deed of novation or deed of assignment

Deed Of Novation

Jump to section, what is a deed of novation.

A deed of novation is a legal contract that dissolves an old agreement and replaces it with a new one. It's also called "a covenant not to enforce" or "a covenant not to sue."

A deed of novation can be used to release a party from any obligations under their current mortgage, even if the lender has agreed in writing that they won't foreclose on the borrower. Some people are unaware that this option exists, but it could save them from foreclosure.

Common Sections in Deeds Of Novation

Below is a list of common sections included in Deeds Of Novation. These sections are linked to the below sample agreement for you to explore.

Deed Of Novation Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.36(A) 7 dex1036a.htm DEED OF NOVATION AND AMENDMENT , Viewed December 13, 2021, View Source on SEC .

Who Helps With Deeds Of Novation?

Lawyers with backgrounds working on deeds of novation work with clients to help. Do you need help with a deed of novation?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate deeds of novation. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Deed Of Novation Lawyers

I focus my practice on startups and small to mid-size businesses, because they have unique needs that mid-size and large law firms aren't well-equipped to service. In addition to practicing law, I have started and run other businesses, and have an MBA in marketing from Indiana University. I combine my business experience with my legal expertise, to provide practical advice to my clients. I am licensed in Ohio and California, and I leverage the latest in technology to provide top quality legal services to a nationwide client-base. This enables me to serve my clients in a cost-effective manner that doesn't skimp on personal service.

Davis founded DLO in 2010 after nearly a decade of practicing in the corporate department of a larger law firm. Armed with this experience and knowledge of legal solutions used by large entities, Davis set out to bring the same level of service to smaller organizations and individuals. The mission was three-fold: provide top-notch legal work, charge fair prices for it, and never stop evolving to meet the changing needs of clients. Ten years and more than 1000 clients later, Davis is proud of the assistance DLO provides for companies large and small, and the expanding service they now offer for individuals and families.

I am a 1984 graduate of the Benjamin N Cardozo School of Law (Yeshiva University) and have been licensed in New Jersey for over 35 years. I have extensive experience in negotiating real estate, business contracts, and loan agreements. Depending on your needs I can work remotely or face-to-face. I offer prompt and courteous service and can tailor a contract and process to meet your needs.

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For over thirty (33) years, Mr. Langley has developed a diverse general business and commercial litigation practice advising clients on day-to-day business and legal matters, as well as handling lawsuits and arbitrations across Texas and in various other states across the country. Mr. Langley has handled commercial matters including employment law, commercial collections, real estate matters, energy litigation, construction, general litigation, arbitrations, defamation actions, misappropriation of trade secrets, usury, consumer credit, commercial credit, lender liability, accounting malpractice, legal malpractice, and appellate practice in state and federal courts. (Online bio at www.curtmlangley.com).

Real Estate and Business lawyer.

Braden Perry is a corporate governance, regulatory and government investigations attorney with Kennyhertz Perry, LLC. Mr. Perry has the unique tripartite experience of a white-collar criminal defense and government compliance, investigations, and litigation attorney at a national law firm; a senior enforcement attorney at a federal regulatory agency; and the Chief Compliance Officer/Chief Regulatory Attorney of a global financial institution. Mr. Perry has extensive experience advising clients in federal inquiries and investigations, particularly in enforcement matters involving technological issues. He couples his technical knowledge and experience defending clients in front of federal agencies with a broad-based understanding of compliance from an institutional and regulatory perspective.

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Deed of Novation: Everything You Need to Know

A deed of novation can be used to transfer the responsibility of paying off a mortgage loan to another person. 3 min read updated on January 01, 2024

A deed of novation can be used to transfer the responsibility of paying off a mortgage loan to another person.

What Are Deeds of Novation?

When real property is sold, purchased, or transferred, a title and a deed will be used. To buy real property, many people choose to use a mortgage loan, which the person would then be legally obligated to repay. If you want to transfer this obligation to another person, you would need to use a deed of novation.

Deeds of novation can be used when one person wants to transfer their contractual obligations and rights to another party without having to alter the original contract. With a deed of novation, the person that wishes to leave a contract will be absolved of their responsibilities because the incoming party is assuming these duties. From the perspective of the other person in the contract, nothing has been changed. However, this remaining party will need to agree to the transfer before it can occur.

You can transfer mortgage obligations to either a third party or a completely new borrower by using a deed of novation. Once the formal novation has been approved, you will no longer be responsible for your loan.

Before using a deed of novation, there are several factors that you need to consider:

• Does the contract include language allowing parties to transfer their rights and responsibilities?
• Is approval from the remaining party required before novation?
• Is there a provision preventing the remaining party from unreasonably withholding their approval?
• Does terminating the original contract and entering a new contract make more sense from a commercial standpoint?
• Will you or the new borrower be responsible for a default that takes place before the transfer occurs?
• Will you use a pre-arranged date for the novation effective date or will the date of agreement suffice?

Novation Parties

It's possible you won't receive approval to novate your mortgage responsibilities to a third party. When attempting to novate a mortgage loan , you, the third party, and the lender must agree to transfer the obligations. In most cases, lenders deny requests to novate loan responsibilities. If a lender does approve the request, they will usually have their own process for reviewing and approving the novation.

Are Assignments and Novation Different?

There is a big difference between an assignment and a novation. With an assignment, the original person in the contract retains their liability. With a novation, all liability is assumed by the new party to the contract. Assignments are used to transfer only rights; novation transfers both liability and rights. 

Three-party consent is required for novation, the new party, the outgoing party, and the remaining party must all agree to the transfer. The approval of the remaining party may not be required for assignment depending on how the contract is worded.

Deeds of Novation and Your Business

When a business person wants to exit an agreement or contract, it may be possible for them to find a new person to assume their obligations. Many businesses choose to use deeds of novation because they are much simpler than ending one contract and forming a new one.

