What Is an Assignment and Assumption Agreement?

An assignment and assumption agreement is a single contract that moves one party’s entire position in an existing contract to a new party. The outgoing party transfers their rights, meaning what they were entitled to receive, and the incoming party formally agrees to take on the obligations, meaning what the contract required them to do. These agreements show up when a tenant hands off a commercial lease, when a buyer takes over a seller’s contracts in an acquisition, when a borrower assumes an existing mortgage, and when intellectual property changes hands.

What the Two Halves Actually Do

The name describes two separate legal moves bundled into one document. The assignment transfers rights. The assumption transfers duties. Under the Uniform Commercial Code, when someone assigns “the contract” or “all my rights under the contract,” that language is treated as both an assignment of rights and a delegation of the duties, and the new party’s acceptance counts as a promise to perform those duties.¹

Why bother separating the two concepts? Because at common law you can generally transfer your rights without anyone’s permission, but you cannot transfer your obligations the same way. The other side of the contract has a legitimate interest in who is actually doing the work. Packaging both transfers into one document makes clear that the incoming party is taking the full position, not just cherry-picking the beneficial half.

The Three Parties

An assignment and assumption agreement typically involves three parties, even if only two of them are swapping places:

The assignor is the original contracting party stepping out. They give up their rights and hand off their duties.
The assignee is the new party stepping in. They receive the rights and agree to perform the duties going forward.
The counterparty (sometimes called the obligor) is the other original party to the contract, the one who is staying put. Their consent is often required.

The counterparty is where deals most often stall. If the original contract restricts transfers, the counterparty holds effective veto power. Even without a restrictive clause, the UCC gives the counterparty the right to demand assurances from the assignee when performance is being delegated, treating the delegation itself as reasonable grounds to want some comfort that the new party will deliver.¹

The Assignor Usually Stays on the Hook

This is the point most people miss, and it has real financial consequences. Signing an assignment and assumption agreement does not automatically release the assignor from liability. Under the UCC, no delegation of performance relieves the delegating party of any duty to perform or any liability for breach.¹ If the assignee stops paying or fails to perform, the counterparty can still come after the original party.

To fully release the assignor, you need a novation. A novation extinguishes the original contract and replaces it with a new one between the assignee and the counterparty. It requires all three parties to agree that the original party is released. Without that explicit three-way release, the assignor remains a backstop. A business owner selling a company, or a tenant walking away from a lease, should understand that an ordinary assignment leaves them exposed if the new party defaults.

When a Contract Can’t Be Assigned

Not every contract is transferable. The general rule is that rights are assignable unless the transfer would materially change the counterparty’s duty, significantly increase their burden or risk, or substantially impair their ability to get what they bargained for.¹ A few categories regularly fail that test.

Personal services contracts are the clearest example. When the identity of the person performing is what gives the contract its value, like a specific architect hired for their design vision, the duties cannot be delegated to someone else. Contracts containing anti-assignment clauses are another category: an attempted transfer in violation of such a clause is typically treated as a breach and can be declared void. And certain rights are blocked from assignment by statute, including some government contracts and regulated licenses.

One drafting nuance under the UCC is worth knowing. A clause prohibiting assignment of “the contract” is generally read as barring only the delegation of duties, not the assignment of rights, unless the language says otherwise.¹ Imprecise wording in the original contract often becomes the fight.

Anti-Assignment and Change-of-Control Clauses

Anti-assignment clauses are common in commercial contracts, and discovering one late can wreck a deal. They protect the counterparty by making sure the counterparty doesn’t end up doing business with someone they never chose. The restrictions come in different strengths. Some flatly prohibit any transfer. Some allow assignment with consent. Some permit transfer only under specific conditions, such as a merger or a sale of substantially all assets.

Clauses that allow assignment “with consent” often add that consent cannot be unreasonably withheld. Even then, the process takes time and gives the counterparty leverage. If a vendor refuses consent during an acquisition, the buyer may need to renegotiate the price or walk.

Change-of-control provisions are the related concept to watch. When a company is sold through a stock or equity purchase rather than an asset sale, the contracts technically stay with the same legal entity, and the general rule is that a change in ownership isn’t an assignment. But contracts are often drafted to treat a change of control as if it were an assignment, which triggers the same consent requirements. Due diligence on an acquisition should review every significant contract for both clauses.

What Belongs in the Agreement

A workable assignment and assumption agreement needs to cover:

Full legal names and roles of the assignor, assignee, and counterparty.
Enough detail about the underlying contract to identify exactly what’s being transferred, including date, original parties, and subject matter.
Explicit language that the assignor transfers the rights and the assignee accepts and agrees to perform the obligations.
The effective date of the transfer.
Consideration, even if nominal.
The counterparty’s consent, if the original contract requires it.
Representations from each side, such as the assignor confirming the contract is in good standing and the assignee confirming authority to sign.
Governing law for the assignment agreement itself.

The element missing from many of these agreements is a release of the assignor. If a clean break is the goal, the document needs novation language or a separate three-way release. Without one, the paperwork looks complete but leaves the original party quietly liable.

Notice to the Counterparty

A valid assignment doesn’t do the assignee much good if the counterparty doesn’t know about it. Under UCC Article 9, which governs assignments of accounts and payment rights, the counterparty can keep paying the original party until they receive proper notice. That notice has to identify the rights assigned and direct payment to the assignee.²

Notice can come from either the assignor or the assignee, but the assignee should be ready to prove the assignment is legitimate if asked. If the assignee can’t produce reasonable proof on request, the counterparty is free to go back to paying the assignor.² Send written notice promptly, and keep the signed agreement ready to produce.

Where These Agreements Show Up

Commercial Leases

Transferring a commercial lease is one of the most common uses. The outgoing tenant assigns the right to occupy the space, and the incoming tenant takes on rent and other lease obligations going forward.³ Most commercial leases require landlord consent, and landlords routinely use the consent process to evaluate the new tenant’s finances or push for updated terms.

Business Acquisitions

In an asset purchase, the buyer typically needs to take over dozens or hundreds of existing contracts with vendors, customers, and employees. Assignment and assumption agreements move these contracts in bulk without renegotiating each one. Contracts with anti-assignment clauses still need individual consents, which is why large deals dedicate significant legal effort to the consent process at closing.

Loan Assumptions

In real estate, a buyer sometimes assumes the seller’s existing mortgage instead of taking out a new loan. The lender’s consent is required, and a formal assumption agreement binds the new borrower to the original loan documents as if they had been the original maker of the note.⁴ Lenders will underwrite the new borrower, and assumption fees are standard.

Intellectual Property

Assignment and assumption agreements also move patents, copyrights, trademarks, and other IP. The assignor conveys their entire interest and the assignee picks up any associated obligations, such as maintenance fees or licensing commitments.⁵ For patents, federal law provides that an assignment is void against a later good-faith purchaser unless it is recorded with the U.S. Patent and Trademark Office within three months of execution.⁶ Recording isn’t mandatory, but skipping it opens a window where someone else could claim priority over the same rights.

1
Legal Information Institute (Cornell Law School). UCC 2-210 Delegation of Performance; Assignment of Rights
2
Legal Information Institute (Cornell Law School). UCC 9-406 Discharge of Account Debtor; Notification of Assignment
3
Securities and Exchange Commission. Assignment and Assumption of Lease
4
Freddie Mac. Loan Assumption and Modification Agreement
5
U.S. Securities and Exchange Commission. Assignment of Intellectual Property – Gabriel Technologies Corporation
6
Office of the Law Revision Counsel. 35 U.S. Code 261 – Ownership; Assignment