novation and assignment agreement template

Assignment And Novation Agreement

Jump to section, what is an assignment and novation agreement.

An assignment and novation agreement is a contract between two parties where one gives up their rights and responsibilities under an original contract. An assignment cancels the original contract and transfers the rights and responsibilities of one of the parties to another, third party. In novation, one of the parties surrenders their rights but retains the duties they took on under the original contract.

Each of these agreements allow a contract party to give up their rights if they desire. The specific type of agreement necessary depends on whether both parties can agree to removing both rights and responsibilities and canceling the original agreement

Common Sections in Assignment And Novation Agreements

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

Assignment And Novation Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.4 5 ex10-4.htm ASSIGNMENT AND NOVATION AGREEMENT , Viewed September 18, 2022, View Source on SEC .

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Novation agreement template

Novation agreements ensure that rights and obligations transfer seamlessly from one party to another. This free novation agreement template can support with the transition.

Novation agreements ensure a smooth transition of rights and obligations from one party to another. That's why it's important to get them right first time.

This guide talks about all things novation contract agreement – we even have a free novation agreement template below for you to use as a starting point.

What is a novation contract agreement?

Novation is when a party to a contract transfers their rights, obligations, or liabilities to someone else who wasn’t involved in the original contract

A novation agreement is a legal contract involving three parties. It enables the transfer of rights and responsibilities from one party to another with the full consent of everyone involved.

This means, the party that initially held certain rights and obligations (termed the 'outgoing party' or 'transferor') can pass these on to another party (termed the 'incoming party' or 'transferee').

An example, of novation may be when a small supplier/business changes location and finds their business customer another source to replace them directly.

The most important thing to note here is that the original agreement gets superseded by this new arrangement, effectively forming a fresh contract between the continuing party and the incoming party.

Why are novation agreements important?

Novation agreements are especially important when:

• selling or transferring the ownership of a company or its assets;
• adjusting debt agreements; or
• amending service contracts when outsourcing. 

By ensuring a legal and mutual transfer of obligations and rights, novation agreements reduce potential disputes and enable smoother transitions.

When is a novation agreement required?

A novation agreement comes into play in various situations where it's necessary to transfer the rights and obligations of an existing contract to a new party. Below, we've listed some of the most common scenarios where a novation agreement might be required:

• Change of service provider: If your business decides to switch service providers, a novation agreement will be crucial to transfer the existing contract from the current service provider to the new one. ‍
• Business sale or merger: During the sale, merger, or acquisition of a company, novation contract agreements allow for the smooth transfer of contracts associated with the business from the old owner(s) to the new one(s). ‍
• Debt restructuring: In the case of debt restructuring or refinancing, novation agreements can be used to replace the debtor while keeping the remaining terms of the loan intact. ‍
• Property lease transfers: When a tenant wants to move out before the end of the lease term, a novation agreement can be used to replace the original tenant with a new one in the lease agreement. (Need a property management agreement template ?) ‍
• Contractual risk management: If a party to a contract is at risk of not being able to fulfil their contractual obligations , a novation agreement can be used to replace them with a party who can. ‍
• Employee role changes: If an employee's role changes significantly, such as a promotion or transfer to another department, a novation agreement can be used to replace the original employment contract with a new one that reflects the new role.

In essence, anytime you need to replace one party in a contract with another, while keeping the rest of the contract intact, you should consider using a novation agreement.

However, it's essential that you obtain legal advice to ensure that a novation agreement is appropriate for your specific circumstances.

What should a novation agreement template include?

A novation agreement must contain specific elements to ensure it is legally valid and to clearly outline the rights and obligations of all parties involved. A novation agreement should include:

1. Identification of parties

‍ Clearly identify all three parties involved - the outgoing party (the one transferring the obligations and rights), the incoming party (the one receiving the obligations and rights), and the remaining party (the one whose relationship with the outgoing party will end and begin afresh with the incoming party).

2. Details of the original contract

‍ The agreement should specify and reference the original contract that's being replaced. This includes its date, the parties involved, and its essential terms and conditions. The objective is to clearly establish the foundation upon which the novation is occurring.

3. Novation details

‍ The agreement should explicitly state that the rights and obligations of the outgoing party are being transferred to the incoming party. The incoming party should accept these obligations and rights, and the remaining party should consent to the replacement of the outgoing party.

4. Release clause

‍ There should be a clear statement that the continuing party releases the outgoing party from any future obligations under the original contract. This absolves the outgoing party of any liability for future performance of the contract .

