1. What Assignment and Assumption Agreements Do and How They Differ from Novation
An assignment and assumption agreement transfers the assignor's contractual rights to receive performance and the assignee's agreement to assume specified obligations under the underlying contract, but unlike novation, it does not release the assignor from liability to the counterparty without that counterparty's separate agreement to accept the assignee as a substitute and release the assignor.
This distinction between assignment and novation is critical in practice because an assignor who transfers a lease, a supply agreement, or a service contract to a buyer and then assumes the assignment eliminated its own ongoing liability is mistaken if the counterparty never agreed to release the assignor. Under the assignment without novation structure, the counterparty can look to either the assignor or the assignee for performance depending on the agreement's terms, meaning the assignor remains exposed for the assignee's future defaults even though the assignor no longer controls the performance.
Novation requires three elements: the original obligor's consent to the substitution, the new obligor's acceptance of the obligation, and the counterparty's agreement to discharge the original obligor and accept the new one as the sole obligated party. This makes novation a negotiated outcome rather than a mechanical consequence of the assignment, and the counterparty has no obligation to agree to release the assignor simply because the assignor and assignee have agreed among themselves to transfer the obligation. An attorney who handles commercial contracts and assignment transaction matters can evaluate whether the counterparty's cooperation is required for novation and structure the consent request and release language to achieve the result the parties actually intend.
How Anti-Assignment Clauses in the Underlying Contract Restrict What Can Be Transferred
Anti-assignment clauses are among the most consequential provisions in any contract because they determine whether the agreement can be transferred at all without the counterparty's consent, and their scope varies significantly depending on whether they cover only assignments, or also cover changes of control that accomplish the same economic result as an assignment.
A standard anti-assignment clause that prohibits assignment without prior written consent of the other party restricts the assignor from transferring the contract to a buyer in an asset deal without obtaining that consent, and purported assignments made without required consent are typically void or voidable at the counterparty's election under most states' common law. The UCC provides a partial exception for anti-assignment clauses in contracts for the sale of goods: UCC § 2-210(2) renders anti-assignment provisions generally ineffective for the assignment of the right to receive damages for past default or the right to payment of money, even when the underlying contract contains a prohibition on assignment.
Change of control provisions in anti-assignment clauses extend the restriction beyond formal assignment to the economic transfer that occurs when one party to a contract is acquired by another entity, even in a stock purchase where the legal entity remains unchanged. A counterparty's customer contract that defines change of control to include any acquisition of more than 50 percent of the voting stock triggers a consent requirement in a stock deal even though the legal entity contracting with the customer remains the same entity after the acquisition. An attorney who handles contract drafting and review and M&A transaction support matters can audit target company contracts for anti-assignment and change of control provisions before letter of intent signing and evaluate which provisions require consent and which may be enforceable defenses against transfer.
| Transfer Mechanism | Releases Assignor | Requires Counterparty Consent | Typical Use |
|---|---|---|---|
| Assignment only | No; assignor retains liability | Depends on anti-assignment clause | Rights transfer without counterparty agreement |
| Assignment plus assumption | No by itself | Depends on anti-assignment clause | Rights and duties transfer; assignor still exposed |
| Novation | Yes; assignor fully released | Yes; counterparty must agree to release | Complete substitution of new obligor |
| Change of control | Not applicable | Depends on CoC clause in contract | Stock deal; legal entity unchanged |
2. What Assignment and Assumption Agreements Must Specify about Assumed and Excluded Liabilities
The assumed and excluded liabilities provisions are the most commercially significant sections of an assignment and assumption agreement because they determine which historical obligations follow the contract into the assignee's hands and which remain the assignor's responsibility regardless of the transfer.
Assumed liabilities are the obligations the assignee agrees to perform after the effective date, which in a typical asset acquisition include all post-closing obligations under the assigned contracts but may also include specifically enumerated pre-closing liabilities that the parties negotiate as part of the overall deal economics. The assumed liabilities definition must be precise because courts construe assumed liability provisions against the assuming party when the language is ambiguous, meaning an assignee who believed it assumed only post-closing performance obligations may find itself responsible for pre-closing warranty claims, product liability exposure, or environmental obligations if the assumed liabilities definition was drafted broadly enough to capture those categories.
Excluded liabilities define what the assignor retains and the assignee does not accept, and this definition protects the assignee against the predecessor's legacy exposure that would otherwise travel with the acquired business through the doctrine of successor liability. A buyer in an asset acquisition that fails to clearly exclude pre-closing product liability claims, pre-closing employee benefit obligations, pre-closing tax liabilities, and pre-closing environmental remediation costs from the assumed liabilities definition may face claims from injured parties, employees, and regulators who argue that the acquisition transferred those obligations as a matter of law regardless of the contract's terms. An attorney who handles business acquisition transactions and assignment agreement structuring matters can define the assumed and excluded liabilities with the precision that prevents post-closing disputes about what each party actually agreed to take.
