What is an Assignment and Delegation Clause? How does it work?

An assignment and delegation provision is the clause that specifies a party’s ability to assign its rights or delegate its duties under a contract. It is a provision that is often placed in the “miscellaneous” or “general” sections of  contracts, but it should not be thought of as standard “boilerplate” language that never changes. Often times, it will be tailored and altered than in its standard form in order to give one party an advantage over the other.  Most people will skim or not review this provision, and accept the clause as it is written without really understanding what it can mean for them in the future. Contracting parties should carefully consider the potential situations where an assignment would be desired or required, and should carefully draft the clause to address issues of transferability. Here are some key issues in an assignment provision for contracts. Note that, technically, a party assigns its rights and delegates its duties, but this brief overview generally refers to assignments.

  • Yes or no to assignment. The first step is fairly straightforward. Does a party want to allow assignment or prohibit it? Most jurisdictions permit the free transferability of contracts if the contract is silent on assignment, so if there is a desire to restrict assignment, an anti-assignment clause must be included to preclude an assignment unless consent is granted in writing.

  • Assignment of entire contract vs. individual rights and obligations. Consider whether the goal is to restrict or allow the assignment of the entire contract or individual rights or obligations. If the clause generally prohibits assignment of the agreement, courts commonly read that language to restrict only the delegation of performance, while permitting a party to assign its rights under the contract. To restrict such assignment of individual rights, it is important to include language such as “neither this Agreement, nor any rights or obligations hereunder, shall be assignable or otherwise transferable.”

  • Specify when assignment is permitted and what rights and duties may be assigned. Generally, if specific assignment rights are to be granted, such as perhaps in the event of a merger/acquisition, or define a situation of fundamental corporate change. The provision would specify the situations where assignment is permitted and what rights and duties may be assigned. It is important to consider such situations and to specify a party’s ability to transfer its rights or duties to a divested entity or through an M&A transaction or other change of control. Frequently, issues related to competition and intellectual property will need to be considered, and these exceptions to an anti-assignment provision can be nuanced and require specific language to achieve the desired results.

  • Notice and consent. If assignment is permitted, make sure the assigning party needs to obtain the non-assigning party’s consent in writing to the assignment. If consent is required, be sure one party doesn’t have complete discretion to withhold consent; thus, ask that consent must not be unreasonably withheld or delayed.

  • Impermissible transfers. Another key issue to address is what happens when there is an assignment in violation of an anti-assignment clause. Courts generally find the non-assignment party can claim breach, but cannot prevent the actual assignment because courts don’t fore parties to perform what they cannot do. Remedies provisions will provide support to the non-assigning party. To avoid this scenario, add language to the effect: “Any attempted assignment in violation of the provisions of this Section shall be null and void.”

Notwithstanding any of the foregoing, this read only highlights the importance of not assuming the assignment provision in an agreement is standard language. This read is highlighting to be cautious and assume such a provision needs review. Each of the issues discussed should be carefully considered and any one should consider consulting an attorney for this provision to be drafted to address this and other issues.