or interest from one party to another is referred to as an assignment. While the benefits can be transferred, the obligation or burden behind the contract cannot be. A contract assignment occurs when a party assigns their contractual rights to a third party. The benefit that the issuing party would have received from the contract is now assigned to the third party. The party appointing their rights is referred to as the assignor, while the party obtaining the rights is the assignee.

The assignor continues to carry the burden and can be held liable by the assignee for failing to fulfill their duties under the contract. Purchasing an indemnity clause from the assignee may help protect the assignor from a future liability. Unlike notation, assignment contracts do not annul the initial agreement and do not establish a new agreement. The original or initial contract continues to be enforced.

Assignment contracts generally do not require the authorization from all parties in the agreement. Based on the terms, the assignor will most likely only need to notify the nonassigning party.

In regards to a contract being assignable, if an agreement seems silent or unclear, courts have decided that the contract is typically assignable. However, this does not apply to personal service contracts where consent is mandatory. The Supreme Court of Canada , or SCC, has determined that a personal service contract must be created for the original parties based on the special characteristics, skills, or confidences that are uniquely displayed between them. Many times, the courts need to intervene to determine whether an agreement is indeed a personal service contract.

Overall, assignment is more convenient for the assignor than novation. The assignor is not required to ask for approval from a third party in order to assign their interest in an agreement to the assignee. The assignor should be aware of the potential liability risk if the assignee doesn't perform their duties as stated in the assigned contract.

Novation has the potential to limit future liabilities to an assignor, but it also is usually more burdensome for the parties involved. Additionally, it's not always achievable if a third party refuses to give consent.

It's essential for the two parties in an agreement to appraise their relationship before transitioning to novation. An assignment is preferential for parties that would like to continue performing their obligations, but also transition some of their rights to another party.

A novation occurs when a party would like to transfer both the benefits and the burden within a contract to another party. Similar to assignment, the benefits are transferred, but unlike assignment, the burden is also transferred. When a novation is completed, the original contract is deleted and is replaced with a new one. In this new contract, a third party is now responsible for the obligations and rights. Generally, novation does not cancel any past obligations or rights under the initial contract, although it is possible to novate these as well.

Novation needs to be approved by both parties of the original contract and the new joining third party. Some amount of consideration must also be provided in the new contract in order for it to be novated, unless the novation is cited in a deed that is signed by all parties to the contract. In this situation, consideration is referring to something of value that is being gained through the contract.

Novation occurs when the purchaser to the original agreement is attempting to replace the seller of an original contract. Once novated, the original seller is released from any obligation under the initial contract. The SCC has established a three-point test to implement novation. The asserting party must prove:

The purchaser accepts complete liability
The creditor to the original contract accepts the purchaser as the official debtor, and not simply as a guarantor or agent of the seller
The creditor to the original contract accepts the new contract as the replacement for the old one

Also, the SSC insisted that if a new agreement doesn't exist, the court would not find novation unless the precedence was unusually compelling.

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What Is Mortgage Assignment vs. Mortgage Assumption?

Mortgage assumption is now rare, while mortgage assignment is quite common.

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1. How to Invest in Property With No Money Down
2. What Does It Mean When a Mortgage Matures?
3. How to Assume a Promissory Note

Mortgage assignment, usually involving a mortgage lender, is very different from mortgage assumption, involving a homebuyer. Mortgage assignments occur when the original lender transfers the mortgage loan to a third party. Lenders who sell mortgages, which is most of them, assign their mortgages to others, who become the owners of the loans. Mortgage assumption occurs when a homebuyer assumes the home seller's existing loan, making all future payments. Buyers become the new mortgage borrowers.

Due on Sale Clauses

Most contemporary mortgages include due on sale clauses. This means that if a transfer of ownership occurs in the form of a home sale, the current mortgage must be paid off, as the balance becomes due. Due on sale language eliminates the option for a buyer to assume the mortgage on the home she's buying. Due on sale clauses have little effect on mortgage assignments to buyers or other third parties. Due on sale language helps make mortgage assignments easier, as the loan buyer knows the mortgage will be paid off when the property is sold.

Government Loans

While most mortgage loans are sold and assigned to others, few mortgages are assumable. Federal Housing Administration and Veterans Administration mortgages, commonly called government loans, are the only legally assumable home loans left in the mortgage market. Government loans also may be assigned to third party buyers, as other mortgage loans are. Assuming government loans is not automatic, as the homebuyers must qualify for these mortgages, meeting FHA and VA income and credit guidelines.