There are countless reasons that a business might use a deed of novation. As mentioned, the primary reason business people use novation is to exit a contract. A deed of novation will allow the businessperson to leave the contract by transferring their responsibilities to a new party.

Another reason business people use deeds of novation is the need to transfer contracts after selling their business . For example, let's assume that you own a small market that regularly supplies fresh produce to offices in your area. If you sell your market to another person, you would also need to transfer your contracts with the offices so that the new owner can continue the produce deliveries.

With a deed of novation, the new owner of your business is accepting the responsibilities of the contracts to which you were once a party. From the standpoint of the offices receiving the deliveries, the contract remains the same. The only difference is that a new person is now responsible for upholding the terms of the contract.

If you need help using a deed of novation, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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• What is Novation of Contract
• Contract Novation Letter
• Novation Agreement
• Contract Novation
• Contract Novation Agreement
• Novation of Contract
• Loan Novation Agreement
• Assignment vs Novation
• Contract Transfer
• Novation Contract Example

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Deed of Novation vs. Assignment: Key Differences and Applications

Home > Construction Contracts > Deed of Novation vs. Assignment: Key Differences and Applications

• April 4, 2023

When it comes to transferring rights and obligations under a contract, novation and assignment are two common methods. While they may seem similar, they have distinct legal implications that can greatly affect the parties involved. This article aims to provide a clear understanding of novation and assignment, their key differences, and practical applications in various business scenarios.

Table of Contents

Understanding Novation and Assignment

Novation and assignment are two legal concepts used to transfer rights and obligations from one party to another. The follow are some key points to keep in mind:

• Assignment refers to transferring rights and obligations to a third party, but the original party remains bound to the original contract.
• Novation refers to substituting a new party in place of the original party, releasing the original party from its obligations under the original contract.
• Novation requires the consent of all parties involved, whereas assignment can be carried out without the consent of the other party.
• Novation is often used when a business or individual wants to transfer all of their obligations to another party, while assignment is used when a party wants to transfer only some of their obligations.
• Novation can be more complex and time-consuming than assignment because it requires all parties to agree to the substitution of a new party.
• Both novation and assignment have their benefits and drawbacks, and it’s important to understand the implications of each before making a decision.
• In general, novation is more appropriate when there is a fundamental change in the parties or obligations involved in a contract, while assignment is more appropriate for smaller transfers of rights or obligations.

Novation in Construction Contracts

Novation is a legal concept that often arises in business and contract law. Here are some key basics to understand:

• Definition: Novation is a process whereby a new party replaces an original party in a contract. This involves a complete substitution of one party for another and the release of the original party from their obligations under the original contract.
• Benefits: Novation allows for the transfer of rights and obligations to a new party, which can be beneficial in situations where the original party is unable to fulfil their obligations or wishes to transfer their interests.
• Key Features: In order for novation to take place, all parties must agree to the substitution of the new party for the original party. This requires a tripartite agreement between the original party, the new party, and the counterparty to the original contract. Additionally, the novation agreement must be in writing and signed by all parties.

Overall, novation is an important legal concept to understand in the context of contracts and business transactions, as it provides a mechanism for parties to transfer their rights and obligations to others while releasing themselves from the original contract.

Featured Content: What is a Deed of Novation?

Assignment in Construction Contracts

An assignment is a transfer of a right or benefit from one party to another. In other words, it involves the transfer of one party’s contractual rights or obligations to another. The key features of an assignment include:

• The original contract remains in force
• The assignee steps into the shoes of the assignor, assuming all rights and obligations
• The assignment must be in writing, signed by the assignor, and communicated to the obligor
• Assignability is subject to contract terms and applicable law

Related Content: What is a Deed of Assignment?

Key Differences Between Novation and Assignment

When considering a transfer of rights and obligations under a contract, businesses and individuals often have to choose between novation and assignment. While both methods achieve a similar outcome, they have distinct differences in their legal implications and requirements.

One key difference between novation and assignment is the transfer of contractual obligations. In a novation, the original contract is extinguished and replaced with a new one, where the incoming party assumes all rights and obligations under the original contract. In contrast, assignment only transfers the rights of the original party to the incoming party, leaving the original party responsible for fulfilling their contractual obligations.

Another difference is the requirement for consent from all parties involved. In novation, the consent of all parties – the original parties and the incoming party – is necessary for the transfer to be valid. In contrast, assignment only requires the consent of the original party and does not require the incoming party’s consent.

Additionally, novation typically involves more formalities than assignment, as a new contract must be drafted and executed, while assignment can often be done through a simple agreement. However, novation offers greater legal protection for the incoming party, as they are assuming all rights and obligations under the original contract.

Understanding these key differences is crucial when deciding which method to use. In the next sections, we will delve deeper into the legal implications and practical applications of novation and assignment.

Rights and Obligations

In a novation, the existing contract is extinguished and replaced by a new one, with the consent of all parties involved. In an assignment, the original contract remains in force, but the assignor transfers some or all of their contractual rights and obligations to the assignee.

Here are some key points to keep in mind regarding rights and obligations in novation vs. assignment:

• Novation involves the transfer of both rights and obligations from one party to another.
• In an assignment, the assignor transfers only their rights, not their obligations.
• In a novation, the original party is released from all obligations under the original contract.
• In an assignment, the assignor remains liable for the obligations they have transferred, unless the assignee has assumed them.
• It is important to note that in a novation, the new party must agree to assume all of the obligations of the original party under the contract.

Contract Termination

In terms of contract termination , novation and assignment have different implications:

• Original Contract Status : In a novation, the original contract is terminated and replaced with a new one, whereas in an assignment, the original contract remains in force and a new contract is formed between the assignee and the obligee.
• New Contracts: In novation, a new contract is formed between the obligor and the new obligee. In contrast, in assignment, there is no new contract, only a transfer of rights and obligations to the assignee.

It is important to carefully consider the implications of each method of contract termination before deciding which one to use in a particular situation. Legal advice may be necessary to ensure that the chosen method is appropriate for the specific circumstances.

