Taking security over contractual rights
Taking security over contractual rights

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Taking security over contractual rights
  • Nature of contractual rights
  • Relevant types of security used for contractual rights
  • Type of security interest that is available
  • A statutory (legal) or equitable assignment by way of security
  • Checking the terms of the contract which is to be assigned
  • Governing law of the contract
  • Prohibitions or restrictions on assignment of contractual rights other than receivables
  • Prohibitions or restrictions on assignment of receivables
  • Rights of set-off
  • More...

Contractual rights are a type of chose in action, ie something that is recoverable by legal action as opposed to something that is physically possessed.

Security over contractual rights is typically taken by an assignment by way of security though it can also be taken by way of charge. Specific considerations apply to taking security over contractual rights. It is important to review the terms of the contract that is to be assigned from both the assignor and assignee's perspective. The assignee will also want to provide notice of the assignment to the contract counterparty because this has several important advantages.

This Practice Note deals with taking security over contractual rights in general. It explains:

  1. the nature of contractual rights

  2. typical methods of taking security over contractual rights

  3. common provisions to check in the contract which is to be assigned, including governing law, restrictions on assignment and contractual rights of set-off

  4. key terms to be included in the security document

  5. issues relating to serving notice of the security on the contract counterparty, and

  6. perfection and priority issues

For information on taking security over specific types of contractual rights see Practice Notes:

  1. Taking security over receivables, and

  2. Taking security over insurance policies

Detailed information on assignments by way of security, including the differences between statutory and equitable assignments and the reasons for serving notice, is contained in Practice Note:

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