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Home » Commercial Property Law » As a commercial landlord, what say do I have over who my tenant sells their business to?

As a commercial landlord, what say do I have over who my tenant sells their business to?

23 May, 2012 | Wade Hansen

If you are the landlord of a commercial property, and your tenant is selling their business, you may want to know what say you have as to who the new tenant might be.  The transfer to a third party of the tenant’s rights to use the property is known as assignment.

The rights of landlords and tenants mainly depend on two things:

• the terms of any written lease signed by the parties and;
• part 4 of the Property Law Act 2007 (“PLA 2007”).

If you do not have a written lease, pursuant to section 210 of the PLA 2007, the tenant has no right to assign.  Further, if you do not have a written lease, either party may terminate the tenancy at will, giving only 20 working days notice. This is why we strongly recommend you have a lawyer draft a written lease to give you security.  A written lease locks the tenant in for an agreed period of time and gives the tenants the security of tenure for the term or period of the lease.

If you have an existing written lease, then a close examination of the wording surrounding any rights to assign the lease should be undertaken.  A lot of leases are based on the standard form Auckland District Law Society (“ADLS”) lease, which includes as a standard term the tenant’s right to assign the lease, subject to obtaining the landlord’s written consent to the assignment. However, the landlord shall give that consent if the following conditions are fulfilled:

a) the tenant proves to the satisfaction of the landlord that the assignee is respectable, responsible and has the financial resources to meet the commitments under the lease;

In order to satisfy this condition, it is reasonably standard practice that the landlord requests the following types of information from the proposed assignee:

• previous business experience relating to the business they will be conducting from the premises;
• details of their previous landlord(s) for the purpose of reference checks;

a list of assets and liabilities of the proposed assignee and/or any proposed guarantor of the assignee (see d) below).

b) all rent and other moneys owing under the lease have been paid and there is not any subsisting breach of any of the tenant’s covenants. An example of a subsisting breach may be if the tenant has made alterations to the premises without obtaining the landlord’s consent.  Then the landlord can require that the tenant reinstate the premises to the original state before the assignment will be consented to.

c) a deed of covenant in customary form is executed and delivered to the landlord; There is a standard ADLS deed of assignment (deed of assignment and deed of covenant can be used interchangeably) that is often used, which ties the assignee into the terms of the existing lease and more importantly, records that the current tenants is still liable under the deed of lease, should the assignee default.

d) if the assignment is to a company, then a guarantee from the principal shareholders of the company be executed and delivered to the landlord;

A guarantee is necessary if the proposed assignee is a company because if the company goes into receivership or is put into liquidation, then you want to secure another avenue whereby you can recoup any outstanding rental payments. Be mindful to ask for a list of assets of the guarantors in their personal names. If all of the guarantor’s assets are held in a family trust, you would be better to obtain a guarantee from the trust itself. Again, in the standard ADLS deed of assignment, the guarantors are a party to the document and if they sign this, they do not need to sign a separate guarantee document.

e) the tenant pays the landlords reasonable legal costs in respect of the proposed assignee.

The tenant is required to pay the landlord’s reasonable legal costs irrespective of whether or not the assignment proceeds.If your lease follows the standard form ADLS lease, you do have some say as to who takes on the assignment of the lease, but clause 45.1(k) states that you cannot unreasonably withhold your consent. If a reasonable landlord would be satisfied with the information the proposed assignee has provided, then you must grant consent.

How much control you have over who the new tenant is depends on the exact wording of your lease.  In rare cases, your lease may include the right for the tenant to assign the lease to someone else, but might not stipulate what conditions have to be met first.  The wording of leases does vary, and it is important that you understand exactly what rights your particular lease provides to you as the landlord.

Remember, even if as landlord you agree to the assignment of the lease, this does not always mean that the original tenant’s obligations under the lease are immediately terminated. You may still be able to fall back on original tenant and/or the original guarantor if assignee defaults. As always, it is determined by the wording of the lease and any other documents signed at the time of assignment.

If you have are in this situation we recommend that you consult your lawyer to understand exactly what your rights and obligations are under your current lease.  If you do not have a written lease in place with your current tenant, we strongly recommend that you instruct a lawyer to draft a lease recording the current terms of the lease immediately.

For assistance with a tenant assigning their lease or any commercial property matters, contact expert commercial property lawyer Wade Hansen  on  09 837 6885  or at  [email protected]

Is your tenant looking to assign their lease.

Ensure your investment is protecting through this transition – contact expert Commercial Property Lawyer, Wade Hansen today to set up an appointment.

+64 9 837 6885

About the author

Born and bred in the West, Wade has a keen interest in developing the community and assisting businesses grow to their full potential. His experience in Property & Commercial Law, along with his common sense and level headed business knowledge Read More »

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Should you nominate, assign or novate an Agreement for Sale and Purchase of Real Estate?

