Assignment & 1031 Exchange in a Commercial Purchase
Two clauses that are easy to overlook until they matter: whether you can assign the contract to your deal entity, and whether the deal can be a 1031 exchange.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Commercial buyers usually take title in a newly formed single-purpose entity (an LLC), and many want to structure the purchase as a 1031 like-kind exchange to defer capital-gains tax. Both depend on contract language that is easy to overlook.
If the assignment clause is too narrow, the buyer cannot move the contract into its intended entity; if the 1031 cooperation clause is missing, the exchange can be jeopardized.
Topics to check
A buyer should preserve the right to assign the contract to an entity it controls (an affiliate or single-purpose entity) without the seller’s consent, while remaining liable. A blanket "no assignment without consent" clause can block the standard practice of closing in a newly formed LLC.
Sellers legitimately want to know who is actually closing and may require notice and that the original buyer stay on the hook; a reasonable middle ground is consent-free assignment to a controlled affiliate with notice.
Under Internal Revenue Code Section 1031, a taxpayer can defer gain on the exchange of real property held for business or investment for like-kind real property. A purchase agreement should include a cooperation clause obligating each party to accommodate the other’s exchange at no cost or liability to the cooperating party.
A 1031 exchange has strict timing: the replacement property must generally be identified within 45 days and the exchange completed within 180 days, and the funds must be handled by a qualified intermediary — the buyer cannot take actual or constructive receipt of the proceeds.
IRS — Like-Kind Exchanges (Real Estate Tax Tips)Exchange and assignment language should be consistent: assignment of the contract to a qualified intermediary or exchange entity should be expressly permitted, and the cooperation clause should not require the cooperating party to take on extra cost, delay, or liability.
Because a botched exchange can trigger a large tax bill, the structure should be set up with a qualified intermediary and a tax advisor before closing, not at the closing table.
IRS — About Form 8824 (Like-Kind Exchanges)Key takeaways
- Preserve consent-free assignment to a controlled affiliate or single-purpose entity.
- Add a 1031 cooperation clause if either party may do an exchange.
- Mind the 45-day identification and 180-day completion deadlines.
- Use a qualified intermediary; never take receipt of exchange proceeds.
- Set up any exchange with a tax advisor before closing, not at the table.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- 1031 rules are technical and change; confirm current IRS requirements and structure exchanges with a qualified intermediary and tax advisor.
- Assignment and entity-structuring outcomes depend on the contract and governing law.
Frequently asked questions
Can I close in a different entity than the one that signed the contract?
Only if the assignment clause allows it. Buyers usually negotiate the right to assign to an affiliate or single-purpose entity they control without seller consent (often while staying liable). A blanket no-assignment clause can block closing in your intended LLC.
What are the 1031 exchange deadlines?
For a standard deferred exchange, the replacement property must generally be identified within 45 days of selling the relinquished property, and the exchange completed within 180 days. A qualified intermediary must hold the funds; missing a deadline can disqualify the exchange.
What is a 1031 cooperation clause?
A clause where each party agrees to reasonably cooperate with the other’s like-kind exchange — including assigning the contract to a qualified intermediary — at no additional cost, delay, or liability to the cooperating party.