I’m not a lawyer. And you probably aren’t either. So the idea of reading through lots of legalese in your agency’s contracts with clients and vendors likely doesn’t seem appealing.
It’s easy to focus on the parts of these agreements that deal with actual business terms, but then gloss over the language (usually near the end of the document) that looks like legal boilerplate.
Much of it may, in fact, be “standard language,” but you need to pay attention to it — not just for how it can impact that individual deal, but how it may have a bigger impact on your overall business.
If there’s anything more than a zero percent chance that you might entertain the idea of selling your agency or merging it with another, you need to pay special attention to the assignment clause in all of your contracts.
What the heck is an assignment clause?
The assignment clause is often buried among a pile of other provisions near the end of a contract, sometimes in a list of items under an innocuous title like “Miscellaneous.”
There’s nothing innocuous about this language if you ever go to sell or merge your business.
Here’s an example of what a typical assignment clause might look like:
“Neither Party may assign any part or all of this Agreement, or delegate any of such Party’s rights under this Agreement without the other Party’s prior written consent.”
You can see how easy it would be to skip over this when reading a long legal document.
On its face, it sounds reasonable. Just some basic legal mumbo-jumbo to skip over on the way to the signature block.
And if you never sell or reorganize your business, you’ll probably never take another look at those words again.
The problem with a “standard” assignment clause
If you sell your agency or merge with another agency, the sample language above will come back to haunt you.
If you sell your business or combine with another business, you will likely be selling the assets of that business to another entity.
As an agency, you don’t have inventory or much in the way of hard assets.
The assets you bring to the table are the talent you have assembled and your contracts with clients and vendors.
With the sample assignment clause outlined earlier, you can’t simply sell your contracts or move them to the new entity.
You need to get permission from your clients and vendors to complete the sale.
That’s a problem because it means a lot of paperwork.
It’s also a problem because it means you may have to tip off your clients and vendors before the deal is even finalized, since a buyer may want to assure themselves during due diligence that the contracts will transfer properly.
And it’s a problem because it hands substantial leverage to vendors and clients at a delicate time for your agency.
Why does it give leverage to the other party?
Simple. They will know that their signature on the assignment paperwork is very important to you.
That means it is a good time to get concessions from you or otherwise renegotiate the terms of the deal.
Thing it won’t happen?
It will. I have been on both sides of that discussion in the past.
Fortunately, there’s a pretty simple solution in most cases.
The whole point behind an assignment clause is to prevent one party from selling off the contract on its own to someone else.
If I’m a client and hire an agency, I don’t want them deciding to just hand me off to some other agency without my consent.
If I’m an agency, and I hire a vendor, I don’t want them deciding to just find some other business to fulfill the obligations.
But the sale or merger of a business is generally different.
Usually, that means there isn’t a big, immediate change like there would be if the contract were handed off without the rest of the business going along with it.
And that’s where the answer lies.
You want to make sure that all of your contracts with clients and vendors give you the ability to assign them as part of a sale.
That language might look something like adding the following to the end of the clause above:
“… except in conjunction with the sale of all, or substantially all, of the assets of the assigning Party. Any such assignment, sublicense, delegation, or other transfer shall not relieve either Party of any liability for the performance of this Agreement.”
With language like this, the parties are both protected against arbitrary assignments, but it doesn’t prevent selling or merging the business.
If there’s even a .00001% chance you may sell or merge your agency sometime in the future, it will save you many headaches down the road if you make sure you have protections like this in all of your agreements.
Of course, you need to understand all of the provisions of your agency’s contracts with clients and vendors, but hopefully now you are more prepared to review and negotiate the assignment clause that probably sits in all of your contracts already.
As I said at the start of this article, I’m not a lawyer and this is not legal advice. Please review all contracts with your attorney before signing.