The Assignability of Contracts
November 4, 2020
Jaburg | Wilk Attorneys at Law
There are many situations, both in real estate transactions and in non-real estate transactions, when a party to a contract wishes to transfer, or assign, its contractual rights to somebody else. Assignments are commonplace in commercial leases, when a tenant wishes to sell its business and assign its rights as a tenant to its buyer. Or, on the other side, when a landlord sells its property and assigns its rights as landlord to its buyer. They are also commonplace in sales contracts, when the sale has not yet closed, and a purchaser wishes to assign its contractual rights to purchase real property to another entity or person, which may or may not be related to the purchaser.
All of these assignment scenarios raise a couple of important questions. One is whether the consent of the other party to the contract is required in order to be able to assign one’s contractual rights. The general rule is that the rights and duties of a party to a contract are freely assignable, unless the right to assign is expressly prohibited by the contract. If then, a commercial lease is silent as to whether or not the tenant can assign its lease, it may be assigned by the tenant without the consent of the landlord. On the other hand, a provision restricting the right of the tenant to assign unless the landlord consents, which is oftentimes (although not necessarily) accompanied by language specifying that the landlord’s consent “shall not be unreasonably withheld,” is enforceable. Likewise, unless a sales contract specifically prohibits or restricts the right of the purchaser to assign its contract, then the purchaser may freely assign it. This is true regardless of whether the words “or assignee” or “or nominee” are used in naming the purchaser in the contract. While those terms are oftentimes included in the contract to put the seller on notice from the outset of the intention of the purchaser to likely assign its rights, their absence does not preclude a purchaser assignment, so long as the contract does not specifically prohibit it.
Another question is whether an assignment must be in writing, or whether it can be oral. The answer is that an oral assignment is enforceable, so long as it does not run afoul of the statute of frauds requirement that a contract that cannot be performed within one year must be in writing. And even if the statute of frauds does apply, an oral assignment may still be valid if the parties to the assignment have “partly performed” in reliance on the existence of there being an enforceable assignment.
Lastly, in that an assignment of a contract is itself a contract, it is subject to the same requirement as exists for all contracts; namely, that there be valid consideration to support the assignment. Such consideration can be in the form of a return promise. So long as something of value is going both from the assignor (assigning party) to the assignee, then the assignment will be deemed to be valid.