5. Indemnity clause

‍ The agreement should include an indemnity clause where the incoming party agrees to indemnify, or compensate, the outgoing party for any losses arising from any breaches of the contract that occur after the novation.

This ensures the outgoing party isn't held responsible for actions of the incoming party after the novation takes place.

6. Governing law

‍ Specify the jurisdiction or the legal system that will interpret the novation agreement and manage any disputes that may arise. This is often the same jurisdiction as the one specified in the original contract.

7. Execution details

‍ Finally, the agreement should contain a place for all parties to sign and date. The signatures indicate all parties' acceptance of the novation agreement.

Remember, these are just the standard elements of a novation agreement. Depending on the circumstances and the jurisdiction, more detailed terms may be required.

Always consult with a legal professional when drafting a novation agreement to ensure it accurately reflects the intent of all parties and complies with applicable laws. After all, novation agreements are versatile and can be used in a wide variety of scenarios. No template will or can be one-size-fits-all.

How do novation agreements typically work?

The creation and management of novation agreements, when handled manually, can be a complex and time-consuming process.

iIt often involves various steps that demand careful attention. Which include:

1. Identifying the need for a novation agreement

‍ This is the initial stage of novation. This stages determines if the responsibilities and rights of an existing contract should be transferred from one party to another or not.

This usually involves a lot of consideration and a discussion with various stakeholders to decide which course of action to take.

2. Consulting with legal teams

Consulting with your in-house legal team is crucial to making sure you understand the nuances of novation and the implications of the new arrangement. Missing this important step may land you in difficulty later down the line.

3. Drafting the novation agreement

Once you've established how you want the novation to work, you need to draft the novation agreement. How you do this varies depending on whether you have a novation agreement template in place or not.

If you do, you'll need to populate and edit the novation agreement template manually to tailor it to your specific needs. This involves describing the original contract, the parties involved, and the exact obligations and rights being transferred.

But if you don't have a novation agreement template to hand, you'll need to ask your legal team to draft one from scratch for you. This can take a while given that legal teams often report feeling buried in low value work.

4. Reviewing and negotiation

‍ This stage often involves multiple rounds of review and amendments to ensure all parties are satisfied with the terms of the agreement.

This is a repetitive process that happens across multiple different tools, with redlines, comments and suggestions bouncing back and forth via email and across new versions of the novation agreement.

5. Signing the agreement

‍ After extensive reviews and negotiations, the agreement is manually signed by each party, thereby cementing the terms legally.

Traditionally, the novation agreement would be signed in wet ink . However, it's often signed using an electronic signature tool today since this gives parties the freedom to sign contracts online.

6. Post-signature contract management

‍ After the agreement is signed, it needs to be managed. This ranges from monitoring the compliance of the incoming party with the transferred obligations and ensuring the outgoing party is released from their obligations to manually tracking any breaches or disputes that might arise.

This post-signature contract management process is completed through physical filing systems or spreadsheets, which can be challenging to keep organized and updated.

How can Juro help to manage your novation agreement template?

1. automated contract drafting.

We can help. Juro enables you to automate your novation agreement templates, simplifying the contract drafting process . The platform's intuitive editor allows parties to generate novation agreements in seconds using automated contract templates .

2. Collaborative review and negotiation

‍ Juro offers a collaborative workspace where contract terms can be discussed, negotiated, and agreed upon in real-time - all within your browser. This eliminates the need for lengthy email threads, reduces miscommunication, and accelerates the agreement process.

3. Electronic signing

Juro's native electronic signature enables signatories to sign novation agreements on any device, rather than them having to be present in-person to sign the contract in wet ink.

Not only is this convenient, but it also speeds up the signing process considerably compared to manual signing.

4. Secure storage and tracking

‍ Juro's software keeps all your contracts in one place, ensuring that monitoring contract compliance , tracking obligations, and managing potential disputes is made easier and more efficient.

Juro also integrates seamlessly with platforms you already use, like Salesforce , Google Drive , and Slack , enabling data to move seamlessly between platforms.

5. Automated reminders and notifications

‍ Juro takes the task of manually remembering key dates and actions off your shoulders by providing automatic reminders and notifications for your novation agreements.

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Creating a Novation Agreement: A Step-by-Step Guide

14 May 2021

A novation agreement is a three-way contract, where one original party transfers his/her contractual rights and obligations to a new party, following the consent of the other party in the original contract (the "counterparty"). All parties must consent to the contract. This is different from an assignment, where the obligations of a contract cannot be transferred.