Third Parties

While most contemporary mortgage assignments involve lenders selling their loans, borrowers may assign their mortgages, if their loan note language permits, to third parties. Although this is technically a form of mortgage assumption, it differs from traditional legal assumption in that the original borrower who assigned the mortgage remains responsible for the loan balance if the assignee does not make scheduled monthly payments. While both mortgage assignment and assumption involve third parties, the position of mortgage loan buyers and mortgage assignees is legally different.

While rare, novation is more of a hybrid of mortgage assumption and mortgage assignment. When permitted, the mortgage loan is both assumed by and assigned to another borrower. However, the original borrower is no longer responsible for monthly payments or personally liable for the balance of the loan. Legally, novation equals a new obligation, but with the same terms, including interest rate, of the former mortgage loan. Few contemporary mortgage loan notes permit this form of assumption and assignment.

Significance

Until the 1970s, mortgage assumptions were common, while mortgage assignments were rare. After the federal government created mortgage companies Fannie Mae and Freddie Mac and after due on sale clauses became popular, the roles reversed. For the past four decades, few mortgage loans were assumable, while most mortgage loans were sold and assigned to third parties. The contemporary practices benefit lenders but do not help borrowers, particularly when interest rates rise. Lenders reduce their rate risk, shifting most of the risk to mortgage borrowers, since homebuyers cannot assume lower interest rate mortgage loans.

Financial Web: Understanding Assumptions
Lender 411: Transferring a Mortgage

How to invest in property with no money down, what does it mean when a mortgage matures, how to assume a promissory note, does it make a difference who is the buyer or co-buyer for financing, what is a subordinate clause in a mortgage, do mortgage borrowers have to be on the title deed, what is an assignment of trust deed, what is a loan maturity date for a mortgage, what is the difference between the deed of absolute sale and the deed of assignment, the disadvantages of owner-carried mortgages, refinance vs. restructure mortgage, warranty deed vs. deed of trust.

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KNOWING THE DIFFERENCE - ASSIGNMENT VS. ASSUMPTION

Assignment Assumption Sublease First realize that I am not an attorney and this should not be construed as legal advice. As always, you should contact your attorney for advice and consultation.

Restaurant owners really need to pay attention to the leases they sign. It's not true that the Landlord holds all of the cards, so understanding the language in your lease will prevent any surprises when you finally make the decision to sell your restaurant.

In order to sell your restaurant, you are going to have to get the blessing and permission of the Landlord. What? Am I crazy?

Not really. Certainly you can sell your restaurant without the Landlord's consent, but will the buyer be able to qualify for the lease? Selling your restaurant is a multi step process and it will always involve the consent of the Landlord as it relates to the buyer and his/her ability to step in as a new tenant.

This is when you will begin to pray that the lease you signed is favorable and contains the proper language, giving you the right to assign your leasehold rights to a qualified buyer.

If the language in your present lease allows for the transfer of the lease to a new buyer, will you be off the hook? Many sellers are surprised to learn they are still responsible, even years after a sale. Here's what to look for: Assignment is the transfer of all rights to the buyer (assignee) from the seller (assignor). Normally the assignor remains liable to the landlord should the assignee fail to make the rent. The seller has no right of re-entry in the event the buyer defaults. This is successor liability. Attorney talk. Assumption is like an Assignment except the seller is released from all liability under the terms of the lease. This is rare and it almost never happens. Sublease is where possession is transferred to the buyer (subleasee) with the seller retaining all the same rights as though he/she were the tenant. Often this will require the rent payments be sent directly to the landlord Subleases give the seller the right of re-entry in the event the buyer defaults. the seller still must go through the same legal process as a landlord to evict a tenant.

This is a brief summary of what is involved with leases as it pertains to the transfer of a business. This is only one reason why business owners need expert representation when they decide to sell their business. Please call me to discuss if you have any interest in purchasing or selling your restaurant.

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.

Assignment And Assumption Of Lease: Definition & Sample

Jump to section, what is an assignment and assumption of lease.

An assignment and assumption of lease is a legal real estate document that allows one party to transfer rights and obligations of a lease to another party. Often used in real estate transactions and mortgage lending, the assignment and assumption of lease agreement requires the landlord to consent to move forward.