Consent Requirements

In a novation agreement, all parties must agree to the transfer of obligations and rights to a third party. In an assignment agreement, only the assignor and assignee need to agree to the transfer of rights and obligations.

Here are some key points to consider regarding consent requirements in novation vs. assignment:

• Novation requires the consent of all parties involved, including the original parties and the new party taking over the obligations and rights.
• Assignment only requires the consent of the assignor and assignee.
• In a novation, all parties must sign a tripartite agreement, whereas, in an assignment, a bilateral agreement between the assignor and assignee is sufficient.
• If the original contract includes a clause prohibiting assignment, the parties must obtain the consent of the non-assigning party or have the clause removed before proceeding with the assignment or novation.

Consent is a critical component of both novation and assignment agreements. Failure to obtain proper consent can result in legal disputes and may render the agreement unenforceable.

Related Content: Essential Legal Requirements for Deed of Assignment

Practical Applications of Novation and Assignment

Novation and assignment have numerous practical applications across various industries, including construction, real estate, and business transactions. Here are some examples:

Novation in Business Transactions

Novation is commonly used in business transactions to transfer contractual obligations from one party to another, particularly in the following scenarios:

• Supplier restructuring: In a business that relies heavily on its suppliers, a novation agreement can be used to transfer contacts to new suppliers in the event of a supplier’s bankruptcy or insolvency.
• Mergers and acquisitions: Novation can be used to transfer contracts between companies during a merger or acquisition. This allows the new entity to assume contractual obligations and avoid legal disputes.

Assignment in Business Transactions

Assignment is also used in various business transactions, particularly in the following scenarios:

• Licensing agreements: In intellectual property licensing, the owner of the intellectual property can assign their rights to another party. This allows the licensee to use the intellectual property while the owner retains ownership.
• Intellectual property: In some cases, an individual or company may assign their intellectual property rights to another party. This can include patents, trademarks, and copyrights.

Overall, both novation and assignment provide flexible options for parties to transfer rights and obligations under a contract. The choice of which to use will depend on the specific circumstances of the contract and the parties involved.

Choosing Between Novation and Assignment

Choosing between novation and assignment can be a crucial decision when dealing with contracts and business transactions. To determine which method is appropriate, one must consider the specific circumstances and goals of the parties involved. Both novation and assignment have their advantages and disadvantages, so it is important to weigh these factors before making a decision. Factors to consider include legal implications, risks, and benefits. Additionally, obtaining legal advice from a qualified attorney can provide valuable insight and guidance when deciding between novation and assignment.

Factors to Consider

When choosing between novation and assignment, it’s important to consider the following factors:

• The nature of the contract: Is it a service contract, a sales contract, or something else? Depending on the type of contract, one may be more appropriate than the other.
• The parties involved: Are all parties willing to consent to a novation, or would an assignment be more appropriate if consent cannot be obtained?
• The complexity of the transaction: Is the transaction straightforward, or does it involve multiple parties and obligations? Novation may be more appropriate for complex transactions where it’s important to transfer all rights and obligations.
• Time and cost: Novation may be more time-consuming and costly than assignment, so it’s important to consider the practical implications of each option.

Ultimately, the decision of whether to use novation or assignment will depend on the specific circumstances of the transaction and the preferences of the parties involved.

In conclusion, understanding the differences between novation and assignment is essential when entering into a contract. While both transfer rights and obligations to a new party, they do so in different ways and with different implications. Novation requires the consent of all parties involved, while assignment does not necessarily require the consent of the obligor. When choosing between novation and assignment, consider factors such as the complexity of the transaction, the level of risk involved, and the relationships between parties. 

As a construction lawyer with experience in residential building disputes, I have seen the importance of proper contract management firsthand. Don’t hesitate to contact me for a legal consultation and to learn more about how I can assist you with your construction contract needs.

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What Is the Difference Between Assignment and Novation?

By Jordan Bramis Lawyer

Updated on November 22, 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

Assignments

Other differences between an assignment and novation, choosing between assignment and novation, key takeaways.

To further your commercial endeavours, you may wish to transfer your rights under a contract to another party. The primary legal mechanisms for transferring the rights or obligations under a contract to a third party are assignment, which involves transferring benefits or rights and novation, which facilitates the transfer of both rights/benefits and obligations. It is crucial to understand that these concepts are different. Unfortunately, many people tend to confuse the two, leading to unwanted consequences in relation to legal contracts. This article will explore the key differences between the two.

Under a contract, where a party (the original party to the contract) is initiating an ‘assignment’ , they are transferring some or all of their contractual rights to a third party, known as the “assignor”. The recipient of those contractual rights is known as the “assignee”. For instance, a party can transfer the right to receive payment or benefits under the contract through an assignment.

Following an assignment, the assignee gains the right to the benefits of the contract that the assignor has assigned. Furthermore, they gain the authority to initiate legal proceedings, either individually or in conjunction with the assignor. It is important to note, however, that the assignee does not become a contracting party to the original agreement. Under assignment, contractual burdens and liabilities cannot be transferred. Therefore, the assignor retains responsibility for fulfilling any remaining contractual obligations that still need to be discharged.

In most cases, assignment necessitates the consent of the obligor (the party obligated to fulfil the contract). The obligor needs to agree to the assignee taking over the rights held by the assignor. Additionally, the assignor must provide notice to the obligor about the assignment. This notice serves to inform the obligor that they should now deal with the assignee regarding the assigned rights.

By comparison, a novation agreement achieves the transfer of both rights and obligations to a third party. Here, the new party (the “novatee”) steps into the shoes of the original party (the “novator”) and assumes both the rights and obligations. 

A novation agreement essentially terminates the contract with the original party and creates a new contract with the new party. A novation agreement means you can substitute one party for another without changing the obligations agreed to in the original contract. 

Novation most often arises in big corporate takeovers or on the sale of a business. On takeover, deeds of novation are used to transfer contracts from the seller to the buyer and allow the buyer to carry on the seller’s business.