Understanding when to use a novation contract or an assignment is crucial. Since creating novation agreements can be a complex process, business owners must understand what constitutes a valid novation and how it differs from an assignment.

This article will explain what novation is and how to write a novation agreement, and clarify how it differs from an assignment.  

What is a novation agreement?

Novation is a contract in which a third party takes up the obligations and rights of one of the original parties to the original contract. Through this process, the original contract is extinguished and replaced by a new contract. The obligations of the third party in this new contract will be identical to the rights and obligations of one of the original parties under the original contract.

In a novation, both the rights and obligations of a contract are transferred to a third party. Rights (or benefits) refer to the entitlements of a party under a contract. Common examples of rights include the right to sue and the right to seek compensation. Obligations (or burdens) refer to the duties a party must fulfil under a contract. Common examples of obligations include making payments and delivering goods.

Novation is particularly common in the sale of business transactions. In a sale of a business transaction, the seller transfers the ownership of all its assets to the buyer, including contracts with third parties. Novation is often used to achieve this, as it transfers both the rights and obligations of a contract to the other party.

Another key point to note with novation agreements is that all three parties must agree to the novation. This means that all three parties must sign. The three parties are:

Transferor: The party who is transferring rights and obligations as part of a novation.

Transferee: The party to whom rights and obligations are being transferred as part of a novation.

Counterparty: The party against whom the rights and obligations being transferred are held. The counterparty is the other party to the original contract along with the transferor.

Example of a novation agreement

Here is an example of a novation agreement: 

Andy enters a contract to sell a motorbike to John. The contract specifies that Andy is to deliver the bike to John in a week and receive John’s payment in a week.

Before John pays Andy, John enters a contract to sell the motorbike to Mary for its purchase price, on the same terms.

Now, John has obligations to both Andy and Mary – he must pay Andy for the motorbike and sell the motorbike to Mary.

John convinces both Andy and Mary to enter into a novation agreement, signed and agreed to by all three of them. As a result of this novation agreement, the contract between Andy and John is extinguished and no longer exists. A new contract between Andy and Mary has been created, where Mary has the same rights and obligations to Andy as John previously had and owed to Andy.

Mary has essentially taken over John’s place in the transaction.

What happens after a novation agreement is completed?

When a novation agreement is agreed to and signed by all three parties, the original contracting parties (i.e. the transferor and the counterparty) are released from liabilities arising from the original agreement before the date that the novation is to become effective.

How do I write a novation agreement?

There are many things to remember when writing a novation agreement. In this section, we will walk you through the key components of every novation agreement.

1) Preamble of the agreement

The preamble of an agreement constitutes the first section of an agreement, which states the names and places of business of the parties.

Unlike typical agreements which have two parties, a novation agreement has three. The three parties include the two original parties to the contract (i.e. the transferor and the counterparty) and the new party to whom the rights and obligations will be novated (i.e. the transferee).

The preamble should include details of all three parties, such as the names and principal places of business.

2) Novation

This clause will effectuate the novation.

This clause will state that the transferee shall become a party to the agreement at issue in the place of the transferor. It will state that the transferee is to be subject to the same obligations as the transferor under the original agreement and is to benefit from the same rights as the transferor under the original agreement.

3) Further assurances

This is a boilerplate clause that states that all three parties to the novation agreement will do what is necessary to ensure that the novation agreement will be effective.

4) Counterparts

This clause ensures that even if the parties sign two separate copies of the same agreement, the two copies will be taken together and will constitute one complete agreement.

This is an example of a boilerplate clause. Boilerplate clauses are a set of commonly found clauses in a contract. You can learn more about what boilerplate clauses are here .

5) Mutual Release

Novation agreements often have mutual releases . This means that the transferor and the counterparty will release each other from all liabilities arising from the performance of the original agreement.

6) No Third-Party Rights Under Agreements

A clause is usually included in novation agreements limiting the ability of third parties (persons who are not a party to the contract) to enforce any rights in the contract.

7) Governing Law

This clause specifies which jurisdiction’s laws the contract is to be subject to and interpreted in accordance with.

You can learn more about governing law and jurisdiction clauses here .

Novation Agreement Template 

Drafting a novation agreement is challenging and it is easy to miss out on key information. Don’t worry - we have prepared a sample novation agreement for you to use. There are two types of novation agreements - one for a full transfer and release and another for a partial transfer and release .