An assignor may include an assumption agreement to provide legal protection by transferring obligations to the new tenant. For example, if a tenant defaults on a mortgage or stops paying rent, the original seller is no longer liable. Assignment and assumption of lease agreements cover terms like who is newly responsible for the lease and the landlord's contract for this agreement.

Common Sections in Assignment And Assumption Of Leases

Below is a list of common sections included in Assignment And Assumption Of Leases. These sections are linked to the below sample agreement for you to explore.

Assignment And Assumption Of Lease Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.2 2 d425646dex102.htm ASSIGNMENT AND ASSUMPTION OF LEASE , Viewed October 18, 2021, View Source on SEC .

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Extraordinary Assumption or Hypothetical Condition?

Appraiser News Editions , Real Estate Appraisers

Extraordinary Assumption or Hypothetical Condition? By Phil Spool, ASA

Every now and then, I come across an appraisal report where the appraiser is confused about whether the appraisal requires an extraordinary assumption or a hypothetical condition. One appraiser even went as far as to erroneously describe the situation as being a “hypothetical assumption,” with another calling it an “extraordinary condition.” What?

Some situations are complicated and I can understand the confusion. Others should be simple to understand. This article will hopefully help you understand the basic difference between an extraordinary assumption and a hypothetical condition.

While the Uniform Standards of Professional Appraisal Practice (USPAP) does not require you to label your situation as either an extraordinary assumption or a hypothetical condition, USPAP states in Standards Rule 2-1 (c) that each written or oral real property appraisal report must “clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.” Therefore, you must disclose all extraordinary assumptions and limiting conditions.

Extraordinary Assumption The Uniform Standards of Professional Appraisal Practice (USPAP) defines an extraordinary assumption as: “ An assumption, directly related to a specific assignment, as of the effective date of the appraisal results, which, if found to be false, could alter the appraiser’s opinions or conclusions. ” In essence, an extraordinary assumption is what you assume to exist. Extraordinary assumptions can be based on a number of factors or conditions, including:

(a) Not being able to gain access to a bedroom or other area. This can leave doubt as to the size or physical condition of that particular room or rooms. Why was that area not available for you to observe? One appraiser I know was told by the homeowner that the bedroom was occupied by his daughter who had chickenpox. The appraiser was not allowed to even open the door of the bedroom to see its condition. Another appraiser could not gain access to a bedroom as the teenage child had a lock on his door and wouldn’t permit his parents to gain access. It turns out that the bedroom with the chickenpox child had physical issues and the appraiser did not question the homeowner and did not mention in his report that access was not made. The appraiser was then sued by the buyer of the house.

Therefore, the appraiser should make the extraordinary assumption that the condition of the room(s) or area(s) not observed is similar to the other bedrooms or other areas of the building being appraised. This also applies when appraising a multi-tenant building, such as an apartment complex, shopping center, office building or warehouse.

(b) The subject’s unobserved physical condition. In addition to the situation described above, the appraiser should also be observant of the areas outside of the building but still on the subject’s site. If you notice that there are a number of deferred maintenance items (items that need repairing or replacing), then you need to mention this in your appraisal report and be as specific as possible. An extraordinary assumption might refer to the areas you did not observe, making an assumption that they are similar to the areas you did observe. Also, if there are any additional unforseen deferred maintenance items that you did not observe, you can make the extraordinary assumption that any additional unforseen deferred maintenance items may have an effect on the value of the property. This would be a good time to suggest that a general contractor or home inspector be hired and arrive at an appropriate cost to cure.

(c) The physical condition of unobserved comparable sales. I have seen only a few appraisal reports where the appraiser makes the extraordinary assumption that the comparable sale’s Multiple Listing Service remarks about the property, the MLS photographs (interior and exterior) and the verification of the physical condition (renovations, etc.) by the real estate agent are deemed to be true and correct. Other appraisers make the extraordinary assumption that the information supplied to the appraiser from verified sources is deemed to be reliable and correct. By making this extraordinary assumption, you are stating to your client that you made your best effort regarding the information obtained about your comparable sales and assumed that the information you obtained was reliable.

(d) Regarding deferred maintenance and the estimated cost to cure , an appraiser can make the extraordinary assumption that the cost to cure the subject’s deferred maintenance is based on reliable sources and if not, then any change may have an effect on the final value determined.

