Assignment of a real estate purchase and sale agreement (PSA) allows buyer to transfer the contract to another party before closing. This flexibility can help buyers manage investment structures or exit strategies—but can also expose sellers to unexpected risk.  Parties should take practical protections in negotiating assignment clauses.

After Assignment Assignor Remains Liable
Under California law, a PSA is generally assignable unless the contract says otherwise.  A common misconception is that the assignment automatically releases the original buyer (the assignor) from any responsibility under the PSA – which is not the law. Unless the PSA provides otherwise, the assignor remains liable — even after the assignment.  This continued liability is critical for assignor to consider since it means that if the assignee defaults, the assignor can be on the hook for seller’s damages.

Why Buyers Want Assignment Rights
There are legitimate reasons why buyers often want the flexibility to assign a PSA:

 • Entity Planning: It is common for a buyer to contract in one entity (e.g., the entity used for operating the business) and assign the PSA at closing to a newly formed, single-purpose entity, often an LLC.  Having the right to implement such a plan allows the buyer to satisfy lender requirements and isolate unnecessary liabilities.

 • Investment Structuring: Buyer (such as a developer) may need to bring in investors or partners to finance the acquisition of the property or to develop the property.  So, the buyer would assign the PSA to a new entity specifically structured for its investors and partners. 

 • Flip Strategies: Buyer may intend to sell the PSA for a profit by “flipping” the PSA—without ever intending to close.  Here, buyer would enter into the PSA, assign to a third party the PSA for fee which the buyer will pocket.  Seller often does not agree to release the initial buyer upon the assignment.  Since assignor remains liable after the assignment, to cover the seller’s damages if assignee defaults, the assignor should make sure the PSA includes a valid liquidated damages provision to limit the seller’s damages and in turn its own exposure. 

Risks for Sellers
While assignments can be innocuous, they can also introduce real risk for sellers:

• Due Diligence Risk: Sellers vet the original buyer’s ability to close—but may know nothing about an assignee’s financial capacity.

 • Flipping Delays: A buyer who intends only to assign may not be fully committed to closing, which increases the chance of delays or failures if they can’t find a new buyer.

 • Shell Entity Defaults: An assignor might assign to a shell company with no assets. If that assignee defaults or files bankruptcy before closing, the seller’s recovery options may be limited.

 • Renegotiation Risk: A new buyer may seek different terms, disrupting a carefully negotiated deal.

Best Practices for Sellers
Given these risks, sellers often negotiate strong assignment provisions to manage exposure:

Consent Requirements: Conditioning any assignment on the seller’s prior written consent. This ensures the seller can evaluate the new buyer’s qualifications.

Affiliate-Only Assignments: Allowing assignment only to controlled affiliates of the original buyer, enabling legitimate entity planning without providing broad flipping rights.

No Automatic Release: Ensuring the PSA states that an assignment does not release the original buyer from liability—unless the seller specifically agrees to it.

Assumption Agreements: Requiring any assignee to formally assume all obligations under the contract in writing.

Restrictions on Ownership Transfers: Preventing indirect assignment of a PSA through sale of ownership interests in the buying entity.

Anti-Flipping Language: Prohibiting marketing the property for resale before closing.

Stronger Deposits: Requiring larger or non-refundable deposits after contingency waivers to discourage speculative assignments.

Special Contract Clauses and Legal Nuances
Many PSAs use “or nominee” to suggest flexibility, but buyers should beware: California courts have held that “nominee” generally means a representative capacity—not a true transfer of ownership rights. Without a formal assignment, a nominee cannot enforce the contract.  Also, even if the assignee accepts benefits and thereby assumes obligations under the PSA, the assignor remains liable unless expressly released. Sellers should insist on language clarifying that any assumption by the assignee does not exonerate the assignor.  Finally, “back-to-back escrows” may be used to achieve similar results without violating assignment restrictions. But buyers should note that such strategies can trigger due-on-sale clauses if seller financing is involved.

The Bottom Line
Assignment rights provide buyers essential flexibility. For sellers, they pose risks that must be carefully managed.  Parties should negotiate clear, tailored assignment provisions that balance flexibility with protection to minimize surprises, avoid disputes, and keep the transaction on track.