Assumption: Overview, definition, and example
What is assumption?
Assumption refers to the act of one party taking on the rights, responsibilities, obligations, or liabilities of another party under a contract or agreement. It is often used in contexts such as mergers, acquisitions, or assignments, where one entity steps into the shoes of another and agrees to fulfill its contractual duties or bear its liabilities.
Why is assumption important?
Assumption is important because it ensures continuity in obligations and responsibilities when a party to a contract changes. For businesses, assumption provisions clarify who is responsible for fulfilling contractual obligations if there is a transfer of rights or responsibilities. This reduces uncertainty and protects the interests of all parties involved.
Clear assumption clauses in contracts help prevent disputes by specifying the conditions under which obligations or liabilities can be transferred and who is responsible for their performance.
Understanding assumption through an example
Imagine a company sells a division of its business to another company. As part of the sale agreement, the buyer agrees to assume all existing customer contracts, taking on the responsibilities for providing services under those agreements and fulfilling the seller’s obligations.
In another example, a tenant assigns their lease to a new tenant, who assumes all responsibilities under the lease agreement, including paying rent and maintaining the property. The landlord approves the assumption, ensuring that the new tenant is legally bound by the lease terms.
An example of an assumption clause
Here’s how an assumption clause might appear in a contract:
“The Assignee hereby assumes and agrees to perform all obligations, responsibilities, and liabilities of the Assignor under the Assigned Agreement, effective as of the Assignment Date. The Assignee shall indemnify and hold harmless the Assignor from any claims or liabilities arising from the Assumed Obligations after the Assignment Date.”
Conclusion
Assumption clauses provide clarity and continuity in contracts when rights, obligations, or liabilities are transferred from one party to another. For businesses, these provisions ensure that obligations are properly fulfilled and liabilities are clearly assigned, reducing risks and disputes. Including a well-defined assumption clause in agreem
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.