(e) Regarding a “ retrospective ” market value , the appraiser makes the extraordinary assumption that the physical condition of the subject as of the date of value (value date in the past) is similar to the date of observation (date you went out to the property). This assumption needs to be confirmed with the property owner or owner’s representative at the time of the visit.

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Hypothetical Condition The Uniform Standards of Professional Appraisal Practice (USPAP) defines a hypothetical condition as: “ A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. ” In essence, a Hypothetical Condition is something contrary to what exists as of the effective date of value.

Hypothetical Conditions could be based on a number of factors or conditions, including:

(a) Appraising a proposed property (such as a house) while the property is currently a vacant lot. In this case, you will be making a hypothetical condition that the non-existent improvements actually exist as of a current date and not the expected completion date, which is referred to as a prospective date. When appraising a proposed house for lending purposes, the Fannie Mae Form 1004 states that you are using the hypothetical condition that the subject improvements are completed as of the effective (current) date of appraisal. The hypothetical condition is that the improvements do not exist or are under construction and your valuation is based on the completion of the improvements.

(b) Valuing the property “subject to curing the deferred maintenance.” The improvements have deferred maintenance that you personally observed and there may be unseen deferred maintenance that you did not observe. Perhaps the cost to cure is something you don’t feel comfortable estimating as it is beyond your expertise. If you decide to value the property “subject to curing the deferred maintenance,” then it becomes a hypothetical condition as your value is contrary to what exists. This is different than deducting the estimated deferred maintenance to arrive at the “as is” market value of the subject, In that case, you would be making an extraordinary assumption that the estimated cost to cure the subject’s deferred maintenance is based on reliable sources and if not, then any change may have an effect on the final value determined. In other words, determining the “as is” market value, and deducting the deferred maintenance, requires an extraordinary assumption, while determining the value “subject to” is a hypothetical condition.

(c) An addition was added illegally and you are requested to value the property as if it didn’t exist. This is considered a hypothetical condition as it is “contrary to what exists.” I had an appraisal assignment where the addition was made over a canal maintenance easement. The survey was a barely readable copy. The title company and lender did not pay attention to the existing easement until the property went into foreclosure. My assignment was to value the property without the existing canal maintenance easement. The value that excludes the existing easement reflected a hypothetical condition (contrary to what existed).

(d) Valuing a property with a different zoning than it currently has, providing that the alternate zoning is a feasible choice. A prime example would be valuing a single family residence zoned for residential use along a busy street while single family residences across the same street, with commercial zoning, were converted into commercial usage, such as a dentist office or an insurance agency . If it appears feasible that the residential zoning can be converted into commercial zoning, then the appraisal of the subject single family residence as a commercial usage would require a hypothetical condition. In conclusion, each extraordinary assumption and hypothetical condition should be included in the General Assumptions and Limiting Conditions section of the appraisal report. Most importantly, the extraordinary assumption and/or hypothetical condition must be reasonable and supportable in the context of the appraisal assignment that results in a credible opinion of value.

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About the Author Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida, appraising since 1973. Formerly the Chief Appraiser of Flagler Federal Savings and Loan Association, he has been self-employed for the past 20 years. In addition to appraising, he is an instructor with Miami Dade College, teaching appraisal courses and continuing education. He is also the Vice President and Chairman of real estate programs with the Greater Miami Chapter of the American Society of Appraisers. He can be reached at [email protected] .

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Comments (4)

by Suzanne McIlrath

November 28, 2023 at 8:07 pm

Thank you so much for this article. I have some work to do now updating my skeletons/outline appraisals. And, Mr. Gillespie is so right…to be an appraiser is a lifetime of learning and adapting to changes. Personally, I love that aspect about this career. I know this article was written long ago but it is still very valid today.

by George Koury

August 11, 2017 at 1:34 pm

When using a hypothetical condition to value a property and, of course, clearly stating all contributing factors, may the report be completed “as-is” or must it be completed “subject to”?

by Edd Gillespie

July 26, 2016 at 5:34 am

How odd that a well written article about a substantive appraisal issue that many appraisers have little understanding of has only the one comment from me.

Maybe Mr. Spool answered every question any appraiser may have or my experience is 180 out and most appraisers have a good grasp of the use of these terms and use them when needed and correctly.

