Q&As

Is it possible to have a deemed novation of a contract?

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Produced in partnership with Lynne Counsell of 9 Stone Buildings
Published on LexisPSL on 13/05/2020

The following Commercial Q&A produced in partnership with Lynne Counsell of 9 Stone Buildings provides comprehensive and up to date legal information covering:

  • Is it possible to have a deemed novation of a contract?
  • Novation
  • Requirements for novation
  • Deemed novation
  • Summary

Is it possible to have a deemed novation of a contract?

Novation

Novation is the legal substitution of a new contract in place of an old one. It is the process whereby an existing contract is replaced with a duplicate or similar contract under which a third party assumes the rights and liabilities of one of the parties to the original contract. See Practice Note: Novation—why and how to novate a contract and Drafting and negotiating a novation—checklist.

The effect of novation is to extinguish the existing contract and create a new contract. It does not necessarily cancel past rights and liabilities under the original contract, although the parties can agree to novate those as well.

Novation can occur in all types of commercial contracts, from those comprising simple debts to takeovers, sale of businesses, banking transactions and construction contracts.

Requirements for novation

In order for there to be a valid novation, there are two essential requirements. It is necessary for all parties to consent to the novation. Further, there must be consideration for the new contract (which may be in the form of mutual promises) or the transaction must otherwise be made by deed.

A novation is usually entered into in writing or by deed of novation. See, Precedent: Deed of Novation and Commentary: 72.8 Novation agreement: Encyclopaedia of Forms and Precedents, Boilerplate and

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