What Is an Assignment and Assumption Agreement?

An assignment and assumption agreement is a contract by which one party (the assignor) transfers its rights, obligations, and interests under an existing contract to another party (the assignee), and the assignee agrees to assume those obligations going forward. In the context of a business sale, assignment and assumption agreements are used to transfer the contracts and commercial leases of the selling business to the buyer at closing.

Russo Law LLC drafts and negotiates assignment and assumption agreements for businesses and business owners throughout New York and New Jersey, including in the context of business acquisitions and commercial lease transfers.

When Is an Assignment and Assumption Agreement Used?

In a business sale structured as an asset purchase, the buyer does not step into the seller’s shoes automatically. Each contract and lease must be formally transferred. Common situations include:

Business acquisitions – when a buyer purchases the assets of a business, existing contracts must be assigned from the seller to the buyer
Commercial lease transfers – when a tenant sells its business, the commercial lease for the business premises typically needs to be assigned to the buyer, with the landlord’s consent
Joint venture and partnership restructurings – when contractual obligations are transferred among business partners
Corporate restructurings – when contracts are transferred from one affiliate or subsidiary to another

What Does an Assignment and Assumption Agreement Include?

Identification of the assigned contract – the specific contract or contracts being transferred
Assignment of rights – the assignor’s transfer of all its rights under the contract to the assignee
Assumption of obligations – the assignee’s agreement to perform all obligations from the effective date forward
Effective date – when the assignment takes effect
Consent of counterparty – if the underlying contract requires the other party’s consent, that consent must be obtained
Indemnification – allocation of responsibility for obligations arising before vs. after the assignment date

Does a Contract Need to Be Assignable?

Many commercial contracts contain anti-assignment clauses that restrict or prohibit assignment without the other party’s consent. Before transferring a contract, it is essential to review the underlying agreement to determine whether consent is required. Identifying contracts that require third-party consent to assign is a critical part of the due diligence process in any business acquisition. Failure to obtain required consents can result in the counterparty having the right to terminate the contract.

Frequently Asked Questions – Assignment and Assumption Agreements in New York and New Jersey

Are there fees associated with assigning a commercial lease in a business sale?

Most commercial leases include provisions allowing the landlord to charge a fee in connection with reviewing and approving a lease assignment. These fees are intended to cover the landlord’s legal costs for reviewing the assignment documentation and evaluating the new tenant’s financial qualifications. Whether the buyer or seller pays the landlord’s assignment fee is a negotiated point typically addressed in the asset purchase agreement.

Is the assignor released from liability after the assignment?

Not automatically. Under New York and New Jersey law, an assignor may remain liable under the assigned contract unless the counterparty expressly releases the assignor from its obligations. In the context of a commercial lease assignment in a business sale, the agreement should be carefully reviewed to determine what continuing obligations the seller retains under the lease after assignment – including whether any personal guaranty of the lease obligations will continue. If the buyer has also signed a personal guaranty of the lease, the seller’s exposure may be affected, but that determination requires a careful review of the specific lease and guaranty documents.

Schedule a Free Consultation

If you need an assignment and assumption agreement drafted or reviewed for your business in New York or New Jersey, call 929-262-1101 or schedule a free consultation with Russo Law LLC.

The information on this page is general in nature and does not constitute legal advice. Every situation involves unique facts, and no specific strategy or recommendation can be made without a full review of your circumstances.