Yeah, right!

July 20, 2016 at 4:03 am

Thanks Mr. Spool, This, among your other contributions, should be printed and pasted to the foreheads of every appraiser until they learn what you are teaching them.

I too have encountered much confusion on the part of appraisers about these distinctions. I have no idea who believed it was necessary to attach the adjective extraordinary since almost any assumption I can think of if found to be untrue will have some impact on value (er, probable price) opinions. Senior designated appraisers are not immune from the confusion. To add to the mess, the next USPAP cycle will change “extraordinary” to “special.” As might be expected, many of those who don’t understand also refuse to make an effort to understand and belittle the requirements to use either.

No wonder Fannie guidelines and clients strictly limit the use of both. But then 1004 appraisers just forget to follow USPAP even when the assignment clearly requires one or the other or both be employed and mentioned prominently in the report.

Can you come up with an article about the need to embrace an attitude of life-long learning if one aspires to appraise? No doubt you need to brace yourself for a personal attack if you do.

Thanks for the well written and cogent article.

Leases and Assignments – The Benefit of Express Assumption

General Law on Assumption of Leases

Why the lease terms were insufficient to obligate the lender, a guide to drafting your lease, related posts:.

Updated on July 5, 2022

Whenever a tenant assigns its rights under a lease to another tenant, it befits the landlord that the assignee tenant executes an express assumption of the lease. A recent case, BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (“BRE”), serves as an example. In BRE the former tenant/lender (the “Second Tenant” or “Lender”) prevailed over the landlord because the Second Tenant failed to execute an express assumption of the lease. The lender became the Second Tenant after foreclosing on a construction deed of trust against the trustor/first tenant (the “First Tenant”). Because the Lender had no interest in the lease it subsequently assigned it to a third-party tenant (the “Third Tenant”). Everything fell apart when the Third Tenant stopped paying rent and returned possession of the premises before the end of the lease. Seeking to recover its damages, the landlord brought action against the Second Tenant.

Two types of privities arise under a lease. One is privity of contract, and the other is privity of estate. ( Vallely Investments v. BancAmerica Commercial Corp . (2001) 88 Cal.App.4th 816, 822.) These distinctions are important in determining the liabilities of a succeeding assignee/tenant.

An assignee who takes possession of the premises without executing an assumption contract is bound by all lease covenants which run with the land under privity of estate . However, upon assigning the lease, the former assignee tenant, now the assignor tenant, is relieved of all its obligations because privity of estate no longer exists. ( Kelly v. Tri-Cities Broadcasting, Inc. (1983) 147 Cal.App.3d 666, 678 (“Tri Cities”).) The result is entirely different when a tenant assumes the obligations of the lease pursuant to an express agreement.

The assumption agreement creates a new privity of contract between landlord and assignee, enforceable by the landlord as a third-party beneficiary, regardless of whether the landlord was a party to the assumption agreement. As a consequence, the assuming assignee is required to perform all covenants of the lease for the remainder of its term, absent a release by the landlord. ( Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232, 244–245; Rest.2d Property, Landlord and Tenant, § 16.1 (4), com. c, p. 121; BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1000.)

For privity of contract to apply courts require an “express assumption” of the contractual obligations of the lease. ( Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 746.) Only then will the law hold an assignee liable for the lease obligations. ( Id .)

To establish an express assumption, the lease must contain language that the assignee/tenant specifically agrees to bind itself to the lease obligations. ( BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1001.) In In Bank of America National Trust & Savings Association v. Moore , the court found the defendant assumed the obligations of a lease by stating so in a written assignment agreement. The document was signed by the defendant, as assignee, and the assignor. The document concluded, “ ‘It being understood that said Assignee … is to accept, assume and agree to perform all of the terms, conditions and limitations contained in said lease.’ ‘The undersigned, [defendant], hereby accepts, assumes and agrees to perform all of the terms, conditions and limitations contained in the aforementioned lease to be kept and performed by said lessee.” ( BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1001.)

