Assignment Checklist

This Checklist sets out a suggested list of matters to consider when reviewing the assignability of a construction contract such as a building contract, consultant appointment or collateral warranty. It also considers the steps to be followed to complete an assignment of the benefit of a construction contract from one party to another.

  1. Does the construction contract contain assignment provisions?Most construction contracts contain an express provision relating to the assignment rights of the parties.If the contract is silent in relation to assignment, assignment of the contract by either party is permitted without restriction.Sometimes, the contract may expressly prohibit assignment of the contract by one or both parties. Typically the employer will not be absolutely prohibited from assigning, but there may be a limit on the number of times that the contract may be assigned without obtaining the consent of the other party.
  2. Are there any restrictions on the right to assign?It is common in construction contracts for there to be some restriction(s) on the rights of the parties to assign their interest under the contract. Common restrictions include:
    1. No assignment permitted without the consent of the other contracting party/parties (typically the contractor/consultant/sub-contractor will be prohibited from assigning without permissions
    2. restriction on the number of times that a contract can be assigned, two assignments are standard in the market—a potential assignee should therefore ascertain if there have been any previous assignments and, if so, how many
    3. restrictions relating to who the contract can be assigned to/the nature of the assignment—sometimes a distinction is made between assignments by way of security to a funder and other types of assignment
    4. restriction on when the contract can be assigned eg after practical completion
  3. Is permission required prior to assignment?It is common for a building contract/consultant appointment to require the contractor/consultant to obtain the employer’s prior permission in writing before assigning the benefit of the contract to a third party. The employer can usually assign (either freely or a specified number of times) without the contractor’s permission.
  4. Is assignment the most appropriate means of transferring the contract in the circumstances?Only the benefit of a contract can be transferred by assignment. If the parties also want the burden of the contract to be transferred (ie the obligations of the party), then novation is the more appropriate mechanism for transferring the contract.
  5. Consider what is required for a valid, legal assignment before drafting any assignment agreement and notices
    1. ◦it must be absolute and unconditional and not purport to be by way of charge only
    2. ◦it must be made in writing and be signed by the assignor
    3. ◦it must be expressly notified to the other original contracting party
  6. What documents are required to effect the assignment?It is common for the assignor and assignee to enter into a deed of assignment, setting out the agreement (often pursuant to another contract eg a sale and purchase agreement) for the assignor’s rights to be assigned to the assignee. It will record that the assignment is taking place, what exactly is being assigned and to whom. A deed of assignment is customary practice but not required for the assignment to be valid.
  7. What form must the notice of assignment take?There is no prescribed form that the notice of assignment must take. However, it must be in writing and must be clear. It must be more than a statement of intention to assign. Commonly it will state that the assignor has assigned all its rights in the specified document(s) to the assignee. The document(s) concerned are usually listed in a schedule.
  8. When must notice of the assignment be given?There is no specific time limit for the giving of notice of an assignment, but it must be given as soon as possible because the assignment will not take effect until the other original contracting party receives the notice and the assignee will not be able to enforce the contract against the other original contracting party until notice is given.Notice must be given in accordance with the notice provisions of the underlying contract: check where it must be sent, to whom and the valid means of service.
  9. What happens if an assignment doesn’t satisfy the requirements of the LPA 1925 s236 ? If an assignment fails to satisfy the requirements of section 136 of the Law of Property Act 1925 it will not be a legal assignment but may still be enforceable as an equitable assignment.

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