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What Should Realtors Know about Assignable Contracts?

Posted by Editor on July 23, 2019
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Question: My seller just received a contract offer from a buyer who used a Florida Realtors/Florida Bar “AS IS” Residential Contract for Sale and Purchase, and they noticed that the buyer’s offer included a provision in Section 7, Assignability, that would permit the buyer to assign the contract.

What are the ramifications if my seller accepts this assignable contract?

Answer: The main thing that changes in an assignable contract is that the person or entity that signed the contract (Buyer 1) may not be the same person or entity that will close on the property (Buyer 2). An assignment is simply a way for a party to a contract to hand legal rights and obligations off to someone else.

How does an assignment happen? This is usually done by having the assignor and assignee sign a legal document called an assignment. In this case, the assignor would be Buyer 1, whose name is on the contract. The assignee would be Buyer 2, who accepts the assignment and steps into the shoes of Buyer 1. Once the assignment is fully executed, Buyer 1 gives the contractual rights and obligations to Buyer 2, who receives and assumes those rights and obligations.

Florida Realtors does not offer an assignment-of-sales contract form, so one of the buyers would be responsible to draft, or hire a lawyer to draft, the assignment.

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Why might a buyer want to negotiate an assignable contract? One reason is simply that Buyer 1 plans to form a corporation, LLC or trust to take title at closing. In this scenario, Buyer 1 usually just needs a little time after the property is under contract to get the legal paperwork in order. This type of assignable contract tends to be on the lower risk side of the spectrum, although it’s always up to seller what terms they’re willing to accept.

Other buyers may want an assignable contract because they hope to assign their interest in the contract to a different buyer they have not yet identified. This assignment of contractual interest is sometimes called a flip, and it may be a situation where Buyer 1 hopes to collect money from Buyer 2 to execute the assignment. Unlike the last scenario, a seller has no idea what the personality and business practices of the unknown Buyer 2 will be, so the seller should be prepared for a new person to enter the transaction.

If the parties decide to make the contract assignable, Section 7 of the contract provides two options:

  • The first option provides that Buyer 1 “may assign and thereby be released from any further liability under this Contract.” This clause is more favorable for Buyer 1, since it contains a type of release, which is a way for Buyer 1 to eliminate some of their liability through the release language.
  • The second option provides that Buyer 1 “may assign but not be released from liability under this Contract.” This option is more favorable for the seller, and Buyer 1 should be more cautious about vetting Buyer 2 when using this clause.

Please note that this is a very general overview of this topic, so if buyers or sellers want a thorough analysis of risks and benefits of making a contract assignable, they should consult a lawyer. The lawyer may suggest additional tools, like a carefully tailored assignment clause that provides more protection for a party than is available in the very brief options in the form contract.

 Joel Maxson is Associate General Counsel

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