The following Construction guidance note provides comprehensive and up to date legal information covering:
Novation is the transfer of one party’s rights and obligations under a contract to a third party. Novation effectively substitutes a contracting party (the 'outgoing party') with a new party (the 'incoming party') and, in legal terms, it amounts to the extinguishing of the original contract and the creation of a new contract under which the same obligations are to be performed, but by different parties.
Novation must be distinguished from assignment: assignment only permits the benefits of a contract to be transferred, whereas novation allows both the benefit and the burden to be transferred to the incoming third party. Benefits of a contract include the right to performance of that contract; burdens include contractual obligations such as the duty to perform the obligations and to make payments under the contract. See Practice Notes: Assignment in construction contracts and Legal and equitable assignment in construction contracts.
Novation is most commonly used in construction projects in the following circumstances:
transfer of design consultants’ appointments from the employer to a design and build contractor. The design consultant provides design services to the employer until such time as a building contractor is employed. When the employer and design and build contractor enter into the building contract, the consultant’s appointment is novated to the contractor
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