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Assignment of Construction Contracts — Rules and Restrictions

When a project changes ownership through sale, refinancing, or corporate restructuring, the construction contract must be properly transferred. Assignment and novation are frequently confused — and the consequences of confusing them can be serious.

4 min read · Updated 21/04/2026

In this article

1. When the question arises on UAE projects
2. Assignment and novation — the crucial distinction
3. Practical application on sale or refinancing
4. Risks of getting the mechanism wrong
5. Mitigation — planning transfers at execution stage
6. Conclusion

Key takeaway

Assignment transfers the benefit of a contract. Novation transfers both benefit and burden, and requires the agreement of all three parties. A developer who assigns a construction contract where novation is required risks a void transfer — the contractor can continue to treat the original employer as the counterparty regardless of the sale. The mechanism must match the commercial intent.

1. When the question arises on UAE projects

When a project changes ownership — through sale, refinancing, corporate restructuring, or insolvency — the question of what happens to the construction contract becomes critical. Can the contract be transferred to the new owner? Can the contractor object? Who is liable if the original employer no longer exists? The questions routinely arise in three scenarios common in UAE practice: a developer sells the site mid-construction; an employer is acquired by a corporate buyer; or a contractor’s business is sold or absorbed in a merger.

2. Assignment and novation — the crucial distinction

The basic rule under English law is that the benefit of a contract — the right to receive performance or payment — may be assigned without the counterparty’s consent, unless the contract prohibits it. Most standard construction contracts, including FIDIC forms, do prohibit it or require consent. The burden of a contract — the obligation to perform — cannot be assigned without the other party’s agreement. This is a fundamental principle.

Where a contract restricts or prohibits assignment, any purported assignment in breach of that restriction is void as against the other party, even if it is effective between the assignor and the assignee. The contractor can continue to treat the original employer as the contracting party, regardless of the transfer between the two owners.

3. Practical application on sale or refinancing

When a development is sold or refinanced, the employer should identify the assignment and novation provisions in the building contract at the earliest opportunity. If novation is required — which will almost always be the case for a full transfer — the contractor’s consent must be obtained. Contractors should use this consent as a structured opportunity to renegotiate terms, address outstanding payment disputes, or require parent company guarantees from the new employer, particularly where the new owner is a special-purpose vehicle.

Contractors should maintain a record of all assignment and novation provisions in their contracts and flag proposed assignments for careful review. A novation that includes a release of the original employer should not be signed without first resolving any outstanding claims against that original employer — once released, claims against the released party are typically extinguished.

4. Risks of getting the mechanism wrong

An employer who assigns the benefit of a contract without consent, where the contract requires it, risks the contractor refusing to recognise the assignee and continuing to deal only with the original employer. For the purchaser of the development, this is a significant structural problem that may only surface when a claim arises.

A contractor who novates without first securing outstanding claims against the original employer may find those claims effectively waived. Both parties need specialist legal advice before executing any assignment or novation — this is rarely an area for template agreements.

5. Mitigation — planning transfers at execution stage

Review assignment and novation provisions at contract execution, not when a sale is imminent. Include in any subsequent sale or refinancing agreement an obligation to obtain contractor consent, and plan for this in the transaction timeline. When negotiating novation agreements, address outstanding claims, retention balances, and defects liability obligations before executing the novation — a warranty schedule is a common approach.

6. Conclusion

Assignment and novation are technical legal mechanisms that require careful planning on any UAE project likely to change ownership or structure mid-construction. The cost of getting them wrong — a void assignment, an unexpected liability, or a waived claims position — can be significant. Take specialist advice and address the issue early, rather than scrambling when a transaction is already underway.

Planning a transfer of a live contract?

Novation agreements executed under transaction pressure frequently miss preservation of claims, retention, and defects issues. Early review protects the commercial position of whichever party we act for.

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