A novation agreement for full transfer and release involves the transfer of all rights and obligations to a third party. You can find this agreement here .

A novation agreement for partial transfer and release involves the transfer of only some of the rights and obligations to a third party. You can find this agreement here .

What is an assignment?

An assignment is a process wherein a party transfers its rights under a contract to another third party.

Generally, a party to a contract (i.e. the assignor), can assign its rights under a contract to a third party (i.e. the assignee) without the consent of the party against whom the rights are held (i.e. the counterparty).

This is unless the contract between the assignor and the counterparty prohibits or otherwise limits the assignment of rights. Often, contracts restrict the assignment of rights unless the written consent of the counterparty is obtained. An exemplar clause to this effect looks like this:

“Neither party hereto may assign any of its rights or obligations hereunder to any other person, without the prior written consent of the other party hereto.”

Example of an assignment

Andy enters a contract to sell a painting to John for $100. The contract states that Andy will give John the painting and will receive payment from John in one week.

Andy also owes $100 to Mary. The last date to repay Mary is also in one week. Andy does not expect to have any money to pay Mary.

To resolve this situation, Andy proceeds to assign his rights under his contract with John to Mary by entering into an assignment agreement with Mary.

Now, Mary is entitled to receive the $100 from John, ensuring that she is fully repaid by Andy.

It is important to remember that only rights can be transferred through an assignment. As such, Andy would still be subject to certain obligations under his agreement with John, which include selling the painting to John in one week.

What is the difference between an assignment and a novation?

Novation and assignment are similar concepts and are, therefore, often confused between one another.  

Novation involves three parties. All three parties (i.e. the transferor, the transferee, and the counterparty) must agree to the novation. An assignment, on the other hand, only needs to be signed by the assignee and the assignor - it is a two-party agreement.   The counterparty does not have to sign.

Furthermore, both rights and obligations can be transferred through a novation, while an assignment only transfers rights .

What are the downsides to using a novation?

A novation can be difficult to execute. The difficulty arises from the fact that all three parties involved in a novation must agree to the novation. Generally, it is not very difficult to obtain the consent of the transferor and the transferee.

However, it can be difficult to obtain the consent of the counterparty. This is because the counterparty may think that they will not benefit in any way from such a novation. This may lead to the counterparty renegotiating key points in the agreement to obtain certain concessions in the agreement.

On the other hand, in an assignment, the counterparty’s consent is not necessary . Usually, only consent from the assignor and the assignee is necessary. The assignor simply needs to provide notice to the counterparty to inform them of the assignment.

Assignment agreement template 

If you are looking to assign your rights under a contract, you will need to draft an assignment agreement.

We have created one for you to use for any commercial contract. You can find it here .

We have also created a sample assignment agreement specifically for assigning intellectual property rights. You can find it here .

We also have an assignment agreement specifically for assigning patent rights. You can find it here .

Please note that this is a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may be different, you may wish to consult your lawyer.

Pooja Batra

Pooja has more than 8 years of in-house legal experience in large mnc’s. she has advised on a wide range of corporate and commercial matters including drafting, reviewing and negotiating a variety of commercial contracts and other agreements across various business lines. if you would like to become a contributor to docpro, please click the link below:, novation agreement, agreement to novate, assignment agreement, agreement to assign, what is novation, novating contracts, novating a contract, contract for novation, assignment vs novation, novation vs assignment, novation real estate, novation agreement format, what is a novation agreement, novation contract, related posts.

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Assignment and Assumption Agreement and Optional Novation | Practical Law

Assignment and Assumption Agreement and Optional Novation

Practical law standard document 6-519-2171  (approx. 21 pages).

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Novation Agreement Template

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

NOVATION AGREEMENT

This Novation Agreement (the “Novation”) is made as of the date of execution on the signature page below by and between [PARTY ASSIGNING THE AGREEMENT] , (the “Transferor”), and [PARTY BEING ASSIGNED THE AGREEMENT] (the “Party in Substitution”), with each having a place of business at the address indicated on the signature page below. Both the Transferor and the Party in Substitution may be referred to individually as a “Party” and collectively as the “Parties.”

