Three different mechanisms
There are three ways a contractual relationship can move to someone else, and they work on entirely different principles. Assignment transfers the benefit of a contract (the right to receive performance) but not the burden (the obligation to perform). Novation is a three-party agreement that extinguishes the original contract and replaces it with a new one between different parties, transferring both rights and obligations. A change of control transfers nothing at the contract level at all - the contracting entity stays the same legal person, but its ownership changes when its shares are sold.
Conflating these, or addressing one and ignoring the others, creates exposure that standard templates routinely miss. The supporting articles take each in turn, plus the regulatory approvals and the M&A and technology contexts where they bite hardest.
The change-of-control gap
The most common and most dangerous gap is the change of control one. Where a company's shares are sold, the contracting entity is unchanged - so an anti-assignment clause is not triggered, no novation occurs, and yet the economic ownership and strategic direction may have shifted entirely. Without an express change of control clause, a competitor could acquire your counterparty outright with no contractual consequence whatsoever.
That is why private-equity buyers so often structure deals as share purchases: a share deal slips past anti-assignment clauses that an asset deal would trigger. If you care who ultimately owns and controls your counterparty, you need a separate change of control clause - the assignment clause will not do it.
Anti-assignment clauses are narrower than they look
Even for assignment proper, the standard clause does less than drafters expect. Recent Court of Appeal decisions have shown that a prohibition on assignment by a party may not catch a transfer by operation of law; that a party can side-step the clause by declaring a trust over its contractual rights; and that a clause not mentioning novation may not prevent novation by conduct. On top of that, a statute now makes anti-assignment clauses largely ineffective for receivables (payment rights) in most business contracts.
So an anti-assignment clause is a starting point, not a complete defence. To control transfers you generally need several provisions working together.
Novation destroys the original contract
Novation is the most powerful and the most dangerous of the three, because it extinguishes the original contract. The biggest trap is its default effect on accrued rights: because the old contract is gone, accrued claims for pre-novation breaches are released unless they are expressly preserved. Guarantees and security over the old contract can fall away too, and need re-papering.
And novation can happen by conduct, without anyone signing a novation agreement - and a no-oral-modification clause will not necessarily prevent it. So novation needs deliberate handling, with express savings for accrued rights.
Contract protection is not enough on its own
Finally, the contractual provisions interact with mandatory regulatory regimes - national-security screening, financial-services change-of-control approval, and merger control - that can override or run alongside the contract. A transfer the contract permits may still need regulatory clearance; a prohibition enforceable in London may be overridden in another jurisdiction's insolvency.
So the practical task is twofold: draft the contractual provisions as a coordinated set (assignment, anti-assignment, change of control, subcontracting, and - where relevant - novation savings), and map every material contract for these triggers during due diligence. Each supporting article covers one part of that task.
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Practical checklist
- Treat assignment, novation, and change of control as three distinct mechanisms with different effects.
- Add a separate change of control clause - an anti-assignment clause does not stop a share sale.
- Do not rely on an anti-assignment clause alone - it may miss trusts, transfers by operation of law, and novation by conduct.
- For novation, expressly preserve accrued rights and re-paper guarantees and security.
- Add a separate subcontracting restriction - assignment clauses do not prevent delegation of performance.
- Map every material contract for assignment and change-of-control triggers in due diligence, and check regulatory approvals.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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