Assignment of Contractual Position

What is an Assignment of Contractual Position?

The assignment of the contractual position is a legal instrument provided for in Portuguese law that allows the transfer of the rights and obligations of one of the parties to a contract to another person or company. In other words, it is when one of the contracting parties transfers its rights and duties in relation to an existing contract to a third party . This transfer can only take place if previously authorized by the other party (s) of the contract, who must agree to the replacement of one of the contractors.

The assignment of the contractual position can occur in several types of contracts, such as: leasing contracts , promises of purchase and sale , provision of services , etc.

When carrying out the assignment of the contractual position, the person or company that transfers its rights and obligations ceases to be a party to the contract, and the third person assumes all its responsibilities and duties, as well as obtaining the same rights as the assignor.

Thus, the Assignment of the Contractual Position is, therefore, a true contract (Instrument Agreement of the assignment), in which one of the parties (assignor) assigns its contractual position to a third party (assignee), thus modifying the parties in the Agreement- Basis, but not the contractual clause.

Legal basis for the Assignment of the Contractual Position

The Assignment of the Contractual Position is a legal institute that has legal grounds in the Portuguese Civil Code, in articles 406º to 409º, 404º and 425º .

Briefly and in accordance with the legislation, the Assignment of the Contractual Position can only be carried out with the express consent of the other party involved in the contract, who must agree to the replacement of one of the contractors. In addition, the contract involving the assignment of the contractual position must establish the conditions and terms for the transfer of rights and obligations, as well as the penalties provided for in the event of non-compliance.

In addition, there are other laws and regulations, in specific sectors, such as employment contracts, public concession contracts, etc.

Article 406.º - Effectiveness of contracts

1. The contract must be punctually fulfilled, and can only be modified or terminated by mutual consent of the contracting parties or in the cases allowed by law.
2. In relation to third parties, the contract only takes effect in the cases and terms specifically provided for by law.

ARTICLE 424. - Notion. Requirements

1. In a contract with reciprocal benefits, either party has the option of transmitting its contractual position to a third party, provided that the other contracting party , before or after the conclusion of the contract, consents to the transmission .
2. If the consent of the other contracting party precedes the assignment, the assignment only takes effect from its notification or acknowledgment .

Regardless of how the termination of the contractual position takes place, it is important that the parties involved are aware of the terms and conditions of the contract, including the termination and cancellation clauses, to avoid misunderstandings or litigation in the future.

Tax implications arising from the Assignment of the Contractual Position

With regard to the Municipal Tax on Real Estate Transfers (IMT), there are particularities that it is important to be aware of, when an Assignment of Contractual Position (CPP) is at stake in the acquisition of a property. According to the article written by the solicitor Ana Rita Pereira, which I transcribe here:

• If the CPCV includes a free CPP clause, with its signature, there is immediate subjection to IMT for the amount paid as a down payment;
• In the event of an effective CPP under the Promissory Purchase and Sale Agreement with a free assignment clause, each new promissory acquirer (assignee) will pay IMT for the agreed amount;
• The promissory acquirer that signs the final deed will also pay the IMT due for the remaining amount of the agreed price.As for the other promissory acquirers, who will not intervene in the final deed, the previously paid IMT will not be reimbursed;
• If the CPCV does not include a clause for free assignment of contractual position, but this occurs, it will be considered that there was a resale adjustment, paying the original promissory purchaser the IMT due, unless it declares and proves that there was no place for the payment or receipt of any amount in addition to that which appeared as a down payment in the CPCV entered into. However, if the CPCV includes a clause for the person to be appointed, the appointment of a third party, or of a company in the process of incorporation on the date of the respective signature, it will not imply a new transfer for the purposes of IMT, provided that the respective legal requirements are met.

That is, the occurrence of an Assignment of the Contractual Position or the mere reference to it in the CPCV, implies the advance payment of the IMT that is levied on the transacted amounts, even before the moment of the deed.

Frequently asked questions about the Assignment of the Contractual Position

How can I terminate my contractual position?

This transfer can be made through an agreement signed between the parties involved or through a court authorization.

Is it possible to terminate a contract before the end of the established period?

In Portugal, it is possible to terminate a contract before the end of the established period, provided there is a fair and legal reason for doing so. This can happen in a number of ways, including:

• By mutual agreement between the parties: In this case, both parties decide to interrupt the contract and reach an agreement on the terms of cancellation. Typically, this entails paying any outstanding amounts or returning any goods or property involved in the contract.
• By unilateral termination : When one of the parties decides to interrupt the contract without the agreement of the other party. Usually this occurs when one of the parties violates the terms of the contract, or for reasons of force majeure.
• By natural termination: Usually a contract has a predetermined termination date, or it ends after the achievement of a certain objective. In this case, the contractual position is canceled naturally, without the need for any action on the part of the parties involved.

Therefore, it is important that the parties involved consult a lawyer specializing in contract law to assess the best way to proceed in each specific case.

In addition, it is essential that the early termination be carried out amicably, in order to avoid conflicts, legal disputes and penalties, such as the payment of indemnities, fines or other sanctions provided for in the contract itself or in current legislation.

What are the consequences of the Assignment of the Contractual Position?

