Assignment of Contract: Legal Guide & Practical Steps

Updated 12 Mar 2026Content was accurate at the time of publication

An assignment of contract (also called an assignment of rights or transfer of contractual rights) can unlock value in your business — selling receivables, transferring payment rights after a business sale, or managing risk via a debt transfer. Assignments are legally nuanced: they transfer rights, not obligations; can be restricted by anti-assignment clauses; and can create priority issues if not registered correctly. This guide explains what an assignment is, how it operates under contract law, when to use assignment versus novation, practical steps to effect a valid assignment, common pitfalls, and ready-to-use sample wording and checklists to help you act with confidence.

What is an assignment?

An assignment is the transfer of one party's rights under a contract to a third party (the assignee). It does not, by itself, transfer the original party's obligations.

If you are owed money under a contract, you can assign the right to receive that money to someone else. The assignee steps into the assignor's position to receive performance (for example, payment), but the original contracting parties remain bound by their obligations.

Example: Company A sells goods to Company B on credit. A assigns its right to receive payment from B to Investor C. B still owes the money under the original contract, but once properly notified B will pay C.

How does assignment work under contract law?

Assignment operates through a mix of statutory rules and common law principles. Key points:

Transfer of rights only: An assignment transfers rights (for example, the right to be paid) but not obligations (for example, to supply goods). The obligor (the counterparty) can rely on the same defences and set-offs against the assignee that it had against the assignor.

Privity of contract: The contract remains between the original parties. The assignee gains the benefit but generally cannot be sued on the contract for the assignor's pre-existing obligations.

Legal vs equitable assignment:

Legal assignment usually requires written form and notice; it allows the assignee to sue in its own name.
Equitable assignment arises where intent is clear but formalities are lacking; enforcement may rely on equitable remedies.

Defences and set-offs: Counterclaims, set-offs and other defences survive assignment.

Notice: Practical enforceability typically requires the obligor to be notified. Until notice, the obligor can perform to the assignor in good faith and discharge the obligation.

When can you assign a contract?

Default position: Most commercial rights are assignable unless the contract or law says otherwise.

Common limits:

Anti-assignment clauses: If the contract prohibits assignment, an attempted assignment may be ineffective or a breach. Check whether the clause forbids assignment outright or only without consent.
Consent clauses: Many contracts allow assignment with counterparty consent; if the clause is mandatory, obtain consent in writing.
Personal services and confidential obligations: Contracts involving personal performance, confidentiality, fiduciary duties, or personal licences are often non-assignable.
Regulated contracts: Financial, consumer and licensed service contracts may be restricted by regulation — check ASIC guidance where financial services or licensing issues arise: https://asic.gov.au/
Insolvency and equitable considerations: If the assignor is insolvent, statutory rules and equitable considerations can affect the assignment.

Consider PPSR treatment and ATO tax implications when reviewing assignability. Check https://www.ppsr.gov.au for PPSR guidance and ATO guidance on tax and GST: https://www.ato.gov.au/

Assignment vs novation — which do you use?

Compare the two:

Assignment

Transfers rights only.
Does not automatically transfer obligations.
May not require obligor consent to be valid (unless contract requires it), but notice is usually necessary to change payment instructions.
Common for sale of receivables, invoice factoring and financing arrangements.

Novation

Replaces one party with another, transferring both rights and obligations.
Requires the consent of all original parties; creates a new contract and extinguishes the old one.
Used where the incoming party must assume liabilities and ongoing obligations.

Practical use cases:

Debt sale or invoice factoring typically uses assignment. See Invoice discounting for more, along with product options such as invoice finance at https://emumoney.com.au/business/invoice-finance.
Replacing a service provider where liabilities must transfer requires novation. See Novation.
Transferring leases or hire agreements may need novation if obligations are to change.

Formalities and practical steps to effect an assignment

Step-by-step checklist to effect a robust assignment:

Review the contract: Search for anti-assignment, consent, or notice clauses. Check for confidentiality, personal services or licensing restrictions.

Confirm assignability: If prohibited, determine whether consent can be sought or whether novation is required.

Prepare documentation: Use a written assignment agreement or a deed of assignment for stronger protection. Include clear identification of the rights assigned, effective date, consideration, warranties and any indemnities.

Obtain consents (if needed): Where contract requires consent, obtain it in writing; negotiate reasonable conditions if consent is unreasonably withheld.

Notify the obligor (notice of assignment): Provide clear notice with effective wording and a contact for future payments. Suggested wording appears below.

Register security interests (if applicable): If the assignment functions as security or affects priority, register on PPSR at https://www.ppsr.gov.au.

Execute and retain records: Ensure correct execution formalities (deed vs agreement), witness signatures where required, and retain originals.

Update internal systems: Change invoicing, debtor ledgers, and credit control details.

Practical tip: Use a deed of assignment where you want to avoid consideration issues and strengthen enforceability. For receivables-backed lending or asset transfers, consider asset finance options: https://emumoney.com.au/business/asset-finance.

Registration, priority and secured interests

When an assignment relates to security or affects competing claims, consider the Personal Property Securities Register (PPSR):

PPSR registration protects priority where the assignment creates or transfers a security interest in receivables or contractual rights. If you acquire receivables as part of financing (for example, factoring), failure to register can leave you unsecured and subordinated to later secured creditors.