February 13, 2012

in Property

1.    Liability to the vendor 2.    Enforcing the vendor’s contractual warranties and undertakings 3.    GST implications

1.            Does the purchaser named in the contract (contractual purchaser) remain liable to the vendor                if the nominee / assignee / novatee (ultimate purchaser) fails to complete settlement?

It is important to note that in the case of assignment and/or nomination the contractual purchaser named in the Agreement for Sale and Purchaser of Real Estate will remain liable to the vendor in the event that the nominee / assignee does not complete settlement.

Only a novation will release the contractual purchaser from liability. This is because the vendor must be a party to and sign the Deed of Novation which includes a specific provision for the contractual purchaser to be released from all obligations under the original contract. In effect a new contract is created between the vendor and the novatee. The difficulty with a novation is obtaining the agreement and signature of the vendor.

2.            Can the assignee / nominee / novatee (ultimate purchaser) sue the vendor for breach of the                 vendor’s warranties and undertakings contained in the contract?

A novatee can sue the vendor for breach of the vendor’s contractual warranties and undertakings because a novation creates a direct contractual relationship between the vendor and novatee.

A recent decision of the Supreme Court in Laidlaw v Parsonage [2009] NZSC 98 confirms that where an Agreement for Sale and Purchase of Real Estate records a named purchaser “and/or nominee”, the nominee though not a party to the Agreement is sufficiently designated by description in terms of section 4 of the Contracts (Privity) Act 1982 so that the nominee is entitled to sue the vendor for breach of contractual warranties and promises.

Previously, a formal assignment together with notice of the assignment being given to the vendor was the safest way (short of a novation) to ensure that the ultimate purchaser had rights to enforce the contractual warranties and promises against the vendor  

3.            What are the GST implications?

The Taxation (GST and Remedial Matters) Act 2010 has clarified the GST treatment of land transactions in the case of nominations (where a contractual purchaser has nominated another person or entity (the nominee) to receive the land from the vendor. All such supplies made from 1 April 2011 will be treated as one supply from the vendor to the nominee. The new rules do not apply to assignments or novations.

An assignment and, prior to 1 April 2011, a nomination (except bare nomination) could give rise to a second transaction (two supplies) for GST purposes. This could result in unanticipated liability for GST.

A bare nomination is where the contractual purchaser settles the transaction in full but the title is transferred to the nominee. A bare nomination creates only one supply for GST purposes between the vendor and the contractual purchaser. This is because there is no financial transaction between the nominee and the vendor.

A novation creates only one supply for GST purposes between the vendor and the novatee as the original contract is effectively cancelled and a new contract substituted. However, if a novation is entered into after the time of supply is triggered under the original contract eg: payment received (such as the deposit) or invoice issued (such as the settlement statement) then the GST position of the vendor and purchaser under the original contract must be reversed under section 25 of the GST Act and by satisfying credit note requirements.

It is very important to consider the different GST implications of assignment / nomination / novation before proceeding. It is strongly recommended that the GST treatment of the transaction is specifically addressed in Deeds of Nomination / Assignment / Novation so that the position is clear between the parties.  

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Fahra Manning [email protected] 09 379 0055

The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

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What is the Difference Between Assignment and Novation?

Assignment of contracts is a fairly common practice in the business world.  

In an assignment, the person assigning the contract - the "Assignor" - assigns the benefits of the contract the Assignor holds to a new person (the "Assignee") who takes the benefit of that contract "the Assignee". Some contracts may expressly prohibit assignment and some contracts provide that a contract may not be assigned without the consent of the other party. If a contract has no provision relating to assignment, then the general rule is that it may be assigned, with a few exceptions. 1

Usually, a contractual party will want to ensure that if a contract is assigned, then the Assignee has sufficient skill and financial backing to continue to perform the contract and, if this is the case, it is important to make sure an assignment provision in a contract takes account of that so consent can be withheld if an Assignee does not fulfil those criteria.

Critically, in an assignment, the general law states that the Assignee takes the benefit but not the burden of the contract.  

This means that if the Assignee does not perform the contract, the Assignor remains liable. This can sometimes leave the other contractual party with a remedy if the Assignee is insolvent and does not perform. 2  However, as noted earlier, the best way of dealing with an assignment request is to complete due diligence on the Assignee, since it may be that if you later need to make a demand on the Assignor (particularly if they are a company), the Assignor may no longer be able to meet that demand under the assigned contract if the Asignee fails to perform it. For example, a company selling its business to an Assignee may liquidate following the sale (after paying all creditors at that time and returning a final dividend to shareholders), which makes it very difficult to make any later claim against it if the Assignee does not perform the contract.

