Notice to third party of assignment of debt or contracts

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What’s a notice to third party of assignment of debt or contracts and when do you need it?

You’ll need this document where the benefit/burden of an existing debt or a contract between two parties is assigned by one of those parties to a new, third party and that third party is you.

The notice informs the remaining original party to the contract or the original debtee, that this assignment to you has taken place.

It can only be used where the assigning party already has the legal right to assign its rights in the debt or the contract to someone else. If it does not have that right, it will have to seek consent and potentially novate the arrangements instead.

It is particularly relevant where a business is transferring or converting into something else. So, you’ll probably need it, for example, where a sole trader converts to a limited company or a partnership to a limited liability partnership.

‘Novation’ involves a three-party agreement, in which it is agreed that a third party will take up the rights and obligations of one of the original parties to that contract. In other words, you’re altering the original agreement to have one party replaced by another, new party and the contract carries on as if nothing has happened. So, the terms of the agreement don’t change and the rights and responsibilities go unaffected, except that they are taken on by another party.

The result is to release the replaced original contracting party from any enduring contractual relationship with its former counterparty.