Courts and the PPSA (Personal Property Securities Act 2009) focus on substance over label — determine whether the transaction is a true sale or a security interest in substance. If treated as a security interest, lodge a financing statement on the PPSR promptly.

Official PPSR guidance: https://www.ppsr.gov.au/. For the statute: https://www.legislation.gov.au/Details/C2009A00037.

See https://www.ppsr.gov.au for step-by-step guidance.

Common legal risks and pitfalls

Watch for these traps before you assign:

Surviving defences: Set-offs, counterclaims and other defences survive assignment and can reduce recoverability.
Anti-assignment clauses: Assigning in breach of an absolute prohibition may be void and expose you to damages.
Double assignment: Assigning the same right to multiple parties without clear priority or registration can lead to litigation.
Inadvertent novation: Poor drafting that appears to transfer obligations or seeks counterparty promises may inadvertently effect a novation and change liabilities.
Personal data and privacy: Assignments involving personal information can trigger privacy law obligations — check relevant privacy principles.
Tax (GST/ATO): The sale of receivables or assignment of contract rights may have GST and income tax consequences. See ATO guidance: https://www.ato.gov.au/. Treat the transaction as a supply for GST if appropriate.
Stamp duty: State and territory stamp duty rules may apply to assignments or deeds — check the relevant revenue office guidance.
Consumer and regulated contracts: These may require regulator notification or licence considerations. See ASIC: https://asic.gov.au/.

Practical tip: Include a warranty in the assignment that the assignor has not previously assigned the right and that no prior notices affect transferability.

Typical assignment clauses and signing examples

Sample simple assignment clause (to insert in a commercial contract):

"Assignment. The assignor may assign any of its rights under this agreement, in whole or in part, provided that the assignor gives the obligor not less than 10 business days' prior written notice of the assignment. Any attempt to assign contrary to this clause shall be void."

Short deed of assignment checklist:

Heading identifying the document as a Deed of Assignment
Parties: full legal names and ACNs/ABNs
Recitals: identify original contract and rights being assigned
Operative clause: unequivocal assignment of specified rights
Consideration: state amount or recital of consideration if needed
Warranties: assignor has title; no prior assignments; authority to assign
Indemnity: limited indemnity for breaches
Execution block: signatures, witnesses, dates; state whether executed as deed
Notice provision: address for notices and recommended effective wording

Suggested notice of assignment wording (email or letter):

"Notice of Assignment: Please be advised that [Assignor] has assigned all of its right, title and interest in respect of invoices dated [dates] under the contract with you dated [contract date] to [Assignee]. From [effective date], payment should be made to [bank details]. For queries, contact [Assignee contact]."

When you should use a novation instead of an assignment

Use novation where:

You need to transfer both rights and obligations to a new party.
The underlying contract contains non-assignable obligations that must be performed by the incoming party.
Regulatory or licensing approval is required for the new party to perform obligations.
Counterparty consent is commercially required and negotiable.

Common scenarios:

Outsourcing a supplier where the new provider must assume warranties and indemnities.
Corporate takeover where performance under long-term service contracts must transfer.
Certain derivatives or ISDA arrangements where novation provisions are standard.

See Novation for more detail.

Practical checklist for businesses (quick reference)

Review original contract for anti-assignment/consent/notice clauses

Decide whether assignment or novation is appropriate

Draft assignment agreement or deed; include clear scope of rights

Obtain required consents and regulator clearances (if needed)

Provide clear notice of assignment to obligor(s)

Retain executed originals and update accounting/AR systems

Check tax/GST and stamp duty implications with a tax adviser

FAQ

Can I assign without consent?

It depends on the contract. If there's an absolute prohibition, assignment may breach the contract. If the clause only requires consent, obtain it if mandatory. In many commercial contracts, consent cannot be unreasonably withheld, but this varies.

Do I need a deed?

A deed strengthens enforceability, can avoid consideration issues for a legal assignment, and is common for high-value or complex transfers. For straightforward receivable sales a written agreement may suffice.

Does assignment transfer warranties or indemnities?

Generally, warranties and indemnities personal to the assignor do not automatically transfer. Include explicit language in the assignment or use novation if warranties must run to the assignee.

What happens to counterclaims or set-offs?

They survive and can be asserted against the assignee. Consider whether the assignor must obtain releases or account for known counterclaims.

Can the same right be assigned twice?

Multiple assignments are possible; priority disputes can arise. Registering security interests or obtaining contractual priority protections reduces risk.

Is assignment taxable?

Tax and GST consequences depend on the nature of the transfer. Consult the ATO for specifics: https://www.ato.gov.au/.

Key takeaways

An assignment transfers contractual rights to a third party without automatically transferring obligations, making it useful for selling receivables and managing debt. Before assigning, check for anti-assignment clauses, obtain necessary consents, provide proper notice to the obligor, and register on the PPSR if the assignment involves security interests. Understand the difference between assignment and novation, as novation is required when obligations must transfer to the new party. For complex, high-value or multi-jurisdictional transfers, consult legal counsel.