The consequences of the termination of the contractual position depend on the type of contract, the contractual clauses, as well as the circumstances that led to its assignment. In general, the assignment of the contractual position can have the following consequences:

• Termination of the contract: The termination of the contractual position may lead to the termination of the contract, which means that it is no longer valid and the parties no longer have reciprocal obligations.
• Payment of indemnities : In some cases, the early termination of the contract may imply the payment of indemnities, fines
• Payment of fines or indemnities: The early termination of a contract may imply the payment of fines or indemnities to the other party, as a form of compensation for the damage caused, through legal actions or in other ways provided for in the contract.
• Loss of rights: The assignment of the contractual position may lead to the loss of rights that the assigning party would have in relation to the contract, such as the right to receive payments, goods or services.
• Loss of guarantees or deposits : In contracts that require guarantees or deposits, early termination may result in the loss of these amounts. This is the case of deposits or advance rents, usually charged in real estate lease contracts.
• Transfer of obligations: By assigning the contractual position, the assigning party transfers its obligations and responsibilities in relation to the contract to third parties, which may affect the way in which the other parties involved in the contract interact with each other.

In summary, the consequences of ceasing the contractual position depend on the specific circumstances of each case and may vary according to the type of contract involved, the contractual clauses and the applicable laws. Therefore, it is important to consult a lawyer specializing in contract law to assess the best way to proceed in each specific situation, before terminating a contract before the established deadline, in order to avoid future losses and litigation.

Do I need to notify the other party of my intention to terminate the contractual position?

Yes, in Portugal it is important to notify the other party of the intention to terminate the contractual position. In general;

Notification must be made in writing , by registered letter or email, and must include information about the reason for termination, the conditions and deadlines for the transfer of rights and obligations , as well as possible penalties provided for in the contract or legislation.

In addition, it is important that notice be given sufficiently in advance so that the other party has useful time to prepare for the termination, especially in contracts that are long-term or involve complex obligations. In some cases, notification may be required by specific contractual clauses or applicable law.

Finally, it is essential that the notification be made in a clear and objective manner, avoiding ambiguities or inaccurate information that could generate doubts or conflicts. In case of doubts about the proper way to notify the other party about the termination of the contractual position, it is recommended to consult a lawyer specialized in contract law for specific guidance.

Are there any penalties for canceling a contract before the established deadline?

Yes, in Portugal, the early termination of a contract may entail penalties provided for in the contract itself or in the applicable legislation. These penalties may vary according to the type of contract, the contractual clauses and the circumstances that led to its termination.

Therefore, it is important to carefully evaluate the contractual clauses and applicable law before terminating a contract before the established deadline, in order to avoid future losses and litigation.

How can I guarantee that the Assignment of the Contractual Position takes place legally and without future problems?

To ensure that the Termination of Contractual Position (CPP) takes place legally and to avoid future problems with the other party involved, it is important to follow some recommendations:

• Check contractual clauses: It is essential to check the contractual clauses that deal with the CPP and the sanctions provided for in case of non-compliance. This includes analyzing the possibility of unilateral termination and the conditions for ceding the contractual position.
• Notify the other party in advance: It is important to notify the other party of the intention to terminate the contractual position, by registered letter and sufficiently in advance. This can help to avoid conflicts and misunderstandings.
• Seeking an agreement and negotiating fair terms: It is important to reach an agreement with the other party for the CPP by negotiating fair terms for both parties.This includes discussing the payment of any outstanding charges and the conditions for the transfer of rights and obligations.
• Check documents and records: It is essential to check all documents and records related to the contract, to ensure that all obligations have been met and that there are no pending issues.
• Set a deadline and pay any outstanding amounts: It is important to pay any amounts owed, such as tax obligations, fines, indemnities or other charges provided for in the contract. To this end, it must define a deadline for the fulfillment of pending obligations, negotiating with the other party for sufficient time for them to be fulfilled before the assignment of the contractual position.
• Check guarantees and deposits: It is important to check if there are guarantees or deposits provided for in the contract, which can be used to cover any outstanding obligations.
• Registering the assignment: In some cases, it is advisable to register the assignment of the contractual position at a notary or other competent bodies, to give more legal certainty to the whole process.
• Obtaining legal advice: Finally, it is advisable to consult a lawyer specialized in contract law, who can assess the specific situation and advise on the best way to proceed, avoiding future problems.

By following these recommendations, it is possible to ensure that the CPP takes place legally and without future problems, thus preserving the rights and duties of the parties involved.

In the case of an Assignment of Contractual Position, who is responsible for paying any outstanding charges?

Responsibility for paying any outstanding charges will depend on what has been agreed between the parties involved. Normally, the contract involving the assignment of the contractual position must establish who will be responsible for the outstanding charges, whether they will be paid by the assigning party, by the assigning party or whether they will be divided between the parties. In some cases, it may be necessary to carry out a survey of outstanding charges prior to the assignment of the contractual position, in order to determine the exact amount that must be paid.

In addition, it is important to find out if there are guarantees or deposits provided for in the contract, which can be used to cover outstanding charges.

If there are doubts about the responsibility for paying any pending charges, it is advisable to consult a lawyer specialized in contract law.