All involved parties, including the remaining contractual party, the novator, and the novatee, must unanimously agree to the novation. It is a collective decision to replace the old contract with a new one.

Novation creates an entirely new legal relationship. The old contract is set aside, and the new contract, which includes the novatee, comes into effect. Following novation, the novator is released from all obligations and liabilities associated with the original contract.

The choice between assignment and novation depends on various factors.

If a party wishes to maintain some level of involvement and responsibility in the original contract, assignment is often the better choice. It enables the transfer of specific rights while retaining some obligations. For a complete break from the original contract, where a party wishes to shed all obligations and liabilities, novation may be preferential.

One of the most important and sometimes overlooked steps is to document what you have agreed to in writing. Have your agreement written up, signed and stored safely. The area where most disputes and disagreements arise is where parties have not written down what they agree to. This results in a conflict that could have been easily avoided.

When you are ready to sell your business and begin the next chapter, it is important to understand the moving parts that will impact a successful sale.

This How to Sell Your Business Guide covers all the essential topics you need to know about selling your business.

If you intend to assign your rights under a contract to a third party, you can do so through an assignment or a novation. However, be aware that these differ. An assignment gives some rights to a third party, whereas a novation transfers both rights and obligations to a third party. Ensure that whichever method you choose, you document this in a written agreement.

If you need further assistance with an assignment or novation, our experienced contract lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page .

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Transferring contracts: assignment and novation explained

Whether it's due to internal restructuring or meeting commercial requirements like a business sale, many companies encounter the need to transfer contracts from one entity to another. However, it's important to note that this process is not as simple as replacing one party's name with another. In most cases, contracts can be legally transferred through one of two methods: assignment or novation.

Assignment:

An assignment of a contract involves transferring the rights (but not the obligations) of the outgoing party to the incoming party. Typically, an assignment doesn't require the consent or agreement of the other party involved in the contract (the continuing party), unless specifically stated in the terms of the relevant contract.

To effect an assignment, a deed is often executed by both the outgoing party and the incoming party. If the consent of the continuing party is necessary, it is usually convenient to include this consent in the deed and have the continuing party execute it as well.

An assignment does not relieve the outgoing party of its ongoing obligations to the continuing party under the contract. In order to protect the outgoing party against future breaches of contract by the incoming party, it is common for the assignment deed to include provisions where the incoming party:

• promises to the outgoing party that it will fulfil the outgoing party's contractual obligations after the assignment date; and
• provides indemnification to the outgoing party against any claims made by the continuing party for any failures by the incoming party to fulfil those obligations after the assignment.

Even if the consent of the continuing party is not required, for the assignment to have legal effect written notice of the assignment must be given to the continuing party. This written notice ensures that all parties involved are informed about the transfer.

Another method to transfer contracts is through novation. In legal terms, novation refers to the substitution of a new contract for an existing one, maintaining the same terms as the original contract, but between the continuing party and the incoming party instead of between the continuing party and the outgoing party. Unlike assignment, a novation transfers both the rights and obligations under the relevant contract from the outgoing party to the incoming party.

In practice, novation is commonly achieved by substituting the outgoing party with the incoming party. This means that, from the effective date of the novation, the incoming party assumes all the rights and obligations previously held by the outgoing party, and the continuing party releases the outgoing party from any further obligations under the contract.

It is important to note that the agreement of the continuing party is always required for a novation to be legally effective. While novation offers certain advantages over an assignment, such as a better legal liability position for the outgoing party, it can be more challenging to accomplish due to the necessity of securing the continuing party's agreement.

Similar to assignment, novation typically involves executing a deed of novation, which states the agreement of all parties to substitute the outgoing party with the incoming party.

Other methods:

In addition to novation and assignment, there are indirect methods available for transferring rights and obligations under a contract. For example, where a party to a contract is a company, it may be possible to transfer the company's rights and obligations under a contract by the shareholders of that company transferring their shares in the company to a third party. By doing so, the company remains a party to the contract, eliminating the need for assignment or novation. Instead, a new shareholder obtains control of the company and indirectly obtains the benefit of the rights, and the burden of the obligations, of the company under the contract.

Choosing the right transfer method

When faced with the need to transfer a contract, whether through assignment, novation, or an indirect method, it is important to consider several factors to determine the best option for your specific situation, including:

• The terms of the contract itself – examine the terms to identify any provisions that prohibit, allow, or impose conditions on the transfer of the contract. Understanding these contractual provisions will help determine the available options and any limitations associated with each method.
• Consider your ultimate goal in transferring the contract - evaluate which party should bear the responsibility for liability arising under the contract, both before and after the transfer. This assessment will help clarify which method of transfer aligns better with your desired outcomes.
• The commercial position of the parties - consider the commercial positions of the outgoing party, the continuing party, and the incoming party. Assess factors such as the willingness of the continuing party to provide consent for the transfer. Understanding the potential challenges or cooperation you may encounter from the relevant parties will assist in selecting the most viable transfer method.

By carefully evaluating these factors, you can make an informed decision on the most suitable transfer method for your specific circumstances.

For more information and to navigate the transfer process smoothly, please contact any member of the Sierra Legal team, whose contact details can be found here ( Link ).

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Novation and assignment

Changing the parties bound to a contract

What is novation, is novation a new contract, what is a deed of novation, why novation can be difficult, when do you use an assignment agreement to transfer a debt or obligation, transfer of a debt, transfer of service contracts.

Novation and assignment are ways for someone to transfer their interest in a contract to someone else.

Whilst the difference between assignment and novation is relatively small, it is an essential one. Assigning when you should novate could leave you in a position of being liable for your original contract when the other party is not liable to perform their obligations.

In contract law the principle of privity of contract means that only the parties to a contract have the obligation to fulfill it and the right to enforce it. Statute law has created a few exceptions but they apply rarely.

The legal concepts of novation and assignment have been developed to overcome the restrictions imposed by the doctrine.

Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of their original counter-party.

