An assignment clause is the provision in a contract that governs whether either party’s rights and obligations under it can be transferred to someone else — and in an asset purchase, it decides which of a target’s customer, supplier and lease agreements a buyer can actually rely on after closing without going back to the counterparty first.
The underlying reason is structural, not bureaucratic: as treadstonelaw puts it, “a contract is a bundle of rights and obligations between specific parties” — it does not move with an asset the way title to equipment does. Whether a given contract needs consent “depends on that specific contract’s wording,” and the categories that most often carry a restriction are ongoing service or subscription agreements, supply-and-purchase agreements with recurring customers, contracts with minimum-volume, exclusivity or long-term commitments, and government or institutional contracts. Skip the check and the consequence is concrete: “the customer could treat the change as a breach, the seller could remain contractually exposed, and the buyer may not actually have enforceable rights under the agreement.”
This is specifically an asset-deal problem. A share purchase does not trigger an ordinary assignment clause at all, because the contracting corporation is unchanged — the same legal entity that signed the agreement still holds it after the shares change hands. That is exactly why well-drafted contracts add a separate change of control clause to catch the share-sale case an assignment clause cannot reach. A diligence team reviewing a target’s material contracts has to check both provisions, not just one, and the answer for the same contract can differ depending on which structure the deal ultimately takes.
A buyer is underwriting an asset purchase of a distribution business whose largest customer contract — worth $2.1M of the target’s $9M revenue — runs for three more years and contains a standard non-assignment clause requiring the customer’s written consent. Nothing in the letter of intent depends on that consent existing yet, but the purchase agreement is drafted with the acquisition of that contract as a closing condition, not a post-closing formality, because losing a fifth of revenue to an unconsented assignment is not a risk a fund can underwrite around. Counsel opens the consent conversation with the customer in parallel with signing, not after.
See also: Change of control clause · Landlord consent to assignment · Asset purchase agreement.
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