1. How Contract Transfers Work in Business Acquisitions
In any mergers and acquisitions transaction, the parties must determine which contracts transfer and how. Assignment transfers a party's contractual rights to the buyer. Assumption shifts the corresponding obligations. Both typically occur through a single written agreement signed at or before closing.
Asset Deals Vs. Stock Deals: Why Structure Matters
The transaction structure determines how contracts transfer and what consent is required.
| Deal Structure | Transfer Method | Consent Typically Required |
| Asset Purchase | Each contract assigned individually | Yes, in most cases |
| Stock Purchase | Contracts remain with the existing entity | Depends on change of control clauses |
| Statutory Merger | Contracts survive by operation of law | May trigger change of control provisions |
In an asset purchase transaction, every material contract must be reviewed and assigned in writing, and the buyer must obtain the counterparty's consent unless the agreement permits assignment by its terms. In a stock purchase, the legal entity generally remains unchanged, so contracts often continue without a formal assignment; however, change of control provisions may still require notice or consent.” Even so, change of control provisions may still require counterparty notice or approval, which means every material contract should be reviewed regardless of deal structure.
2. Reviewing Contracts before Closing
Legal due diligence before closing requires a thorough review of every material agreement for transfer restrictions. Four clause types come up most often:
- Anti-assignment clauses prohibit transfer without prior written consent
- Change of control provisions treat ownership changes as triggering events requiring notice or approval
- Prohibited transfer language voids or terminates the agreement upon unauthorized assignment
- Consent carve-outs allow assignment to affiliates or subsidiaries without third-party approval
Under New York common law, courts enforce anti-assignment clauses as written. An assignment that violates a clear contractual prohibition may give the counterparty grounds to claim breach, withhold performance, or seek termination, depending on the contract language and applicable law. This rule applies even where both the assignor and the assignee acted in good faith.
For each material contract, confirm: whether assignment requires consent, whether a change of control constitutes a deemed assignment, whether the agreement terminates automatically upon transfer, and whether any consent comes with conditions or fees.
3. Obtaining Third-Party Consent
Where consent is required, the process should begin early. Counterparties may withhold consent, demand renegotiated terms, or charge approval fees. Waiting until the final stretch before closing leaves no room to manage these demands.
A practical approach includes identifying consent-required agreements in the first round of diligence, prioritizing customer contracts, key vendor agreements, and real property leases, drafting consent letters that expressly release the assignor from post-closing liability, and tying closing conditions to receipt of all material consents.
An unauthorized assignment does not always void a contract on the spot, but the exposure is real. Under New York contract law, the counterparty may terminate the agreement, withhold performance, or pursue damages. In regulated industries, transfers without proper authorization can also trigger state licensing enforcement actions.
4. Drafting the Assignment and Assumption Agreement
The agreement itself is where deals succeed or fall apart on contract transfer. Under New York law, a well-drafted assignment and assumption agreement should do the following: identify each contract being transferred by name and effective date, include the assignee's express written assumption of all post-closing obligations, confirm the absence of existing defaults at the time of transfer, and consider designating New York as governing law, if appropriate for the transaction.
On indemnification: the assignor should cover liabilities arising before the closing date, and the assignee should cover obligations accruing after. Without a defined cutoff, both parties face exposure for overlapping claims. Disputes about which party bears a given liability become difficult to resolve without that line in the agreement.
5. Licensing, Regulatory Filings, and Post-Closing Compliance
Certain industries in New York impose approval or notification requirements before contracts can transfer. Transactions involving healthcare provider agreements may implicate New York Public Health Law and related regulatory requirements, depending on the specific arrangement and licensed activity. Entities regulated under New York Banking Law or New York Insurance Law may need Superintendent approval before certain agreements transfer. Commercial lease assignments in New York typically require landlord consent under the lease terms, and in some cases under applicable New York real property rules.
Licenses and permits rarely transfer automatically. They often require separate applications, new registrations, or notices to state agencies. Post-merger integration planning should account for these filings from the start of the deal timeline, well before closing.
6. Common Mistakes That Expose Buyers to Liability
Most contract transfer problems are avoidable with earlier attention. The issues that come up most often are:
- Taking on agreements with undisclosed defaults or ongoing disputes
- Missing change of control clauses, which can trigger consent requirements even in stock deals
- Relying on oral agreements rather than signed written assignments
- Starting the consent process too late to address counterparty demands before closing
- Assuming licenses and permits carry over without checking state filing requirements
7. Frequently Asked Questions
Does a stock purchase eliminate the need to assign contracts?
In most cases, yes. Because the legal entity remains unchanged, existing contracts continue without formal assignment. Change of control provisions may still require counterparty notice or consent, so every material contract should still be reviewed before closing.
What happens if a contract is transferred without required consent?
The counterparty may terminate the agreement, withhold performance, or pursue a breach of contract claim. New York courts enforce anti-assignment clauses as written, so unauthorized transfers carry legal risk for both the assignor and the assignee.
Can a contract be assigned if the agreement is silent on assignment?
New York law generally permits assignment when the contract does not prohibit it. Courts may restrict the transfer, however, where the contract involves personal services or where assignment would materially change what the counterparty is required to provide.
What is the difference between assumption and novation in New York?
An assignment with assumption transfers obligations to the buyer, but the original party may remain liable unless the counterparty agrees to a release or novation. Novation fully substitutes the new party for the original and discharges the assignor from all further obligations. Novation requires the counterparty's affirmative agreement and is a higher standard to reach than assumption alone.
19 Feb, 2026