WHEREAS, the Transferor entered into an agreement with [THIRD PARTY] (the “Other Party”) whereby [DESCRIBE AGREEMENT BETWEEN ASSIGNOR AND THIRD PARTY] on or around [DATE] (the “Agreement”);

WHEREAS, on or around [DATE] the Transferor obtained written consent from the Other Party to the novation of the Agreement to the Party in Substitution;

WHEREAS, the Party in Substitution has received a copy of the Agreement and agrees to perform pursuant to the terms and conditions articulated therein; and

WHEREAS, the Party in Substitution hereby accepts the novation pursuant to the terms and conditions hereunder.  

NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions set forth herein, the Parties agree as follows:

NOVATION. Effective [DATE] (the “Effective Date”), the Party in Substitution shall be substituted for Transferor in the Agreement and shall assume all obligations and rights thereunder. The Party in Substitution undertakes to fully perform all such obligations under the Agreement in the place of Transferor and covenants to the Other Party to perform accordingly.

CONSIDERATION. In consideration of the novation granted hereunder, the Party in Substitution agrees and acknowledges that it shall pay to the Transferor $ [AMOUNT] on or before three (3) days from the date of this Novation. The Parties agree and acknowledge that the assignment hereunder shall not be effective until such amount is paid accordingly.  

RELEASE. The Parties agree and acknowledge that the Transferor is hereby relieved from all obligations under the Agreement and as such: (i) the Other Party may not make any claim against the Transferor regarding the performance of the Agreement and (ii) the Party in Substitution shall be held liable for any and all matters arising under the Agreement.

INDEMNIFICATION. To the extent permitted by applicable law, the Transferor shall indemnify the Party in Substitution against all suits, claims, causes of action that the Other Party asserts against the Party in Substitution arising under or with respect to the Agreement, any other documents or instruments delivered pursuant thereto, or otherwise based on or related to any of the foregoing, including, but not limited to, contract claims, statutory claims, tort claims, and all other claims at law or in equity with respect to the rights and obligations sold and assigned pursuant to this Assignment that arise on or prior to the Effective Date

REPRESENTATIONS AND WARRANTIES. The Transferor represents and warrants that: (i) it is the legal and beneficial owner of the rights assigned hereunder; (ii) the rights assigned hereunder are free and clear of any lien, encumbrance, or other adverse claim to the best of its knowledge; (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Novation and to consummate the transactions contemplated herein.

MISCELLANEOUS.

Independent Representation. Each Party acknowledges that he or she has been represented by independent legal counsel of his or her own choice throughout all of the negotiations which preceded the execution of this Novation (or has waived such right) and that he or she has executed this Novation with the consent and upon the advice of such independent legal counsel.

• Novation. No Party may assign or transfer its rights or obligations under or interest in this Novation without the prior written consent of the other Party.
• Integration. This Novation constitutes the entire understanding and agreement of the Parties with respect to its subject and supersedes any prior agreements.
• No Waiver. No term of this Novation may be waived, modified, or amended except by an instrument in writing signed by both of the Parties. Any waiver of the terms hereof shall be effective only in the specific instance and for the specific purpose given.
• Governing Law; Venue. This Novation shall be construed with and governed by the substantive laws of the State of [STATE] . Should any claim or controversy arise between the Parties under the terms of this Note or in furtherance of this Novation, such claim or controversy shall be resolved only in the state or federal courts located in [COUNTY, STATE] .
• Counterparts. This Novation may be executed in one or more counterparts, each of which shall be deemed original, but all of which together shall constitute one and the same instrument.
• Notices. All notices, requests, demands and other communications required or permitted under this Novation shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as Federal Express, or by other messenger) or when deposited in the United States mail, registered or certified mail, postage prepaid, return receipt requested, or by email, addressed as set forth below or as communicated by either Party after the execution of this Novation:

Name: [NAME]

Address: [ADDRESS]

Email Address: [EMAIL ADDRESS]

Party in Substitution

• Attorney’s Fees. The prevailing party in any action arising out of this Novation shall be entitled to recover reasonable attorney’s fees as part of any judgment

[signature page to follow]

IN WITNESS WHEREOF, the Parties have executed this Novation in accordance with the dates as indicated below.

[ASSIGNOR]:

_______________________________ _________

Signature Date

_____________________________________________

City, State, Zip

[ASSIGNEE]:

_______________________________ _________  

[OTHER PARTY]:

Our templates are intended for reference use. Concord holds no responsibility for any reliance placed on these templates. These templates do not constitute legal counsel and should not be treated as such. By using any of these templates, you acknowledge and consent to these conditions.

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Novation and assignment agreements

These agreements change the parties to a contract, transferring the benefits and obligations to another business or individual.