Novation in practice

Let us suppose Michael buys a car from Peter, owing him £5,000 as part of the sale price until Peter obtains a certifcate of authenticity.

Michael then sells the car to Fred under the same terms. Michael wants out, but has obligations to both parties.

Michael persuades Peter and Fred to enter into a novation agreement, signed by all three of them, whereby Fred takes over Michael’s obligations to Peter and Fred now deals with Peter in Michael’s place.

Other examples

The seller of a business transfers the contracts with their customers and suppliers to the buyer. A novation process transfers each contract by the mutual agreement of all three parties.

A design and build contractor in the construction industry transfers a construction contract to a new, substitute contractor. A novation agreement is necessary.

A novation agreement is a new contract that 'extinguishes' the old one.

Because it is a new contract, there can be new terms within it, giving additional rights and obligations.

There are times when and why you should use a deed explains exactly when you need to use one. Novation is not among them.

A Deed of Novation is a relic from long ago when lawyers were even more inclined to cloak their knowledge in obscurity.

One of the main purposes in using the deed format is that it provides the necessity for an unconnected witness to sign the document. So it is that much more difficult for one of the parties to say it was forged or signed a year later than the date shown.

But in a novation, there are at least three parties by definition; three parties who are most unlikely to be connected and each of whom has their separate interest. So you can be pretty sure the agreement has not been tampered with. A witness cannot improve on that. So you do not need a deed.

Another reason to use a deed could be when there is no 'consideration', that is when one of the original contracting parties receives no benefit - monetary or otherwise - in return fot the novation. However, in commercial circumstances you could nearly always argue that there is an advantage to each of the parties. The extinction of the old contract or subjectively more favourable terms within the new contract would both count as fair consideration.

Do you need a deed of novation for your situation? The answer is usually no, as an agreement is fine.

The exception to the rule is that if the original contract was signed as a deed, you need to use a deed to novate it. Real property transaction are by deed. That includes a consent to assign a lease, which has three parties. There are special reasons for that.

There are other examples too, which are more obscure.

When a contract is novated, the other (original) contracting party must be left in the same position as they were in prior to the novation being made.

Novation requires the agreement of all three parties. While obtaining the agreement of the transferor and transferee is easy, obtaining the agreement of the other original party can be more difficult:

The other original party may not understand the benefit to them of having the original contract novated and require extra information about the process that is time consuming to provide.

They may need extra assurance to be persuaded that they won’t be worse off as a result of the novation (especially common where there is a transfer of service contracts between suppliers).

It is possible that they could play up to delay the transfer and squeeze extra concessions from you.

The only way to transfer your rights or obligations is by an agreement signed by all three parties.

But what happens if you are a service provider selling your business with tens of thousands of customers? You can hardly ask every one of them to sign up to their own separate novation.

In practice, a well drawn original agreement will contain a provision which permits the service provider to assign (transfer its contract) without the permission of the customer.

But what happens if it does not?

In practice what happens is that the buyer 'takes a flyer'. The deal is done in the hope that the customers stay with the new owner.

Maybe the buyer obtains an indemnity from the seller to cover their loss if many leave. Maybe the buyer will write to the customers to encourage them to stay. Maybe the customers simply make the next payment and thereby confirm acceptance in law.

In each of those cases, the acquirer will be safe because the customers remain (or become) bound to the terms of the original contract.

Net Lawman offers an assignment agreement to cover that exact situation, together with a draft letter of the sort that might convince customers to stay with the new owner.

The other situation in which assignment is used is where the new party trusts the original party assigning the contract. For example, a subsidiary company may assign contractual obligations to a parent company confident that the parent will uphold the contract.

A construction company is a subsidary in a group. It is working in partnership with another business on several projects to build houses. The other business is a minor partner in the deal. The partnership has run out of money and the smaller partner is unable to inject any more funds. The parent business is unwilling to have its subsidiary fund the remainder of the projects by itself.

A solution may be for the parent to pay both its subsidiary and the third party for the construction contracts to be assigned to it (in other words, buy the contractual rights from the partnership). The assignment provisions would give the parent the obligation to finish the project, which it may be able to do without the third party.

Assignment transfers benefits only

Even if the assignee promises to take on the liability of the assignor to the third parties, the assignor remains personally liable if they fail to do so. An obligation to a third party cannot be assigned without their consent.

When assignment can invalidate your contract

Terms in an original contract can restrict or prohibit assignments. This is particularly common in construction contracts but can apply in any agreement. If you attempt to assign a contract that cannot be assigned, you risk invalidating the original contract.

Personal obligations and assignment

Be particularly careful of an assignment if your obligations can only be performed personally. A good example would be sale of a hair dressing business. Quite apart from the risk of the clients leaving, the actual forward appointments could be interpreted as contracts with the seller, even though they would have no way to fulfill them because they have sold the business.

Buying the right document

Very generally, if you are unsure whether you should assign or novate, we recommend that you novate and obtain consent of all parties. We offer a number of novation and assignment agreement templates for different situations.

For example: You borrow from a lender and you later want to transfer the debt to someone else (maybe a friend, a business partner or a the buyer of your business) so that they become liable to repay the lender instead of you. In this situation you should use an agreement that novates the debt .

This is a common consideration when a business is sold and outstanding debts of the business are transferred to the new owner (perhaps loans of money but maybe also loans of goods for sale).

Alternatively, you could novate in order to change who should pay back a personal loan between individuals.

Transfer of a right to receive the repayment of a debt

For example: You make a loan to someone (it could be money or goods) and later you want to change who receives the repayment (an agreement to change who the creditor is ).

The transaction might relate to the sale of a business where the buyer takes on the assets of the seller (the loans to other parties), or when factoring debt.

For example: You provide a service to someone and you want to transfer the obligation of providing that service to another person or company.

Again, a common use for a service contract novation agreement is where a business is sold and the buyer takes on the service contracts of the seller. The service could be in any industry, from a fixed period gardening contract to an on-going IT or website maintenance. Novation changes who is providing the service.

