Topics in construction law: Assignment
Welcome to the next in our occasional series concentrating on topics in construction law.
Recently we wrote about novation. This week we will talk about the basics of transferring interests in documents.
During the life and use of a building project, the original construction contract and professional appointments will often need to be transferred to another party.
This transfer of an interest between parties is known as “assignment”. Often this takes the form of the benefit of the construction contract being transferred to a new party such as a subsequent purchaser of the completed development.
An assignment may be legal or equitable. The person taking the benefit of the document i.e. the “assignee” would generally prefer a legal assignment as this is more certain. A legal assignment must be in writing, absolute and on notice.
An assignment may only transfer a benefit of a construction document. This contrasts with a novation (which also transfers a contract) which can transfer both the “benefit” (or the right to receive the services) and the “burden” (typically the obligation to make payment).
To avoid confusion, the right to make such transfers should be dealt with expressly in the document, either by prohibiting it absolutely or only allowing it subject to certain conditions or qualifications, depending upon the parties’ position. It is also common for the different parties to be under different obligations. For example, an architect’s appointment may provide that the developer can only do so with the architect’s consent (such consent not to be unreasonably withheld or delayed) and the consultant cannot do so at all.
Developers must watch out as most standard forms of building contract and professional appointment are too restrictive for normal commercial practices. Most developers will need to be able to assign the benefit of the construction document and therefore the standard form must be amended. Ideally, this should be freely assignable but a possible compromise would be to allow it to be assigned to a funder, company in the same group or a buyer of the completed development.
The assignment would be effected by a deed of assignment which is a contract that assigns the benefit of a document from one party to another.
Our next article on this topic will consider the more difficult issues such as what happens if parties try to transfer rights or interests that they cannot assign and whether a “black hole” has been created by the rule that the party receiving the benefit of the document may not recover more than the original party could?