An assignment is fundamentally different from a novation. In a novation, a new contract is entered into between the new party (the "Novatee") and the other continuing contracting party/parties and the original party (the "Novator") is released from all of their obligations (usually from the date the novation takes effect). For this reason, a novation poses a greater risk to the continuing contract party or parties than an assignment since they have no recourse against the Novator if the Novatee fails to perform the contract. If someone makes a request to you for novation, you should treat the request very seriously. You should consider obtaining consideration for the consent or some form of guarantee and will need to complete very rigorous due diligence on the new party to make sure they can perform the contract. You should also check when you enter into a new contract with anyone that the contract does not allow the other party to novate the contract, particularly without your consent and a rigorous agreed process in place for that consent to allow you to assure yourself the party that takes novation can perform the contract.

Assignment and novation can be a tricky area of law. As always, if you have an issue with assignment or novation or encounter an unusual clause in a new contract concerning assignment or novation, you should take legal advice – we are happy to help!

For any enquiries contact:

Andrew Knight on (09) 306 6730 ( [email protected] )

See our Expertise pages

‍ Contract Law

____________________________

1    Exceptions include "personal" contracts where the particular skill, identity or characteristics of a party are fundamental to the contract. Bare rights of litigation are also not assignable.

2     Note that Section 241 of the Property Law Act 2007 has special provisions in respect of leases that make assignors liable for payment of rent and obligation under the lease, but not for increased obligations the assignee and landlord might agree to on a variation of lease unless the lease provided for that variation.

© McVeagh Fleming 2020

This article is published for general information purposes only.  Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice.  If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.

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Selling a Debt: The Legalities, The Contract and the Forbidden

Many businesses struggle with bad debts. Unpaid debts can financially cripple a business, and the time and/or cost of recovering that debt may exceed the value of the debt itself. Often creditors take the risk of paying lawyers and/or debt collectors a significant amount of fees without the assurance of success.

If creditors are not paid, they face paying debt collectors and/or lawyers to collect the debt. But here is an alternative, that is to both write off the debt (and get the tax advantage of doing so) and avoid legal costs (but still get all the advantages of using lawyers).

The solution is through the sale of debt to us. At 90 Nine, when we buy a debt, we engage specialist lawyers to collect the debt and use the Court process to do so. We completely fund this process at no risk to the creditor.

While a relatively new debt enforcement process for New Zealanders, debt buying has been common in Europe and the USA for a while. Debt buying is an arrangement where a debt is purchased from the original creditor by a debt buyer for a percentage of the face value of the debt, based on the potential collectability of the debt.

From a legal perspective, sale of debt is achieved through an assignment.

The assignment of debt

The idea that a contractual right cannot be transferred is an archaic view that has been rejected by equity.

In the 17th century, the English Court of Chancery recognised and enforced the assignment of a contractual right, including the right to receive a debt.

Even though a right to receive a debt is intangible, the Courts regarded a debt as property and an asset capable of being dealt with like any other asset, including being assigned.

The English laws have consequently been adopted in New Zealand and the right to assign “a thing in action” (i.e. a contractual right) is presently recognised by Subpart 5 of the Property Law Act 2007 (“ the Act ”).

Section 48 of the Act expressly confirms that the ‘thing in action’ includes a right to receive payment of a debt.

Section 50 of the Act provides that a thing in action can be subject to an absolute assignment assuming the proper method and form of assignment is satisfied. This means that personal rights to property such as the right to receive a debt may be assigned from the original creditor to the debt buyer.

When assigning a debt, all rights and remedies of the original creditor over the debt are transferred to the assignee. It is not necessary to provide valuable consideration for the assignment meaning that debts can be bought for zero dollars. Further, it is possible to assign an amount or debt that will or may be payable in the future.

The laws of equity in relation to assignment continue operating concurrently with the statutory provisions and can be of benefit in limited circumstances where the statutory requirements of assignment have not been satisfied. However, practically, enforcing an equitable assignment might be more challenging, and for this reason, it is always advisable to assign a debt through statutory assignment under the Act.

Proper method and form of assignment

Under s 50 of the Act, for an absolute assignment of a thing in action to occur, at the minimum, the assignment needs to be in writing and signed by the assignor.

In addition to the minimum requirements, we recommend the best practice is to assign a debt through a deed, to reduce risk of future challenge to the assignment. A deed is a legal document which, in accordance with s 9 of the Act, needs to:

• Be in writing;
• Be signed by all parties;
• Have signatures witnessed in accordance with the Act (unless the party is a body corporate with no fewer than 2 directors);
• Include the locality of the place of residence and the occupation or description of the witnesses.

The deed will become binding once the above is done and when it is delivered by the person to be bound by it or their agent. This can be done through physical delivery or through fax/email.