Transfer of an architectural or building contract

For example: You buy a building or property development that is still under construction and you want the existing contractor to continue work despite the original contract being between the contractor and the seller.

In this situation you should use a novation agreement for a building contract .

Our standard assignment agreement can be used for most assignments (exceptions given below). It is not specific to circumstances.

Assignment of a business lease

If you wish to transfer a commercial property lease to another business tenant during the fixed term, Net Lawman offers an agreement to assign a lease .

We have an article specifically about assigning a business lease that may be useful further reading.

It is not advisable to assign a residential tenancy agreement. We would suggest that you cancel the original agreement and draw up a new agreement with the new tenants.

Assignment of copyright

We have  number of assignment agreements for intellectual property rights .

They are effectively sale or transfer agreements where some rights are retained by the seller (such as to buyback the assigned work, or for the work only to be used in certain locations).

They relate to IP in media (such as a film or a music score) and to inventions.

Assignment of a life insurance policy or endowment policy

These agreements allows you to transfer the rights to receive payments from a life insurance policy or endowment policy. We offer both a deed of assignment of a policy on separation or divorce and a deed of assignment to gift or sell the policy to someone else .

Assignment and collateral warranties in the construction industry

Probably the most common use of assignment in the construction industry today is in relation to collateral warranties.

The collateral warranties given by consultants, contractors and sub-contractors in construction contracts are often assigned to subsequent owners or leases. Assignment can do no more than transfer rights available to the assignor. It is not capable of creating new rights and obligations in favour of an assignee.

So while the client can, in theory, assign the right to have a building adequately designed, it is unclear what right would be transferred to sue for damages in the event of breach. If the developer (who would usually be the assignor) has sold the building or created a full-repairing lease, then their right would be to nominal damages only. This is one situation where you should definitely use a deed of novation.

Articles > Startups

The Difference Between Assignment Deeds and Novation Deeds

August 25, 2021   Philip Evangelou

Assignment deeds and novation are used in different ways to create contractual changes which help achieve certain objectives. Novation deeds are legal documents used to transfer contractual rights and obligations to other parties, who are usually not party to the contract. 

What is The Difference Between Assignment and Novation

The main difference is that under assignment, you keep performing your contractual rights and obligations, but delegate part of them to a third party. You still maintain responsibility for the liability of those rights and obligations. 

In contrast, novation deeds transfer the entirety of your contractual rights and obligations to another party. Once the obligations are transferred from the original company to the third party, it is the third party who bears the responsibility of performing services and the right to receive compensation for those services. 

Different levels of consent are required based on whether it is a deed of novation or assignment. For a novation deed all parties must consent, including the other party to the original contract. Consent must also be given by the third party who will be taking over your contractual rights and obligations. 

Assignment deeds on the other hand may not require consent of all parties. To determine which parties must consent depends on the circumstances and requires inspection of the relevant deed or contract. 

When Can I Use a Deed of Novation?

It is most common to use a deed of novation when a business is being sold. 

This is because when a business is being sold, the business will have continuing contractual rights and obligations with other businesses such as suppliers or manufacturers. For example if you are selling a clothing business, you may have an existing supply agreement with your supplier. 

In this case, it would be in the best interests of all parties to transfer the rights and obligations under the contract to the new owners of the business. Here, the previous owners are free of their obligations under the contract, while the new owners have an effective supply chain in place and the suppliers are able to continue business as usual. 

What Exactly is a Deed?

Assignments and novations are most commonly in the form of a deed.

Deeds are legal documents whereby parties who sign the contract must have witnesses present, who also sign the contract. For the purpose of needing a witness present, assignments and novations usually require a physical meeting so the contract can be signed and effective at law.

On the other hand, ordinary contracts don’t require witnesses and can be perfected virtually or by telephone.  

About Philip Evangelou

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Difference Between Deed of Assignment and Deed of Novation

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The terms Deed of Assignment and Deed of Novation are often used interchangeably during legal negotiations and discussions, however, there are important differences between these deeds.

A ‘Deed of Assignment’ simply means an assignment of rights. In practice, an assignment of rights normally occurs when a third party that was not a party to the original agreement takes the benefit of another party’s contractual rights. An example of this might be where a financier or lender of money assigns or transfers their rights to recovery of a debt to a third party. Under a Deed of Assignment, the third party would not be bound by any terms of the original loan agreement between the lender and the defaulting party under the loan while taking the benefit of being able to recover the debt. Depending on the terms of the original agreement, rights may be assigned to a third party without obtaining consent from the other original party member.

On the other hand, a “Deed of Novation’ is an agreement in which a third party not only acquires the rights under a contract but also the obligations under the contract. This is effectively substituting an existing party to the contract with a new party without changing the rights under the original contract. A Deed of Novation will usually take the form of a ‘Tripartite Agreement’ meaning that both the original parties to the contract and the new third party all execute the Deed. A typical example of where a Deed of Novation would be appropriate is a tenant under a lease finding a new tenant to take over their existing lease.

Determining whether a Deed of Assignment or Deed of Novation is most appropriate in the circumstances requires consideration of the matter as a whole and the terms of the original agreement. These considerations can be complex, particularly where leases are involved as there are additional legal issues to consider when dealing with land rights.

If you would like further information on these and related issues please contact Tony Randall , from our Commerical Property Team .

Prepared by Byron Hunter

This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.

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What Is Novation?

How novation works, novation vs. assignment.

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Novation: Definition in Contract Law, Types, Uses, and Example

Investopedia / Julie Bang

Novation is the replacement of one of the parties in an agreement between two parties, with the consent of all three parties involved. To novate is to replace an old obligation with a new one.

For example, a supplier who wants to relinquish a business customer might find another source for the customer. If all three agree, the contract can be torn up and replaced with a new contract that differs only in the name of the supplier. The old supplier relinquishes all rights and obligations of the contract to the new supplier.