The Court’s reference to the lease in Tri Cities best explains why it failed to find that the Lender was obligated to the terms of the lease under privity of contract. There, a lease between the landowner and tenant required any assignee to assume the lease obligations: “Lessee hereby warrants and represents that in the event said assignment shall ever take place, the assignee therein shall assume all of the liabilities and obligations assumed by Lessee in this Lease Agreement.” ( BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1002.) The lease further provided that the “assigns and/or heirs of both parties shall carry out the terms of this Lease Agreement.” ( Id. )

Thereafter the defendant purchased the lessee’s business, including the lease. The purchase agreement acknowledged the lease and attached an exhibit that stated, “Land Lease covering real property on which broadcasting transmitter is located.” ( Id .) In ruling in favor for the landlord, the trial court agreed with the Landlord that this language was sufficient evidence that the assignee expressly assumed the obligations of the lease. The appellate court disagreed.

The appellate court noted that “in every case examined where there has been an express assumption, the assignee has stated specifically either orally or in writing that he agrees to be bound by the terms of the lease.” ( Id . at 1003.) Thus, the appellate court concluded that “as a matter of law no evidence was presented to the trial court… to substantiate the conclusion Tri-Cities had assumed the lease.” ( Id.)

First the BRE court noted that the Landlord should have required the Lender to execute a document requiring it to assume the lease obligations. ( Id . at 1003.) However, if this proves to cumbersome, the court also noted that landlords could include language in the original lease requiring consent and assumption. ( Id . at 1004.) For examples see Bennett v. Leatherby (1992) 3 Cal.App.4th 449, 452 “lessor consented to the sublease and required ‘the specific assumption of all of the obligations ”; Bank of America National Trust & Savings Association v. Moore (1937) 18 Cal.App.2d 522, 525 (“the lease itself declares that an assignment shall be void unless the assignee agrees, in writing, to carry its burdens, the agreement of the defendant, in harmony with the requirement of the lease, may be interpreted as a contract directly with the lessor.”)

For help with obtaining an injunction to prevent a harm and to see if you qualify for a free consultation, contact our experienced real estate lawyers in Los Angeles at (310) 954-1877, [email protected] or by using the contact us box on this page.

By Randy Aguirre, esq.

Tags: express assumption , lease assignment

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Don’t Confuse Change of Control and Assignment Terms

David Tollen
September 11, 2020

An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.

Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)

Here’s an assignment clause:

Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.

As you can see, that clause says no assignment is allowed, with one exception:

Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).

Consider the following additional issues for assignment clauses:

Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.

Change of Control

Here’s a change of control clause:

Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)

Contract terminated, due to change of control.

Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.

Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).

Consider the following additional issues for change of control clauses:

Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.

Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon here , or purchase directly from its publisher, the American Bar Association, here.

Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team). David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.

Thank you to Pixabay.com for great, free stock images!

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Assignment and Assumption Agreement and Optional Novation | Practical Law

Assignment and Assumption Agreement and Optional Novation

Practical law standard document 6-519-2171 (approx. 19 pages).

Maintained • USA (National/Federal)

IMAGES

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What Is The Difference Between Mortgage Assumption And Mortgage Assignment?
Assumption vs Presumption-Difference Between and Examples