How Third-Party Consent Requirements Create Closing Conditions in Transactions
When key contracts require counterparty consent to assignment, obtaining those consents becomes a condition to closing that creates timeline risk, negotiating leverage for the counterparty, and potential deal-breaking exposure if the consent cannot be obtained on terms acceptable to the buyer.
A counterparty asked for consent to a contract assignment has significant leverage because the consent is required but entirely discretionary: the counterparty can grant consent, refuse consent, or grant consent only on conditions that alter the commercial terms of the underlying contract, require price increases, demand additional security deposits, or extract other accommodations that the buyer did not price into the acquisition. This leverage increases when the assigned contract is valuable to the acquired business and when there are few or no substitute suppliers or customers that the buyer could turn to if the counterparty refuses consent.
The practical approach to consent risk in acquisition transactions is to conduct the contract review early enough to identify consent-required contracts before the letter of intent is signed, to classify those contracts by their commercial importance and the likelihood of the counterparty granting consent, and to structure the deal accordingly, either by including consent receipt as a condition to closing, by adjusting the purchase price to reflect the risk that key contracts cannot be transferred, or by planning for an alternative supply or customer relationship if a specific consent cannot be obtained. An attorney who handles commercial lease agreements and assignment consent negotiations matters can develop the consent request strategy and prepare the counterparty outreach approach that maximizes consent likelihood.
Government contracts present the most restrictive assignment framework in commercial transactions because the Federal Acquisition Regulation requires the government's written consent to any assignment, and that consent is typically conditioned on a formal novation agreement in which the government acknowledges the successor as the party of record. FAR 42.1204 requires the contractor and the successor to submit a novation agreement supported by a legal instrument of transfer, evidence of the corporate transaction, and documentation confirming the successor's assumption of all obligations, with the contracting agency having discretion to approve or refuse the novation regardless of the private parties' agreement. A buyer that acquires a business with significant government contract revenue must build the government novation process into its integration timeline rather than assuming the assignments will be recognized upon closing.
3. When Assignment and Assumption Agreements Are Required and How They Function Across Transaction Types
Assignment and assumption agreements appear in every transaction type that involves a change in the contracting party on one side of an existing agreement, including asset acquisitions, commercial lease transfers, business sales structured as asset deals, financing arrangements, and IP license transfers.
In asset acquisitions, assignment and assumption agreements are the primary mechanism by which the buyer steps into the seller's position in the seller's customer contracts, vendor agreements, technology licenses, and employment arrangements. The asset purchase agreement typically lists the assigned contracts as a schedule and incorporates by reference the form of assignment and assumption agreement that will be executed at closing for each assigned contract. Some contracts are assumed by operation of the asset purchase agreement itself, while others require a separate bilateral agreement between the assignee and the counterparty to be effective.
Commercial lease assignments are among the most common contexts for assignment and assumption agreements outside of M&A transactions, arising whenever a tenant transfers its lease to a successor business, subleasee, or acquisition buyer. The commercial lease's assignment provisions typically require landlord consent, specify the conditions under which consent will be granted or withheld, and may maintain the original tenant's liability as a co-obligor on the lease even after the assignment is completed. An attorney who handles business transfer and commercial lease assignment matters can negotiate the landlord's consent conditions, obtain the required release from ongoing liability, and structure the assignment agreement to reflect the negotiated terms.
How IP and License Assignments Must Satisfy Additional Formality Requirements
Intellectual property assignments and IP license assignments must satisfy statutory formality requirements in addition to the general contract rules, and failure to satisfy those requirements renders the assignment ineffective regardless of the parties' intent.
Copyright assignments must be in writing and signed by the transferring party under 17 U.S.C. § 204(a), with no exceptions for oral assignments regardless of how clearly the parties' intent to transfer ownership is established through other evidence. An assignment of copyright ownership through a verbal agreement, a handshake, or an email that does not constitute a signed writing is ineffective as a matter of federal statutory law, and the purported assignee has no copyright ownership regardless of what the parties believed or what consideration changed hands.
Trademark assignments under 15 U.S.C. § 1060 must be in writing and must include the goodwill of the business with which the mark is used, because assignment of a trademark without its associated goodwill constitutes an assignment in gross that is invalid under U.S. .rademark law and can result in cancellation of the assigned trademark registration. An attorney who handles trademark assignments and IP transfer documentation matters can draft the assignment instrument that satisfies each statute's requirements and includes the goodwill language that makes the trademark assignment valid rather than vulnerable to challenge.
