Assignment
and Assumption
Agreements

SUMMARY

An assignment and assumption agreement is a binding agreement pursuant to which certain assets (like contracts and other purchased assets) are assigned from one party to another party.

In mergers and acquisitions, assignment and assumption agreements typically appear in asset transactions to efficiently prevent disclosure of deal terms to third parties.

PRACTICAL SOLUTION TO THIRD-PARTY REQUESTS

In asset transactions, the main transaction agreement will assign all in-scope contracts, like those with landlords, customers, suppliers, and vendors, to the buy-side legal entity that will house the target business after closing. 

The closing deliverables in asset transactions typically includes an assignment and assumption agreement, which does exactly the same thing. 

The duplication exists for practical, not legal, reasons.

An assignment and assumption agreement is usually short (e.g., two pages) and contains no material deal terms. The main transaction agreement is significantly longer and includes the most confidential aspects of a deal.

After closing, it is common for third parties to ask for evidence that the transaction closed or the assignment and assumption of their contracts took place. When a request like this is made, a short assignment and assumption agreement can be provided in lieu of the main transaction agreement.

REDACTIONS LEAD TO QUESTIONS

To preserve confidentiality the main transaction agreement could be turned over in heavily redacted form, but the redaction process itself would take significantly longer than having counsel prepare the standard assignment and assumption agreement—and likely lead to more questions from the third parties requesting proof of transfer.