COMMENTS

Understanding an assignment and assumption agreement
An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.
Assignment And Assumption Agreement: Definition & Sample
An assignment and assumption agreement transfers one party's rights and obligations to a third party. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee. The assignor assigns their rights and duties under the contract to the assignee and the assignee accepts, or ...
The Definition of Assignment & Assumption Agreement
Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens. Tips. Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original ...
What is an Assignment and Assumption Agreement
An assignment and assumption agreement is an agreement for transferring contractual duties and rights. It is a separate agreement from the one being transferred. The original contract may contain certain terms and conditions regarding assignments and assumptions, so it is important for the parties involved to review the contract carefully ...
What is an Assignment and Assumption Agreement
An assignment and assumption agreement is a contract that allows one of the parties to transfer their contractual rights and duties to another party. An assignment of contract is used after a previous agreement has been signed and one of the parties wants to pass on its obligations to a third party that wasn\'t originally part of the contract.
Understanding Assumption Agreements: A Simple Guide
Assignment of lease and assumption agreement between _____ and _____, dated _____. Assignor: ("Assignor") hereby assigns to Assignee all right, title and interest in the following property: Assignee shall assume responsibility for the payment of rent due under the lease at least 45 days prior to the expiration date thereof.
Assumption Agreement: Definition & Sample
An assumption agreement, sometimes called an assignment and assumption agreement, is a legal document that allows one party to transfer rights and/or obligations to another party. It allows one party to "assume" the rights and responsibilities of the other party. This agreement is often used in real estate transactions and mortgage lending.
Understanding the Basics of Assignment and Assumption Agreements
Q: What is the difference between an Assignment and Assumption Agreement and a novation agreement? Asked by Zane on 27th March 2022. A: An Assignment and Assumption Agreement is used to transfer contractual rights and obligations from one party to another, while a novation agreement is used to substitute one contracting party with another.
PDF ASSIGNMENT AND ASSUMPTION AGREEMENT & GUIDE
assignment and assumption. • Section 4: Inconsistency. Indicates that if there is a conflict between assignment language and the language of the original agreement, the assignment language will be the final word on the question. • Section 5: Agreement Continuance. This serves as an "affirmation" of the original agreement.
Assignments: The Basic Law
Assignments: The Basic Law. The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States. As with many terms commonly used, people are familiar with the ...
Ignite Success with an Effective Assignment and Assumption Agreement: A
In simple terms, an assignment and assumption agreement is a legal document that transfers the rights and obligations of one party (the "assignor") in an existing contract to another party (the "assignee"). Essentially, it allows one party to step out of a contract and another party to step in, taking over the original party's rights and ...
Assignment vs Novation: Everything You Need to Know
Assignment. The transfer of a benefit or interest from one party to another is referred to as an assignment. While the benefits can be transferred, the obligation or burden behind the contract cannot be. A contract assignment occurs when a party assigns their contractual rights to a third party.
What Is Mortgage Assignment vs. Mortgage Assumption?
Mortgage assumption is now rare, while mortgage assignment is quite common. Mortgage assignment, usually involving a mortgage lender, is very different from mortgage assumption, involving a ...
KNOWING THE DIFFERENCE
Assignment is the transfer of all rights to the buyer (assignee) from the seller (assignor). Normally the assignor remains liable to the landlord should the assignee fail to make the rent. The seller has no right of re-entry in the event the buyer defaults. This is successor liability. Attorney talk.
Assignment And Assumption Of Lease: Definition & Sample
Exhibit 10.2 . ASSIGNMENT AND ASSUMPTION OF LEASE . THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made and entered into as of the 12th day of October, 2012 (the "Effective Date"), by and between IMESON WEST I, LLC, a Florida limited liability company ("Assignor"), whose address is 3600 Vineland Road, Suite 101, Orlando, Florida 32811, and GIT IMESON PARK FL, LLC, a ...
Extraordinary Assumption or Hypothetical Condition?
The Uniform Standards of Professional Appraisal Practice (USPAP) defines an extraordinary assumption as: " An assumption, directly related to a specific assignment, as of the effective date of the appraisal results, which, if found to be false, could alter the appraiser's opinions or conclusions. " In essence, an extraordinary assumption ...
Leases and Assignments
The result is entirely different when a tenant assumes the obligations of the lease pursuant to an express agreement. The assumption agreement creates a new privity of contract between landlord and assignee, enforceable by the landlord as a third-party beneficiary, regardless of whether the landlord was a party to the assumption agreement.
Don't Confuse Change of Control and Assignment Terms
Change of control terms don't address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences. Don't confuse the two. In a contract about software or other IT, you should think through the issues raised by each.
Assignment and Assumption Agreement
An assignment and assumption agreement used to transfer the seller's contractual rights and obligations to the buyer. This agreement is delivered as an ancillary document in an asset purchase. This Standard Document has integrated notes with important explanations and drafting and negotiating tips.
Commercial, Sample Agreement
Comment: Because the assignment and assumption relates to existing rights and obligations contained in the underlying commercial agreement, the preamble identifies the related agreement and spells out the rights and obligations that will be transferred. Recitals may also establish the purpose of the assignment and assumption and the relationship among the assignor, obligee and the assignee.
Assignment and Assumption Agreement and Optional Novation
An agreement to be used when a party transfers specified contracts to another party, including an assignment of all of its contractual rights and delegation of all of its contractual duties. This Standard Document contains provisions to incorporate an assumption of the delegated obligations and an optional novation into the assignment agreement.
Assignment vs Novation: What is the Difference?
Assignment transfers benefits or rights, while novation transfers both benefits or rights and obligations. These concepts are different, though similar, and it is not uncommon to confuse them. However, such confusion can lead to unwanted consequences in legal contracts. This article will explore the key differences between novation and assignment.