Generally, the deed should make it clear who the parties are and what it is that is being assigned with as much certainty and clarity as possible.

Pursuant to s 51 of the Act, once a debt has been assigned, the notice of assignment needs to be provided to the debtor. That means informing the debtor, preferably in writing, that the debt is now payable to the debt buyer. If actual notice is not given to the debtor and the debtor pays the debt to the original creditor, this discharges the debtor’s liability to pay to the debt buyer. Although, the original creditor must now pay those funds to the debt buyer. In the case of joint debtors, only one needs to be given actual notice of the assignment.

Rights that cannot be assigned

Some contractual rights are incapable of assignment, whether under equity or under the Act.

A common example of such right is the right pursuant to the contract which expressly prohibits the assignment, either entirely or without the consent of all parties.

Another right that cannot be assigned is the bare right to a cause of action, which is not attached to a property interest such as a debt.

The Act addresses the assignment of rights, including right to a debt, but not the assignment of the burden of obligation. Assignment of contractual liabilities is generally not possible, unless limited exceptions apply.

About EQCover

Our natural hazards cover provides the first layer of insurance cover for your home, and limited cover for your land.

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After severe weather events we can contribute to the cost of cleaning up your land as a part of your settlement.

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We exist to reduce the impact on people and property when natural hazard events occur.

New Zealand has a history of natural hazard events that has shaped our organisation’s history, and our name.

Get to know our Minister, Board of Commissioners, and Executive Leadership team.

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As a government agency we have rules, policies, and ways of working that guide what we do. In this section you can learn more about EQC Toka Tū Ake as an organisation and the work we do.

Buying or selling a home with previous claims

When buying or selling a home that has been affected by a natural disaster, there are some extra steps that you should consider. Learn how to make informed decisions, request claim information, transfer the benefit of a claim, and complete a Deed of Assignment.

Make informed decisions when buying a home

If you’re considering buying a home that has been affected by a natural disaster it’s important to take steps to find out about the condition of the home you’re going to purchase and to identify risks and issues.

Talk to your lawyer, bank, and insurer

Seek advice from a lawyer or conveyancer to make sure you get all the information you need to make an informed decision. They will be able to help you identify and understand any risks. You should also discuss your plans to purchase the property with your bank and your insurer.

What to ask the real estate agent or seller

You can request documents from the agent or seller about the property such as the:

• record of title
• LIM report (Land information memorandum)
• property file from the Council.

Ask for any information about insurance or EQC claims for natural disaster damage to the property. These can be given to the licenced building practitioner who is undertaking your pre-purchase inspection.

This could include information such as:

• any reports they have obtained
• receipts and consenting documents for any repairs that have been done.

Asking the seller or their agent the following questions can help you understand the history of natural hazard damage to the property:

• Is there an existing EQCover claim on the property?
• Did the previous homeowner use their settlement funds to complete the agreed repairs?
• Are there any quality issues with repairs, or any missed damage still needing to be repaired?
• Is there any pre-existing damage to the property that is not related to a natural disaster?

Check the Natural Hazard Portal claims map

The Natural Hazard Portal claims map shows all settled EQCover claims on properties in New Zealand from 1977 onwards. This information is freely available. The map will show you whether a claim has been settled, and what type of claim it was.

Get a pre-purchase inspection

Hire a licensed building practitioner to do a pre-purchase property inspection. A pre-purchase inspection is broad in scope and often begins with a builder's report. A building inspection can reveal potential issues or risks, and suggest what additional investigation might be needed, such as structural or geotechnical engineering reports.

An inspection might also include reports from engineers, surveyors, electricians, plumbers and other specialists. These reports can help explain the general condition of the property and identify any other potential issues.

Pre-purchase inspection reports can also help identify potential issues such as:

• Additions or alterations to the original consented buildings, which can be compared with the Council file and LIM report to check for any unconsented/permitted works.
• A lack of building maintenance that may lead to future issues and costly repairs.
• Work that may be necessary to bring a home up to the standard required to obtain finance or insurance for the property, for example, re-wiring or re-plumbing.
• Any safety concerns, for example, unsafe works or hazardous materials.
• Historical issues, for example, settlement and subsidence, construction issues, and defects such as weathertightness.

Home buyers should ask an accredited property inspector to produce a pre-purchase building inspection, and not rely on any pre-purchase report provided by the seller.

EQC assessments

An EQC assessment is not a substitute for a pre-purchase inspection and shouldn’t be relied on when doing due diligence on a property.

The purpose of an EQC assessment is to record the damage to an insured residential building, following a natural hazard event. This assessment is then used to create a scope of works, which sets out the strategy for repairing the damage, and the costs of those repairs.

If a scope of works was used to settle an EQC claim it can be helpful to cross-check it with a building inspection check sheet.

