Assigning Contracts: What, When, How Does That Affect Me?
Many real estate contracts allow buyers to “assign” their rights and obligations under the contract, and sellers can suddenly find themselves working with Joe rather than Sally. What’s a Realtor to do? Ask the right questions – and don’t give legal advice.
ORLANDO, Fla. – Florida Realtors Legal Hotline fields many calls from members, and some topics come in waves. Currently, one of those waves is made up of Realtors perplexed by contract paragraphs about assignability. Most callers want to know how it should be completed and whether it applies to their current transaction.
Since Realtors rather than actual buyers or sellers complete form contracts, it’s important to understand the legal concept of assignment, as well as the agent’s role when a customer has an assignable contract.
In the Florida Realtors/Florida Bar contracts (FR/Bar), assignability of contract is addressed in paragraph 7. For the purposes of this article, the examples are based on the Florida Realtors/Florida Bar residential contracts – but always refer to the contract used in your transaction since it varies.
In paragraph 7, the parties check one box to indicate if the buyer is able to assign the contract (or not), and whether the buyer would be released from liability if the buyer is allowed to assign it (or not).
First, the concept of assigning a contract: If an assignment of contract occurs, it means that one party to an existing contract (the “assignor”) has handed off the contract’s obligations and benefits to another party (the “assignee”). In the context of the FR/Bar contracts, the assignor is the buyer in the contract and the assignee is a non-party, i.e. another buyer not currently part of the contract.
The next step is addressing the release of liability. The assignor may want the assignee to step into his shoes and assume all his contractual obligations and rights, releasing the original buyer from further liability under the contract. This means that if a buyer assigns the contract, that buyer essentially walks away from the transaction, with the assignee taking on all further obligations currently within the contract. It also means that the seller’s recourse, should the assignee fail to comply with the contract, is solely against the assignee and not the initial buyer.
In applying these concepts to language in the FR/Bar contract, a buyer’s agent should ask the buyer if they have any intention of assigning their interests in the contract to another party. If yes, does the buyer want to remain potentially liable under the contract should the assignee fail to perform?
If a seller’s agent receives an offer that is assignable, they should ask the seller if they’re willing to allow the buyer to assign the contract to a third party. If yes, is the seller okay with allowing the initial buyer to just walk away, or do they want to hold the initial buyer to the contract terms as far as liability is concerned?
Please note: These are all questions your customers should answer. A Realtor shouldn’t give legal advice, explain the concept of assignability, or describe potential outcomes or issues that could arise with an assignable contract. In the event that your questions cause customers to ask even more questions about assignability, you should advise customers to seek legal advice from their attorney.
Lastly, understand that this article covers the contract portion of assignability. Assuming the parties agree the contract is assignable, a buyer who later wants to assign the contract still needs to sign a separate legal document assigning their rights/interests in the contract over to the assignee, aka “the new buyer.”
The initial buyer/assignor may need their attorney to assist with drafting this document, which covers their agreement. In other words, paragraph 7 only covers whether or not the seller and initial buyer agree to the initial buyer being able to assign the contract. A separate assignment document would cover the assignor and assignee’s agreement.
Meredith Caruso is Associate General Counsel for Florida Realtors
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