Assignable Contract: Overview, Factors, and Examples

If you are an investor in real estate, stocks, or futures, own intellectual property, or provide services, you must know how to create assignable contracts.

Why?

Because assignable contracts allow you to benefit financially from your investments, assets, and business goodwill by transferring your obligations - such as debt payment or delivery of goods - to another party.

This article will cover how assignable contracts work, provide examples, highlight the pros and cons, and detail what you need to include in a contract to make it assignable.

What is an Assignable Contract?

An assignable contract is a business agreement that contains clauses allowing you to transfer your rights and obligations in an asset or investment to another party. 

Such contracts are commonly used to “flip” real estate, i.e. buying real estate, adding value through repairs or a redesign, and selling it for a profit.

Additional use cases include intellectual property and financial instruments such as stocks and futures, business mergers, and partnerships.

Key Terminology for Assignment of Contract

Here is a list of key terms related to assignable contracts to help you understand how assignment works and the relevant legal considerations:

• Assignment: The act of transferring rights, obligations, or interests under a contract from one party (the "assignor") to another (the "assignee")
• Assignor: The party in a contract that transfers its rights or obligations to another party
• Assignee: The party that receives the rights or obligations from the assignor under an assignment
• Consent: Permission or approval from the other party (or parties) in the contract
• Assignment Clause: A contract provision that specifies whether the contract can be assigned to another party, under what conditions, and whether the other party's consent is needed
• Assignment Fee: The profit an assignor makes, paid by the assignee when the transaction closes
• Date of Assignment: The date when the assignment of rights or obligations takes effect 

What Does an Assignment of Contract Do?

Assignment of contract is a versatile tool which allows one party to transfer their rights and obligations to another party. This provides flexibility in business transactions, enabling you to spot opportunities by taking on obligations and later transferring them for profit. It also offers a way to exit unviable deals gracefully, cutting losses through assignment.

For an assignment of contract to be legally valid, both parties must agree to its terms. The contract must include relevant assignment clauses and comply with applicable laws and public policies.

Assignment clauses

Assignment clauses are contract provisions that outline the conditions under which one party can assign their  rights or obligations to another party. The clauses define whether and how the contract can be transferred to a third party. These clauses are typically included to control or limit the assignment of contractual duties or benefits.

There are two types of assignment clauses:

• Restricted: Requires a party to obtain the consent or approval of the other party before assignment
• Unrestricted: Allows unrestricted assignment of rights and obligations

Assignability clauses, if included in a contract, can be found in the terms and conditions.

Risk and liability

With assignment, the assignor transfers rights and obligations to the assignee. 

Any risks and liabilities, however, remain with the assignor, unless the contract specifically states otherwise.

What is the role of the assignee?

Before assignment, the assignee is free of rights and obligations. However, after assignment, the assignee steps into the shoes of the assignor, and can enforce the contract's rights and perform its obligations.

Assignable Contract Examples

Here are some examples to better understand how contract assignment works.

Real estate

Michael spots an opportunity: an undervalued property that can be sold for a profit after a small redesign.

He negotiates with the owner and signs a purchase agreement for $100,000. Michael is looking for a quick exit, and finds another buyer, Susan.

Michael enters into a real estate assignment contract with Susan, who pays Michael a $10,000 assignment fee and the original owner $100,000, the agreed-upon purchase price. Susan will take ownership once the transaction is complete.

Financial instruments

A brokerage firm lends 1,000 shares of Alpha Pharmaceuticals to a hedge fund. The agreement includes an assignment clause that allows the brokerage firm to transfer the lending rights to another financial institution, subject to the approval of the hedge fund.

Suppose the brokerage firm assigns the loan to a third party. In that case, the assignee will assume responsibility for the securities loan, including any collateral management and the return of the 1,000 shares of Alpha Pharmaceuticals at the agreed time. Under the terms of this agreement, the hedge fund will treat the assignee as the new lender. 

SaaS

Infinity Solutions, a promising SaaS startup, is taken over by Supernova, a tech behemoth. As part of the takeover, Supernova assumes Infinity’s contractual obligations, intellectual property rights, and customer relationships. This arrangement ensures that the SaaS service continues smoothly for Infinity’s existing customers and meets all legal and contractual obligations.

Outsourcing

MindShift Innovations signs a managed services contract with BlueSky Networks, an IT services provider. The contract contains assignment clauses allowing BlueSky Networks to transfer parts of its obligations to subcontractors. With this arrangement, BlueSky Networks can expand its capacity by using other qualified vendors while retaining overall responsibility.

Assignment of Agreement: Pros and Cons

Contract assignment is a practical tool that provides flexibility for business transactions. However, before you can properly leverage this strategy, you must understand its pros and cons. 