Section notices on the record of title

You should ask for legal advice if there are any section notices on the property’s record of title. There are two main section notices that homeowners or homebuyers should be aware of.

A section 72 notice on a property’s record of title can affect claims for natural hazard damage. This notice can be placed on a property that is known to be affected by or at risk of a natural hazard. It is intended to make anyone with an interest in the property (such as potential buyers, banks, lenders and insurers) aware of the risk, as well as specifying what that hazard is.

If a claim is made for damage caused by the same type of hazard (or hazards) that is specified on the notice, EQC Toka Tū Ake have the right to fully or partly decline that claim.

These notices can also be called section 36(2) if applied under the Building Act 1991, or section 641A if applied under the Local Government Act 1974.

If a property has any one of these notices on the title you should:

• Check the LIM report or talk to the local council to find out about the nature of the specified hazard(s) and what this might mean for you as a homeowner.
• Consider the risk of damage to the property in the future, as well as how the notification may impact on your insurance cover (including EQCover).
• Talk to your insurer.

A section 28 notice on a property’s record of title indicates that EQC Toka Tū Ake have limited or cancelled EQCover. This happens in some specific situations after a claim has been cash settled, and the homeowner has not repaired or reinstated the property to our satisfaction.

Read more about section notices and how they affect EQCover

Request claim information

It’s important to know whether a home you’re buying or selling has had previous natural disaster damage, and whether this has been properly repaired. Anyone can request claim information on a property from us.

Requests for claim information on a property are considered an official information request and can take up to 20 working days. You can make a request for claim information using our online form.

Learn more about requesting information including how long it might take, and the types of information we can provide on our Request information page. 

Sellers or their agents can request claim information

Potential buyers will want to see any documents you can provide relating to any previous EQCover claims, including the damage that was assessed and the status of any repairs.

Request these documents from us before putting your home on the market so they are available for prospective buyers. Your lawyer or real estate agent can also make this request for this information on your behalf.

Buyers can request claim information

If you are considering buying a home, it’s very important to ask the seller or the real estate agent if it has had any previous natural disaster damage. You can ask for copies of the documents that relate to the damage that was assessed and the status of the repairs. This is an important part of your due diligence when purchasing a home in an area that has been impacted by natural hazards.

If the seller is unable to provide the correct documents, you can make a request for claim information from us. Your lawyer or real estate agent can also make this request for information on your behalf.

Assignment of claims

When buying or selling a property that has an EQCover claim, the claim can be transferred to the new homeowner. Once a claim is transferred, the new homeowner will have the same rights and benefits as the previous owner. The rights and benefits of the claim refers to any remaining settlement for natural disaster damage to the buildings and land that are covered by us.

This process is called an assignment of claim, and is commonly done using a document called Deed of Assignment. Other situations such as change in a relationship, or the homeowner passing away may also result in a requirement to transfer the rights of a claim.

Exactly what is assigned to the new homeowner will depend on what is outlined in the Deed of Assignment and any relevant provisions in the private insurance policy.

When a property is sold without claims being assigned to the new owner, any rights and benefits of that claim remain with the previous owner of the property. If a property is sold multiple times without assigning the claim to the new owner, the transfer of claims must start from the original owner, pass through each subsequent owner, until it is transferred to the current homeowner.

Properties with settled claims

When a property has a settled EQCover claim, the rights and benefits of the EQCover claim should be transferred to the new homeowner.

Homebuyers should find out whether repairs associated with a settled claim have been completed. Any funds already settled to a previous homeowner will remain with the previous owner, unless they are transferred to the new owner as a part of the sale and purchase contract.

If any previous homeowner failed to use their settlement funds to complete the repairs, the new homeowner won’t be entitled to any additional settlement from EQC for that damage.

A homeowner might reopen a settled claim on a property if:

• additional natural hazard damage that was missed in the original claim is discovered, 
• repairs managed by EQC Toka Tū Ake did not meet statutory replacement standards (only for Canterbury claims that had managed repair).

To re-open a previously settled claim following a property sale, the new homeowner will need to provide expert reports relevant to the claimed damage that they received after they purchased the property.

Properties with unsettled claims

When buying or selling a property with an unsettled EQCover claim, the rights and benefits of the claim should be transferred to the new homeowner.

It is important to note that just because an EQCover claim has been lodged, there is no guarantee that we will accept the claim. Sometimes issues with the claim aren’t identified until after the claim is lodged. Because of this, we strongly recommend you seek legal advice when purchasing a property with an unsettled EQCover claim.

As with all claims, there is a maximum amount that we can pay. The cost of fixing the natural disaster damage might exceed the limits of EQCover.

The seller should contact their insurer to find out what, if any, insurance entitlement the new homeowner might receive. If the private insurance claim can also be assigned to the new homeowners, they may not have the same entitlement as the original owner, or any entitlement from the private insurer at all.