4. Frequently Asked Questions about Assignment and Assumption Agreements
Assignment and assumption agreement questions arrive from buyers in asset acquisitions who discovered at due diligence that key customer contracts contain anti-assignment provisions, from commercial tenants whose business was acquired and whose landlord has not been approached for consent, and from businesses that signed assignment agreements believing they were released from the underlying contract and then received claims from the counterparty years later. Those situations generate the following questions.
What Is an Assignment and Assumption Agreement and When Is One Required?
An assignment and assumption agreement is a contract through which one party, the assignor, transfers its rights under an existing contract to another party, the assignee, and the assignee agrees to perform the obligations associated with those rights. It is required in any transaction where a party to an existing contract changes, including asset acquisitions where the buyer steps into the seller's contracts, commercial lease transfers where the tenant's business is sold or transferred, technology license transfers in M&A transactions, and loan assignments in financing arrangements. Whether the transfer is effective without the counterparty's consent depends on the underlying contract's anti-assignment clause.
What Is the Difference between Assignment and Novation?
An assignment transfers contractual rights and obligations from one party to another but does not release the assignor from its ongoing liability to the counterparty unless the counterparty separately agrees to release the assignor. Novation replaces the original party with a new one with the counterparty's consent and releases the original party from all future liability. Novation requires the counterparty's affirmative agreement to discharge the assignor and accept the assignee as the sole obligated party, making it a negotiated result rather than an automatic consequence of the assignment. Many assignors mistakenly believe that executing an assignment and assumption agreement eliminates their exposure to the counterparty, which is only true if the counterparty agrees to novation.
What Are Anti-Assignment Clauses and How Do They Affect a Transaction?
Anti-assignment clauses prohibit one or both parties from transferring their contractual position without the other party's prior written consent, and contracts that contain these provisions cannot be effectively assigned without obtaining that consent regardless of the parties' internal agreement to transfer. Violations of anti-assignment clauses typically render the purported assignment void or voidable at the counterparty's election. Change of control provisions in anti-assignment clauses extend the restriction to stock acquisitions where the legal entity does not change but its ownership does, creating consent requirements even in transactions structured as stock deals. An attorney who handles corporate transactions and assignment due diligence matters can identify anti-assignment and change of control provisions in target contracts and assess the consent risk before the transaction closes.
What Is the Difference between Assumed and Excluded Liabilities in an Assignment and Assumption Agreement?
Assumed liabilities are the obligations the assignee agrees to perform after the effective date of the assignment, which typically include all post-closing performance obligations under the assigned contracts. Excluded liabilities are the obligations the assignor retains and the assignee does not accept, including pre-closing breaches, product liability claims arising from pre-closing sales, pre-closing employee benefit obligations, and pre-closing tax liabilities. The distinction is entirely a matter of contract drafting: courts will enforce the parties' definitions of assumed and excluded liabilities as written, with ambiguous language construed against the assuming party. A buyer who fails to clearly exclude specific pre-closing liability categories may find those liabilities have been assumed by implication.
Do Copyright Assignments Need to Be in Writing?
Yes, federal copyright law at 17 U.S.C. § 204(a) requires that any transfer of copyright ownership, including exclusive licenses, be in a written instrument signed by the owner of the rights being conveyed. There are no exceptions for oral agreements, industry custom, or prior course of dealing. An oral agreement to assign copyright, a handshake, or conduct that clearly demonstrates the parties' intent to transfer ownership is not sufficient to create a valid copyright transfer under federal law. The only exception is for non-exclusive licenses, which do not require a writing. An attorney who handles commercial contracts and IP assignment matters can ensure that copyright, trademark, and patent assignment documents satisfy the applicable statutory formality requirements.
How Does an Assignment and Assumption Agreement Function in a Commercial Lease Transfer?
In a commercial lease transfer, the assignment and assumption agreement identifies the specific lease being assigned, names the assignor tenant and the assignee who is stepping into the tenant position, specifies the effective date of the transfer, includes the assignee's assumption of all lease obligations from the effective date, and may or may not include the assignor's release from ongoing liability depending on whether the landlord agrees to release the original tenant. Most commercial leases require the landlord's prior written consent to any assignment, and the landlord's consent form typically includes the landlord's acknowledgment of the assignment, any conditions on consent, and the landlord's position on whether the original tenant remains liable after the assignment. An attorney who handles commercial lease agreements and lease assignment transactions matters can negotiate the landlord consent and structure the assignment to achieve the parties' intended allocation of ongoing lease liability.
01 Jun, 2026
