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Keys to Drafting an Assumption Agreement

Aug 29, 2008
An Assumption Agreement is a legal contract effectuating an agreement between two parties, whereby one party (Assignee) agrees to assume the responsibilities, interests, rights, and obligations of another party (Assignor) in respect to a separate agreement made between the Assignor and a third party.

It is common for the Assumption Agreement to be made for the Assumption of a Lease or Assumption of a Mortgage, but can be for the assumption of all rights and obligations under any other type of contract. In this regard, it is very similar to an Assignment Agreement.

In the recitals section it is important for the drafter to refer explicitly to the underlying agreement, and to recite that the Assignor is assigning to assignee various rights and obligations under this Agreement. The drafter should make explicit what those rights and obligations consist of, such as an obligation to indemnify, or to make certain payments under a lease or mortgage agreement.

Following the recitals sections, there are several key provisions that must be included in any binding Assumption Agreement.

1. Warranties and Representations. Both parties must promise that the above recitals are true, complete, and correct. The Assignor must also warrant and represent that there is no default under the underlying agreement, that all material aspects of the underlying agreement have been disclosed, and that there is no counterclaims or judgments against Assignor in respect to the agreement.

2. Consent of Assignment. If applicable, this provision should state that the third-party company consents to the Assumption, and should list any terms and conditions this consent is dependent on. This provision is necessary if the underlying agreement itself includes a consent provision.

3. Release of Liability. It is very important for the Agreement to state whether or not under this Assumption Agreement the Assignor is relieved of all liability if the Assignee fails to perform all obligations under the underlying agreement. Sometimes this release will be conditioned upon the approval of the third-party company, other times it will not. Sometimes it will be impossible for the Assignor to be released from all liability. This is an area the agreement must clearly address.

4. Governing Law. This provision should state the appropriate governing jurisdiction over the agreement, i.e. which state's laws will apply. This provision may also state whether or not a certain court has subject matter jurisdiction or whether the appropriate state court has exclusive jurisdiction. In this provision, it may be agreed that one party will not attempt to remove an action to federal court.

5. Indemnification. Here the assignor and assignee may be forced, as a condition to the Assumption, to jointly and severally agree to indemnify, defend, and hold harmless the third-party company from any liability or expense arising from any default in their obligation under either the Assumption or underlying Agreements.

6. Successor and Assigns. This provision should state that the Agreement will be binding on both parties' respective successors and permitted assigns. These are the most critical aspects of an Assumption Agreement.

Essentially, one party is agreeing to assume the rights, title, interests and obligations of another party in respect to an agreement with a third-party. These provisions must be clearly drafted to avoid confusion, and of course, the Agreement must be duly executed and dated by all parties: the Assignee, the Assignor, and the third-party.
About the Author
Mark Warner is an Assumption Agreement Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents online drafted by the top law firms in the US that you can download, edit and print. Search For Free at Http://www.realdealdocs.com.
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