The buyer should confirm there is no missed damage – and where there is, address this with the seller (using their private insurance policy coverage if relevant) before the sale. If repairs have not been completed, the buyer may be unable to get private house insurance, or EQCover for future natural disasters.

The excess is paid by the homeowner

All natural hazard insurance claims are subject to excess. This is taken out of the settlement amount that is paid to the homeowner for their claim. Any agreement in the Deed of Assignment on who will pay any excess will not change who EQC Toka Tū Ake invoices.

How to assign a claim

Both the seller and the buyer should seek advice from a lawyer about assigning claims, and talk to their insurer. Insurance companies might have different requirements for what documents are required.

The documents usually used to assign a claim are either a:

• clause in the sale and purchase agreement
• document called a Deed of Assignment (DOA).

Information required for a Deed of Assignment (DOA)

The most common document used to assign an EQCover claim to the new homeowner is a Deed of Assignment (DOA).

A DOA should include the:

• address of the property being sold
• date of the DOA
• date that the DOA takes effect
• full names of all the current owners(s) and new owner(s)
• contact details of the purchaser
• signatures of all assignors and assignees which must be witnessed
• claim numbers.

There is often more than one claim associated with a property. If all claims are being assigned, please list them all. If only certain claims are being transferred, then please only list those.

When a party is a company, the Deed of Assignment must be signed in accordance with the relevant legal requirements.

Optional clauses

It can be useful to include a clause in your Deed of Assignment requiring the seller to assist in the completion of a claim. We encourage you to discuss this with your lawyer.

Information on settled EQCover claims is not included when assigning a claim to the new owner. If the buyer wants to receive information on settled claims when they purchase the property, the seller can agree to this information being shared. A clause can be added to the DOA stating this.

Variation in names

If the name of the original claimant and the name on the insurance policy are different, the reason for this must be recorded on the DOA. For example, if the original claimants owned the property under a trust and insured the property in the name of the trust, the Deed of Assignment should record this fact to avoid confusion.

Common terms used in a DOA

Vendor – the person(s) who owns and is selling the property. Purchaser – the person(s) who is buying the property.

Assignor – The person who is transferring their rights to the claim. Usually this is just the property owner(s), but in some situations there are other people with an insurable interest in the claim who need to give their approval of the transfer. Assignee – The person who is receiving the rights of the claim.

Original claimant – the person who lodged the claim.

Where to send DOA documentation

To transfer a claim, a copy of the DOA should be sent to:

• your insurer
• Toka Tū Ake EQC by email at [email protected] or by post to EQCover Claims, PO Box 311, Wellington 6140.

Assignments: why you need to serve a notice of assignment

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

• If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
• If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
• Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips  from our Banking & Finance team.

• [email protected]
• T:  +44 (0)370 733 0605
• Download vCard for  Catherine Phillips

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When Can I Assign a Contract in New Zealand?

By Dillon Balasingham

Updated on July 26, 2021 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

What Is an Assignment?

Do i need the permission of my contracting parties, what is the effect of an assignment, when can you undertake an assignment, is there an alternative, key takeaways, frequently asked questions.

Businesses will use contracts in various business transactions. For example, you can use contracts when selling items to customers or dealing with suppliers. Their popularity stems from their legal enforceability in court. This means that either party will h ave to provide compensation if the y cause any loss b y not upholding their contractual obligations. Sometimes, businesses are bound to a contract that is no longer necessary. In this case, a business may want to terminate or transfer the contract. One way of transferring a contract is an assignment. This article will explain when you can assign a contract and what that means in New Zealand. 

An assignment is a way that you can transfer a contract to another party. It is commonplace to transfer a contract if either a party does not need a contract or is detrimental to their business. The assignment involves a process by which you transfer the rights under a contract to another party. This means that you can only transfer the benefits you receive. For example, you can transfer any payment you receive under a contract. However, you cannot transfer any obligations you owe under an assignment.

Your contract will specify how you can transfer your contract and whether you can assign it. If there is no clause in your contract that disbars assignment, you can assign your contract without the permission of the contracting party. However, if there is a clause that states you need the consent of all parties to the contract, you must follow this. Otherwise, the court could find you to be in breach of contract.

The effect of an assignment is that you will transfer your rights under a contract to a new party. However, you will not transfer your obligations. This means you will still be ultimately responsible for the performance of those obligations. For example, if you are asked to supply a certain amount of goods under your current contract, you must continue to do this. 

If you do not uphold your obligations, then you could be sued for a breach of contract. This could lead to the court ordering that you pay damages for any loss incurred. 

Transferring a Supply Contract

If you are not supplying a particular good, your contracting party may want to use a different supplier. In this case, you will be able to assign your contract to a supplier who supplies that particular good. 

