- Unlike equipment or inventory, a contract is a bundle of rights and obligations between specific parties.
- - Ongoing service or subscription agreements - Supply-and-purchase agreements with recurring customers - Contracts with minimum-volume, exclusivity, or long-term commitments -…
- - [ ] Check for an express assignment clause and read its exact wording - [ ] Check for a change-of-control clause, which can apply even to contracts that don't otherwise restrict…
In an asset purchase, the buyer isn't just acquiring equipment and inventory — a large part of the value often sits in the seller's existing customer relationships. But a customer contract doesn't automatically follow the assets it relates to. If the agreement requires the customer's consent to assign it, and nobody checks for that requirement before closing, a buyer can leave the closing table believing it has bought a customer base that, legally, hasn't come with the deal at all.
This article sets out what to look for in customer contracts during due diligence, and how to build consent into the deal instead of discovering the gap after closing.
Why Customer Contracts Need a Closer Look
Unlike equipment or inventory, a contract is a bundle of rights and obligations between specific parties. When a business is sold through an asset purchase, each contract generally has to be individually assigned — or novated — to the buyer; it doesn't happen automatically just because the underlying business changed hands. If a contract restricts assignment without the customer's consent, that consent needs to be obtained, or the buyer may not actually be entitled to enforce — or benefit from — that agreement going forward.
What Counts as a "Customer Contract" Here
- Ongoing service or subscription agreements
- Supply-and-purchase agreements with recurring customers
- Contracts with minimum-volume, exclusivity, or long-term commitments
- Government, institutional, or large-account contracts with their own procurement rules
- Any agreement generating a meaningful share of the business's revenue
How to Tell Whether a Contract Needs Consent
- [ ] Check for an express assignment clause and read its exact wording
- [ ] Check for a change-of-control clause, which can apply even to contracts that don't otherwise restrict assignment
- [ ] Note whether the contract is silent on assignment altogether — silence is not the same as automatic permission
- [ ] Look for language requiring consent "not to be unreasonably withheld," which affects how difficult the process will actually be
- [ ] Flag any unusually restrictive or unclear language for your lawyer rather than guessing
Sorting Contracts by Risk
| Contract feature | What it usually means | What to do before closing |
|---|---|---|
| Silent on assignment | Uncertain — depends on contract type and circumstances | Get a lawyer's read; don't assume it's freely assignable |
| Requires consent, "not unreasonably withheld" | Consent is likely obtainable but still required | Request it early; document the request and response |
| Absolute prohibition on assignment | Consent or a fresh contract is the only path forward | Start discussions with the customer well before closing |
| Change-of-control clause only | May not require consent for an asset assignment itself, but can still be triggered | Confirm this is genuinely an asset purchase, not a change-of-control event affecting the seller |
Building Consent Into the Deal Timeline
- Identify every material customer contract during due diligence, not just the largest few by dollar value.
- Send consent requests as early as practical — customers can be slow to respond, and this shouldn't become a last-week scramble.
- Keep every response in writing, even an informal one, and follow up with a proper assignment or consent document.
- Make critical consents a condition of closing where the customer relationship is central to the value of the business.
- Decide in advance, with your lawyer, what happens to the price or the deal if a key consent doesn't come through in time.
If a Consent Can't Be Obtained by Closing
Sometimes a customer simply won't respond, or actively refuses. Purchase agreements often deal with this in advance — for example, by carving that one contract out of the closing until it resolves, adjusting the purchase price, holding back part of the funds until the consent comes through, or arranging for the seller to pass through the economic benefit of the contract to the buyer while the parties keep working on formal consent. None of this happens automatically; it needs to be negotiated and documented.
Frequently asked questions
Does every customer contract need formal written consent to assign?
Not necessarily — it depends on that specific contract's wording. Some are silent, some require consent only in limited circumstances, and some prohibit assignment outright. Each contract needs its own review.
What happens if the buyer just starts servicing the customer without getting consent?
This creates risk for both sides. The customer could treat the change as a breach, the seller could remain contractually exposed, and the buyer may not actually have enforceable rights under the agreement. It's a common but risky shortcut.
Can the seller be held responsible if a consent is never obtained?
This depends on how the purchase agreement allocates that risk — sellers and buyers often negotiate representations, covenants, and price adjustments specifically to address contracts that can't be assigned by closing.
Is this different in a share purchase?
Generally, yes — in a share purchase the contracting corporation doesn't change, so most customer contracts continue without needing individual consent, unless a specific contract has its own change-of-control clause.
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