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Businesses will use contracts in various business transactions. For example, you can use contracts when selling items to customers or dealing with suppliers. Their popularity stems from their legal enforceability in court. This means that either party will have to provide compensation if they cause any loss by not upholding their contractual obligations. Sometimes, businesses are bound to a contract that is no longer necessary. In this case, a business may want to terminate or transfer the contract. One way of transferring a contract is an assignment. This article will explain when you can assign a contract and what that means in New Zealand. 

What Is an Assignment?

An assignment is a way that you can transfer a contract to another party. It is commonplace to transfer a contract if either a party does not need a contract or is detrimental to their business. The assignment involves a process by which you transfer the rights under a contract to another party. This means that you can only transfer the benefits you receive. For example, you can transfer any payment you receive under a contract. However, you cannot transfer any obligations you owe under an assignment.

Do I Need the Permission of My Contracting Parties?

Your contract will specify how you can transfer your contract and whether you can assign it. If there is no clause in your contract that disbars assignment, you can assign your contract without the permission of the contracting party. However, if there is a clause that states you need the consent of all parties to the contract, you must follow this. Otherwise, the court could find you to be in breach of contract.

What Is the Effect of an Assignment?

The effect of an assignment is that you will transfer your rights under a contract to a new party. However, you will not transfer your obligations. This means you will still be ultimately responsible for the performance of those obligations. For example, if you are asked to supply a certain amount of goods under your current contract, you must continue to do this. 

If you do not uphold your obligations, then you could be sued for a breach of contract. This could lead to the court ordering that you pay damages for any loss incurred. 

When Can You Undertake an Assignment?

Transferring a Supply Contract

If you are not supplying a particular good, your contracting party may want to use a different supplier. In this case, you will be able to assign your contract to a supplier who supplies that particular good. 

Transferring a Brand Trademark

If you are transferring a logo to another party, then you would undertake a deed of assignment. All parties must sign the deed of assignment to the contract. 

Transferring a Lease

If you are looking to move property, you might assign your lease agreement to another tenant. However, you must make sure that you do this with your landlord’s permission and your tenant fulfils all the obligations that your landlord has asked you to uphold. 

Is There an Alternative?

The main alternative to assignment is novation. Novation is a process by which another party entirely replaces a contracting party. This means you transfer all the rights and obligations under the contract to someone new. The party that transfers the contract is now entirely removed from the contract and void of any responsibility. The main advantage of a novation is that essentially a new contract has been formed between the original contracting party and the new party. However, novation requires the permission of all the contracting parties, so it can be hard to go down this route.

Key Takeaways

One of the main ways that business transactions are conducted is through contracts. They enable trust to be established between parties and enable remedies if either party mistreats the other. Sometimes, businesses or individuals will want to transfer their contracts to another party using an assignment. An assignment allows any benefit you receive from a contract to be transferred to a third party. However, the underlying issue with an assignment is that you are still responsible for upholding any obligations under the contract. However, an assignment can be conducted without the permission of all the contracting parties, so it is a standard method that is used. There is an alternative to assignment called novation. However, all the contracting parties must permit a novation to occur. 

If you need any legal assistance with assignment, LegalVision’s experienced contract lawyers can help. Call us today on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I undertake an assignment at any time?

Unless your contract says otherwise, you can assign a contract at any time.

What happens if I assign an obligation?

If you assign an obligation, you could be in breach of contract and liable for damages.

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