Transferring a Brand Trademark

If you are transferring a logo to another party, then you would undertake a deed of assignment. All parties must sign the deed of assignment to the contract. 

Transferring a Lease

If you are looking to move property, you might assign your lease agreement to another tenant. However, you must make sure that you do this with your landlord’s permission and your tenant fulfils all the obligations that your landlord has asked you to uphold. 

The main alternative to assignment is novation. Novation is a process by which another party entirely replaces a contracting party. This means you transfer all the rights and obligations under the contract to someone new. The party that transfers the contract is now entirely removed from the contract and void of any responsibility. The main advantage of a novation is that essentially a new contract has been formed between the original contracting party and the new party. However, novation requires the permission of all the contracting parties, so it can be hard to go down this route.

One of the main ways that business transactions are conducted is through contracts. They enable trust to be established between parties and enable remedies if either party mistreats the other. Sometimes, businesses or individuals will want to transfer their contracts to another party using an assignment. An assignment allows any benefit you receive from a contract to be transferred to a third party. However, the underlying issue with an assignment is that you are still responsible for upholding any obligations under the contract. However, an assignment can be conducted without the permission of all the contracting parties, so it is a standard method that is used. There is an alternative to assignment called novation. However, all the contracting parties must permit a novation to occur. 

If you need any legal assistance with assignment, LegalVision’s experienced contract lawyers can help. Call us today on 0800 005 570 or fill out the form on this page.

Unless your contract says otherwise, you can assign a contract at any time.

If you assign an obligation, you could be in breach of contract and liable for damages.

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Factoring , Newsletters

THE NOTICE OF ASSIGNMENT: A REFRESHER COURSE

Allen J. Heffner Nov 20, 2023

The Notice of Assignment is probably the single most important document for a Factor. Understanding what needs to be included in the Notice of Assignment, how to send it, and who to send it to can mean the difference between getting paid and not. Despite the fact that every Factor is (or should be) familiar with legal requirements relating to Notices of Assignment, we still find that many of our factoring clients who end up in litigation make basic mistakes relating to their Notices of Assignment. The article focuses on what information needs to be included in the Notice, who the Notice should be sent to, and how the Notice should be delivered.

What needs to be included in the Notice of Assignment?

To be effective, there is certain information that must be included in the Notice of Assignment. The Uniform Commercial Code (“UCC”) requires that the notice must:

• Notify the Account Debtor that the amount due or to become due has been assigned;
• Notify the Account Debtor that payment is to be made to the Factor;
• Reasonably identify the rights assigned; and
• Be signed by the Factor or its client.

The Notice of Assignment should also include a remittance address so the Account Debtor is informed how and in what manner the Factor should be paid.

Additionally, while not explicitly required under the current version of the UCC, Factors should include language in their Notice of Assignment that: (i) the Client has assigned all of its present and future accounts receivable to Factor; (ii) the Factor holds a first priority security interest in all of the client’s accounts receivable; and (iii) all payments owing to the client must be paid to the Factor.

Who should the Notice of Assignment be sent to?

Notices of Assignment should not be sent directly to individuals with an Account Debtor. Sending the Notice to a specific individual may lead to issues relating to the authority of that individual to receive documents on behalf of the Account Debtor. Moreover, Factors that direct Notices of Assignment directly to individuals open themselves up to arguments that the Notices of Assignment was not properly delivered. For instance, our clients that have sent Notices of Assignment to individuals have ended up in situations where the individual to whom the Notice of Assignment was addressed no longer worked with the Account Debtor or the individual was located at a different office and the Notice of Assignment was not sent to the proper location. To be safe and to avoid unnecessary issues, Factors should send the Notice of Assignment to the Account Debtor’s accounts payable department.

Additionally, some states have specialized definitions for what constitutes “notice” on behalf of a company. If there is any question as to where a Notice of Assignment should be sent, Factors should check with their attorney to determine where these should be sent.

How should the Notice of Assignment be delivered?

The crucial issue for the enforceability of a Notice of Assignment is proof of receipt by the Account Debtor, not proof of delivery. Therefore, it is good business practice to send the Notice of Assignment either certified mail or other method that provides for proof of delivery.

Many of our clients have asked about whether it is proper to deliver the Notice of Assignment via e-mail asking the Account Debtor to confirm receipt or with “read receipts” turned on. Some Factors prefer this method because it is more cost efficient.

While sending Notices of Assignment via e-mail is enforceable, we would not recommend it as a general business practice. Sending the Notice in this manner requires delivering the Notice to a specific individual, which we have discussed above can be problematic. Sometimes officers and directors of companies have assistants or other personnel manage their e-mail accounts, raising the possibility that the individual to whom the Notice was sent, never saw the e-mail, even though the e-mail was “read.”