Key Takeaways

• To novate is to replace an old obligation with a new one.
• In contract law, a novation replaces one of the parties in a two-party agreement with a third party, with the agreement of all three parties.
• In a novate, the original contract is void. The party that drops out has given up its benefits and obligations.
• In the financial markets, using a clearinghouse to vet a transaction between two parties is known as a novation.
• Novation is different than an assignment, where the original party to the agreement retains ultimate responsibility. Therefore, the original contract remains in place.

In legal language, novation is a transfer of both the "benefits and the burdens" of a contract to another party. Contract benefits may be anything. For example, the benefit could be payments for services. The burdens are the obligations taken on to earn the payment—in this example, the services. One party to the contract is willing to forgo the benefits and relinquish the duties.

Canceling a contract can be messy, expensive, and bad for an entity's reputation. Arranging for another party to fulfill the contract on the same terms, with the agreement of all parties, is better business.

Novations are often seen in the construction industry, where subcontractors may be juggling several jobs at once. Contractors may transfer certain jobs to other contractors with the client's consent.

Novations are most frequently used when a business is sold, or a corporation is taken over. The new owner may want to retain the business's contractual obligations, while the other parties want to continue their agreements without interruption. Novations smooth the transition.

Types of Novations

There are three types of novations:

• Standard : This novation occurs when two parties agree that new terms must be added to their contract, resulting in a new one.
• Expromissio : Three parties must be involved in this novation; a transferor, a counterparty, and a transferee. All three must agree to the new terms and make a new contract.
• Delegation : One of the parties in a contract passes their responsibilities to a new party, legally binding that party to the terms of the contract.

A novation is an alternative to the procedure known as an assignment .

In an assignment, one person or business transfers rights or property to another person or business. But the assignment passes along only the benefits, while any obligations remain with the original contract party. Novations pass along both benefits and potential liabilities to the new party.

For example, a sub-lease is an assignment. The original rental contract remains in place. The landlord can hold the primary leaseholder responsible for damage or non-payment by the sub-letter.

Novation gives rights and the obligations to the new party, and the old one walks away. The original contract is nullified.

In property law, novation occurs when a tenant signs a lease over to another party, which assumes both the responsibility for the rent and the liability for any subsequent damages to the property, as indicated in the original lease.

Generally, an assignment and a novation require the approval of all three parties involved.

A sub-lease agreement is usually an assignment, not a novation. The primary leaseholder remains responsible for non-payment or damage.

Novation Uses

Because a novation replaces a contract, it can be used in any business, industry, or market where contracts are used.

Financial Markets

In financial markets, novations are generally used in credit default swaps, options, or futures when contracts are transferred to a derivatives  market clearinghouse. A bilateral transaction is completed through the clearinghouse , which functions as an intermediary.

The sellers transfer the rights to and obligations of their securities to the clearinghouse. The clearinghouse, in turn, sells the securities to the buyers. Both the transferor (the seller) and transferee (the buyer) must agree to the terms of the novation, and the remaining party (the clearinghouse) must consent by a specific deadline. If the remaining party doesn't consent, the transferor and transferee must book a new trade and go through the process again.

Real Estate

Contracts are a part of real estate transactions, so novation is a valuable tool in the industry. If buyers and sellers enter into a contract, novation allows them to change it when issues arise during due diligence, inspection, or closing.

Commercial and residential rental contracts can be changed using novation if tenants or renters experience changes that affect their needs or ability to make payments.

Government Contracting

Federal, state, and local governments find it cheaper and beneficial for the economy to contract specific tasks rather than create an official workforce. Contracts are critical components for private or public companies who win a bid to do work for governments. If the contractor suddenly can't deliver on the contract or other issues prevent it from completing its task, the contractor can ask the government to recognize another party to complete the project.

A novation is not a unilateral contract mechanism. All concerned parties may negotiate the terms until a consensus is reached.

Banks use novation to transfer loans or other debts to different lenders. This typically involves canceling the contract and creating a new one with the exact terms and conditions of the old one.

Example of Novation

Novation can occur between any two parties. Consider the following example—Maria signed a contract with Chris to buy a cryptocurrency for $200. Chris has a contract with Uni for the same type of cryptocurrency for $200. These debt obligations may be simplified through a novation. By agreement of all three parties, a novation agreement is drawn, with a new contract in which Chris transfers the debt and its obligations to Maria. Maria pays Uni $200 in crypto. Chris receives (and pays) nothing.

Novations also allow for revisions of payment terms as long as the parties involved agree. For example, say Uni decided not to accept crypto but wanted cash instead. If Maria agrees, a novation occurs, and new payment terms are entered on a contract.

What Is a Novation?

In novation, one party in a two-party agreement gives up all rights and obligations outlined in a contract to a third party. As a result, the original contract is canceled.

What Is The Meaning of Novation Agreement?

In novation, the rights and obligations of one party to a two-party contract are transferred to a third party, with the agreement of all three parties.

Is Novation a New Contract?

Yes, because the old contract is invalidated or "extinguished" when the new contract is signed.

In a novation, when all parties agree, one party in a two-party agreement gives up all rights and obligations outlined in a contract to a third party. As a result, the original contract is canceled.

Novation differs from an assignment, where one party gives up all rights outlined in the contract but remains responsible for fulfilling its terms. The original contract remains in place.

