Assignment of a contract

The concept of assignment applies to many types of contracts ranging from business contracts to property contracts and to personal legal issues such as life insurance policies also. Assignment is simply the legal term for transferring legal rights in a contract, but it is crucial to understand from the outset that it relates to rights

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The concept of assignment applies to many types of contracts ranging from business contracts to property contracts and to personal legal issues such as life insurance policies also.

Assignment is simply the legal term for transferring legal rights in a contract, but it is crucial to understand from the outset that it relates to rights only and not responsibilities. The concept of transferring the burden of a contract is known as novation, whereas assignment relates to the transfer of the benefit of a contract.

Selling on a contract

An additional fundamental point to understand is that, under English law, there is an in principle right to assign a contract. If you are entering into a contract and don’t want to deal with anyone other than the other party you originally contract with, either for reasons of trust or business reasons, it is necessary to have a clause in your contract prohibiting or limiting the other party’s right to assign their interest in it. A good example of this is a commercial property lease. It would be very dangerous for a landlord not to restrict assignment of a lease, since the tenant could then assign to a new tenant who is completely unsuitable and not as financially sound as the original tenant.

Assignment of debt

As stated above, assignment can relate to any contractual rights, but a common use of an assignment is with debts, since the new creditor (assignor) takes the benefit of the monies owed but there will be no burden since the money has already been advanced. Sometimes, debts are assigned in huge portfolios and this can include mortgages also.

Notice of Assignment

There are formalities with assignments, and the party who will need to thereafter deal with the assignee is entitled to receive notice of the assignment. With commercial leases. most if not all leases will require the Landlord to grant formal licence to assign and there will also be an assignment deed generally needed which will include direct new covenants from the new lessee to comply with the lease.

The reason this is needed is because, as explained above, assignment deals with only the benefit being transferred and not the burden, so clearly, a landlord will want the new tenant to be liable.

Assigning the benefit of a life policy

Assignments are also common for life policies. The reason for this of course is that for tax or time saving reasons, a person with a life policy may want to transfer the benefit of the policy directly to a named individual during their lifetime, since, after all, the person who has the policy can’t benefit from it if it only pays out on death, and it would otherwise form an asset in the estate and would need to wait for probate and be taken into account for the possible purpose of inheritance tax.

 If you need advice on selling or buying an existing contract,the formalities involved such as drafting a deed or notice of assignment, or generally, get in touch with Debbie Serota 

commercial law • Uncategorized

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