Last, there is no requirement that the Notice be signed by the Account Debtor and returned to the Factor. Often, we see our client’s Notice include a “confirmation of receipt” line for the Account Debtor to sign and return. Sometimes, the Factor will have proof of delivery to the Account Debtor but the Notice was not signed and returned by the Account Debtor. This adds unnecessary ambiguity as to whether the Notice was actually received by the Account Debtor. Therefore, we instruct our clients not to include such requests for proof of receipt.

Who should send the Notice of Assignment?

Some of our clients that have had bad experiences with Account Debtors after delivering a Notice of Assignment have chosen to have their Client be the one to deliver the Notice of Assignment. There is no legal requirement as to whether the Factor or the Client is the correct party to deliver the Notice of Assignment. However, we recommend the Factor be the one to deliver the Notice of Assignment. This way, the Factor is in complete control of the contents of the Notice of Assignment, how it is delivered, and receives confirmation of its delivery. We have been in situations in which the Factor allowed the Client to deliver the Notice of Assignment, but the Client did not deliver the Notice of Assignment in accordance with the law, leading to avoidable litigation.

Should a Factor respond to an Account Debtors questions regarding a Notice of Assignment?

Absolutely, yes. If requested by an Account Debtor, pursuant to the UCC, a Factor must furnish reasonable proof of the assignment for the Notice of Assignment to be valid. Too often we see situations in which requests are made or questions are posed by Account Debtors that the Factor ignores, thinking that because the Account Debtor received the Notice of Assignment, nothing else needs to be done. The Factor should respond to the Account Debtor and provide reasonable proof of the assignment. These communications can also provide invaluable insight as to the relationship between the client and the Account Debtor, how and when payments will be made, and can provide the Account Debtor a sense of trust with the Factor.

A Notice of Assignment is crucial for Factors because it provides legal protection, establishes priority of interest, prevents confusion, facilitates legal recourse, and enables effective communication with Account Debtors. Without this notice, Factors may encounter difficulties in asserting their rights and collecting payments from Account Debtors, potentially jeopardizing the financial transaction.

Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 25 years, Mr. Loren has focused his practice on construction law and factoring law.  Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at [email protected] or [email protected] or 561-615-5701

Bruce E. Loren · Michael I. Kean · Allen J. Heffner · Kyle W. Ohlenschlaeger · Frank Sardinha, III · Lucia E. DeFilippo

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What is a notice of assignment?

An assignment takes place when one party is holding a right to property, claims, bills, lease, etc., of another party and wishes to pass it along (or sell it) to a third party. As complicated as that sounds, it really isn’t. Strangely enough, many assignments can be made under the law without immediately informing, or obtaining the permission, of the personal obligated to perform under the contract. An example of this is when your mortgage is sold to another mortgage company. The original mortgage company may not inform you for several weeks, and they certainly aren’t going to ask your permission to make the sale.

If a person obligated to perform has received notice of the assignment and still insists on paying the initial assignor, the person will still be obligated to pay the new assignee according to the agreement. If the obligated party has not yet been informed of the assignment and pays the original note holder (assignor), the assignor is obligated to turn those funds over to the new assignee. But, what are the remedies if this doesn’t take place? Actually, the new assignee may find themselves in a difficult position if the assignor simply takes off with their funds or payment. They are limited to taking action against the person they bought the note from (assignor) and cannot hold the obligator liable. Therefore, it is important to remember that if any note or obligation is assigned to another party, each party should be well aware of their responsibilities in the transaction and uphold them according to the laws of their state. Assignment forms should be well thought out and written in a manner which prevents the failure of one party against another.

Related posts:

• Does your Agreement Require an Assignment Legal Form?
• Why Every Landlord and Tenant Needs a Lease Agreement
• Why you need a Power of Attorney and How to Assign One

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Tauriko School closed until further notice

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Tauriko School principal Suzanne Billington. Photo / George Novak

Tauriko School’s sewerage system failed at the weekend and the school will close until further notice.

The school community will be notified this afternoon about whether students and staff will be able to return to the grounds on Tuesday.

“This is an unexpected failure as the school sewerage system is regularly checked and maintained,” principal Suzanne Billington said in a statement.

“Rest assured we are working extremely hard to [reopen]. Thank you all for your understanding.”

The school’s cross country event, which was due to be held today, has been postponed until further notice.

School’s Out Tauriko, an organisation that provides after-school care and holiday programmes, is providing childcare services to any students who cannot be looked after by their parents.

School’s Out Tauriko programme manager Rebecca Mason said there were 12 children in their care today.

“We are very lucky we were able to provide our services on such short notice,” Mason said.

Many parents had taken annual leave off for the school’s cross country and were able to keep their children at home, she said.

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