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The Unique Burial of a Child of Early Scythian Time at the Cemetery of Saryg-Bulun (Tuva)

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In 1988, the Tuvan Archaeological Expedition (led by M. E. Kilunovskaya and V. A. Semenov) discovered a unique burial of the early Iron Age at Saryg-Bulun in Central Tuva. There are two burial mounds of the Aldy-Bel culture dated by 7th century BC. Within the barrows, which adjoined one another, forming a figure-of-eight, there were discovered 7 burials, from which a representative collection of artifacts was recovered. Burial 5 was the most unique, it was found in a coffin made of a larch trunk, with a tightly closed lid. Due to the preservative properties of larch and lack of air access, the coffin contained a well-preserved mummy of a child with an accompanying set of grave goods. The interred individual retained the skin on his face and had a leather headdress painted with red pigment and a coat, sewn from jerboa fur. The coat was belted with a leather belt with bronze ornaments and buckles. Besides that, a leather quiver with arrows with the shafts decorated with painted ornaments, fully preserved battle pick and a bow were buried in the coffin. Unexpectedly, the full-genomic analysis, showed that the individual was female. This fact opens a new aspect in the study of the social history of the Scythian society and perhaps brings us back to the myth of the Amazons, discussed by Herodotus. Of course, this discovery is unique in its preservation for the Scythian culture of Tuva and requires careful study and conservation.

Keywords: Tuva, Early Iron Age, early Scythian period, Aldy-Bel culture, barrow, burial in the coffin, mummy, full genome sequencing, aDNA

Information about authors: Marina Kilunovskaya (Saint Petersburg, Russian Federation). Candidate of Historical Sciences. Institute for the History of Material Culture of the Russian Academy of Sciences. Dvortsovaya Emb., 18, Saint Petersburg, 191186, Russian Federation E-mail: [email protected] Vladimir Semenov (Saint Petersburg, Russian Federation). Candidate of Historical Sciences. Institute for the History of Material Culture of the Russian Academy of Sciences. Dvortsovaya Emb., 18, Saint Petersburg, 191186, Russian Federation E-mail: [email protected] Varvara Busova  (Moscow, Russian Federation).  (Saint Petersburg, Russian Federation). Institute for the History of Material Culture of the Russian Academy of Sciences.  Dvortsovaya Emb., 18, Saint Petersburg, 191186, Russian Federation E-mail:  [email protected] Kharis Mustafin  (Moscow, Russian Federation). Candidate of Technical Sciences. Moscow Institute of Physics and Technology.  Institutsky Lane, 9, Dolgoprudny, 141701, Moscow Oblast, Russian Federation E-mail:  [email protected] Irina Alborova  (Moscow, Russian Federation). Candidate of Biological Sciences. Moscow Institute of Physics and Technology.  Institutsky Lane, 9, Dolgoprudny, 141701, Moscow Oblast, Russian Federation E-mail:  [email protected] Alina Matzvai  (Moscow, Russian Federation). Moscow Institute of Physics and Technology.  Institutsky Lane, 9, Dolgoprudny, 141701, Moscow Oblast, Russian Federation E-mail:  [email protected]

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Out of the Centre

Savvino-storozhevsky monastery and museum.

Zvenigorod's most famous sight is the Savvino-Storozhevsky Monastery, which was founded in 1398 by the monk Savva from the Troitse-Sergieva Lavra, at the invitation and with the support of Prince Yury Dmitrievich of Zvenigorod. Savva was later canonised as St Sabbas (Savva) of Storozhev. The monastery late flourished under the reign of Tsar Alexis, who chose the monastery as his family church and often went on pilgrimage there and made lots of donations to it. Most of the monastery’s buildings date from this time. The monastery is heavily fortified with thick walls and six towers, the most impressive of which is the Krasny Tower which also serves as the eastern entrance. The monastery was closed in 1918 and only reopened in 1995. In 1998 Patriarch Alexius II took part in a service to return the relics of St Sabbas to the monastery. Today the monastery has the status of a stauropegic monastery, which is second in status to a lavra. In addition to being a working monastery, it also holds the Zvenigorod Historical, Architectural and Art Museum.

Belfry and Neighbouring Churches

Located near the main entrance is the monastery's belfry which is perhaps the calling card of the monastery due to its uniqueness. It was built in the 1650s and the St Sergius of Radonezh’s Church was opened on the middle tier in the mid-17th century, although it was originally dedicated to the Trinity. The belfry's 35-tonne Great Bladgovestny Bell fell in 1941 and was only restored and returned in 2003. Attached to the belfry is a large refectory and the Transfiguration Church, both of which were built on the orders of Tsar Alexis in the 1650s.  

To the left of the belfry is another, smaller, refectory which is attached to the Trinity Gate-Church, which was also constructed in the 1650s on the orders of Tsar Alexis who made it his own family church. The church is elaborately decorated with colourful trims and underneath the archway is a beautiful 19th century fresco.

Nativity of Virgin Mary Cathedral

The Nativity of Virgin Mary Cathedral is the oldest building in the monastery and among the oldest buildings in the Moscow Region. It was built between 1404 and 1405 during the lifetime of St Sabbas and using the funds of Prince Yury of Zvenigorod. The white-stone cathedral is a standard four-pillar design with a single golden dome. After the death of St Sabbas he was interred in the cathedral and a new altar dedicated to him was added.

Under the reign of Tsar Alexis the cathedral was decorated with frescoes by Stepan Ryazanets, some of which remain today. Tsar Alexis also presented the cathedral with a five-tier iconostasis, the top row of icons have been preserved.

Tsaritsa's Chambers

The Nativity of Virgin Mary Cathedral is located between the Tsaritsa's Chambers of the left and the Palace of Tsar Alexis on the right. The Tsaritsa's Chambers were built in the mid-17th century for the wife of Tsar Alexey - Tsaritsa Maria Ilinichna Miloskavskaya. The design of the building is influenced by the ancient Russian architectural style. Is prettier than the Tsar's chambers opposite, being red in colour with elaborately decorated window frames and entrance.

At present the Tsaritsa's Chambers houses the Zvenigorod Historical, Architectural and Art Museum. Among its displays is an accurate recreation of the interior of a noble lady's chambers including furniture, decorations and a decorated tiled oven, and an exhibition on the history of Zvenigorod and the monastery.

Palace of Tsar Alexis

The Palace of Tsar Alexis was built in the 1650s and is now one of the best surviving examples of non-religious architecture of that era. It was built especially for Tsar Alexis who often visited the monastery on religious pilgrimages. Its most striking feature is its pretty row of nine chimney spouts which resemble towers.

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