Pros

• For investors, it offers an easy way to profit from opportunities without making significant capital investments
• It affords flexibility for investors, which gives them time and space to hunt for and benefit from opportunities
• Compared to double closing (two complete sale purchase transactions), assignment reduces the time and cost associated with flipping real estate 
• Parties can use it to exit from deals and investments that have lost viability
• During mergers and acquisitions, contract assignment ensures seamless continuity of existing agreements, eliminating time and costs required to negotiate and form new contracts

Cons

• Sellers and buyers unfamiliar with the concept can be reluctant to participate in transactions involving assignment
• Assignors can remain responsible for fulfilling contract obligations even after assignment
• Contracts with restricted assignment clauses can create a barrier to completion of transactions
• Disruptions or dissatisfaction can occur if assignees are not able to perform contract obligations in a satisfactory manner, potentially leading to a breach of contract, financial loss, and reputation damage
• In contracts with an expiration date, situations can arise where an assignee cannot be found before contract expiry. For example, a business leases office space for 5 years, and the contract allows assignment before contract expiry. Four years after starting the lease, the business wants to move to another location and starts looking for an assignee, but is not able to find a suitable one before the contract expires. Possible consequences for such scenarios range from termination of rights and obligations to potential breach of contract claims and loss of business opportunities.

Are all Contracts Assignable?

Not all contracts are assignable.

It is important to include carefully drafted assignment clauses—whether restricted or unrestricted—during contract creation when the involved parties are clear about their future course of action.

Several reasons can prevent contract assignment:

• Contracts with an anti-assignment clause are not assignable
• Contracts based on the skillset or expertise of a particular individual, such as employment contracts, are not assignable
• In some cases, such as non disclosure agreements (NDAs) or employment contracts, legal restrictions can prevent assignment
• Conflict with public policy or legal principles can also prevent the assignment of contracts 

Parties involved in negotiations must always review contract terms for restrictions or clauses related to assignment. Expert legal advice can minimize the risk of disputes and ensure compliance with relevant laws and regulations.

Who Handles Assignment of Contract?

The assignor holds rights under a contract and initiates and handles assignments. In contracts with restricted assignment clauses, the assignor must obtain the consent of the other party in the contract. 

A lawyer or attorney can be involved in the process for reviewing assignment clauses, drafting documents, and ensuring compliance with applicable laws.

How to Create Assignable Contracts with Docupilot

Here’s a step-by-step guide on how you can use Docupilot, a powerful contract automation tool, to create assignable contracts.

Step 1: Create a contract template

Use the Online Builder to create a template from scratch, upload an existing template, or pick a template from the gallery and customize it.

Include relevant contract clauses, terms and conditions, and the necessary assignment clauses that specify when and how rights and obligations can be transferred to another party.

Step 2: Set up tokens (merge fields)

Docupilot uses tokens (merge fields) for dynamic information that can change from contract to contract. Examples include details of parties involved, contract dates, specific terms, and assignment details.

Add tokens to the templates for dynamic information so that you can automate population of the contract from data sources or apps such as Airtable.

Step 3: Integrate with other tools for data import

Docupilot supports 70+ third party integrations including Google Forms, Salesforce, and Clio.

To import data from Airtable, you can use Docupilot's Airtable extension. For other data sources, such as Excel and Google Sheets, you can use Zapier to set up the integration.

Step 4: Customize and generate contracts

Once your template is ready and connected to a data source, you can review it to verify all terms, including the assignment clause, are correctly populated and formatted. Once verification is complete, you can generate the contract.

Step 5: Set up approval workflows

Contract review and approval are important for verifying that the contract is legally sound, aligns with the parties' intentions, and minimizes potential risks.

You can use Zapier to set up approval workflows in Docupilot.

Step 6: E-Sign and distribute the contract

For e-signatures, you can set up deliveries within Docupilot for DocuSign, Signable, SignNow, and Yousign.

Once the contract is signed, you can deliver it to clients via email or store it securely online.

Conclusion

Contracts with assignment clauses are often lengthy and complex documents, and contract creation is a time-consuming and costly process.

Manual contract creation also increases risk of human errors, missing clauses, and inaccurate or missing information. These drawbacks can lead to potentially damaging consequences, such as disputes and lawsuits, reputation damage and client dissatisfaction.

Contract automation software provides a viable alternative to manual contract creation: the process is fast and efficient, templates help ensure inclusion of necessary information and clauses, and connection to data sources makes the process highly scalable.

Docupilot is a full-featured contract automation platform. Affordable credit-based pricing makes it suitable for businesses of all sizes. When you subscribe, you get full access to all features, regardless of the pricing plan you choose.

‍Sign up for a 30-day free trial and start creating valid and practical assignable contracts.

FAQs

What does assignable mean in law?

According to law, assignable refers to transfer of rights, interests, or obligations under a contract from one party (the assignor) to another party (the assignee).

What is the difference between assignment and novation of a contract?

Contract assignment refers to the transfer of rights or benefits by an assignor to an assignee. The assignor remains responsible for obligations before assignment. The original contract is not altered, and unless specified otherwise, the assignor remains liable for its risks and liabilities.

Novation refers to the replacement of an existing contract by a new contract. Novation can be useful when a party wants to transfer risks and liabilities as well as rights and obligations to another party.