Novation—why and how to novate a contract
Produced in partnership with Jon Chapman of Clarkslegal LLP
Novation—why and how to novate a contract

The following Dispute Resolution practice note Produced in partnership with Jon Chapman of Clarkslegal LLP provides comprehensive and up to date legal information covering:

  • Novation—why and how to novate a contract
  • What is novation of a contract?
  • Novation distinguished from assignment
  • Novation distinguished from variation
  • Novation of a contract—consideration and consent required
  • Consideration
  • Consent
  • What is quasi-novation?
  • What is the effect of novation?
  • Limitation issues when novating a contract
  • More...

There may be times when, rather than assigning the benefit of an agreement to a third party, the original parties wish instead to end their obligations to each other under that agreement and, in effect, recreate it, with the third party stepping into the shoes of one of the original parties. This is the common form of novation.

When advising a client, you should be aware of the requirements for a valid novation and the consequences for the incoming party and the outgoing novation party when a novation takes place, which may be possible to avoid at the time of drafting the novation. A Precedent: Novation agreement—long form is provided.

What is novation of a contract?

Novation occurs when A and B are party to an agreement and B 'transfers' its obligations and rights under the agreement to C, such that C can be said to 'step into the shoes' of B, with a resulting contractual relationship coming into effect between A and C.

The effect of a novation is extinction of the original contract, and its substitution with a new contract, under which the same rights and obligations are to be enjoyed and performed but by different parties, with the outgoing party released from all future liabilities under the contract.

Parties to a novation will usually be the same parties that would be parties to an assignment.

For the

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