Our agreements have been drawn for common situations such as transfer of customer contracts on business sale, or the transfer of a life insurance policy.

If you aren't sure whether to novate or assign, this article explains the difference.

• Download a Template
• Topic Overview

Assignment agreement

This agreement can be used to transfer a wide range of contracts. Commonly, it is used to assign a large number of customer contracts from the seller of a business to the buyer, either where novation is impractical, or where the original contracts allow assignment.

For example, a website hosting service provider sells its UK contracts, or a white goods retailer sells its maintenance contracts.

We also include a template letter to customers informing them of the assignment, so that you can ensure a successful future relationship with your new clients or customers.

The agreement can be used if one party is resident outside the UK.

Deed of assignment: life or endowment policy on divorce

This deed of assignment transfers the rights to an insurance policy or endowment policy to your former spouse or partner.

Use by agreement or by order of the Court, to transfer your entire interest, whether all or a half share.

The transfer will be complete and valid only when the insurer has been formally notified. As well as the deed document, we have included a template notice for that purpose.

Taxation of life assurance policies is complex and we recommend that you consult with a tax accountant. The effect of tax is an important consideration in assessing the value to the assignee of the policy.

Deed of assignment: life or endowment policy by trustees

This deed of assignment transfers an endowment or other life assurance policy from trustees to beneficiary.

It includes a template notice to the insurer that the policy has been transferred.

Deed of assignment: life insurance policy or endowment policy

This deed transfers the rights to receive an insurance policy (including an endowment policy) to some other person or company, for money or value.

It is a clear, simple document, easy to complete even if you have not carried out such a transaction before.

It includes reasonable warranties by the seller and undertakings by the buyer.

The transfer becomes complete and valid only when the insurer has been formally notified. As well as the deed document, we have included a template notice that the assignment has taken place. This may or may not be useful to you: your insurer may prefer you to use their own form, but sometimes other parties, like your bank, also need to know or appreciate being told.

Alternative documents

We offer a simpler version of this document if you are a trustee assigning the policy to a beneficiary. See Deed of assignment: life or endowment policy by trustees.

For a divorce or separation situation use Assignment of life or endowment policy on divorce.

Service contract novation agreement

Transfer a service contract between customers using this easy to use and effective novation contract. Although this  agreement can be used to transfer any service contract, we have used the example of a transfer of website hosting services between hosting providers. Changes for other types of service agreement are very simple to make. The most common use for this agreement would be to change the parties to service contracts on the purchase of a business.

Novation agreement: transfer debt to new debtor

Use this agreement to transfer the right to receive a debt repayment from creditor to his transferee.

Example uses: when a business is sold and the purchaser takes on the liabilities of the seller, or when restructuring debt (a third party buys the obligation to repay a loan and interest).

Debt novation agreement: transfer debt to new creditor

In this agreement, a creditor transfers the right to repayment his transferee.

Common uses would be the one-off transfer of a debt, or when factoring debt (buying the debts or loans owed to the seller) or when buying a business that has extended credit to customers.

This is an easy to use, effective debt novation agreement.

Building contract novation agreement

We have used the construction industry as an example for how this agreement might be used, it is suitable for any service contract where the client wants to arrange for some other person to take his place in a part worked project.

For example, it could be used:

• when the owner of a development is forced to sell before completing the project and the buyer wishes the existing contractor to continue the development.
• when an unincorporated business is sold along with an unfinished land or building.
• by a seller of land for development who wants his land to be as attractive for a buyer as possible by setting up contracts with architect and others in advance of the transfer.

Talk to us about transferring a contract

We are happy to answer any questions you have. Arrange for us to call you.

If the document isn’t right for your circumstances for any reason, just tell us and we’ll refund you in full immediately.

We avoid legal terminology unless necessary. Plain English makes our documents easy to understand, easy to edit and more likely to be accepted.

You don’t need legal knowledge to use our documents. We explain what to edit and how in the guidance notes included at the end of the document.

Email us with questions about editing your document. Use our Lawyer Assist service if you’d like our legal team to check your document will do as you intend.

Our documents comply with the latest relevant law. Our lawyers regularly review how new law affects each document in our library.

Choosing whether to novate or assign

The basic law is that ‘A’ cannot transfer his obligations to ‘C’ that he has under a contract with ‘B’, without ‘B’ agreeing.

Novation is the legal mechanism where the rights and obligations are transferred with the permission of all parties (both new and old).

When it is possible to obtain the contractual consent of all three parties, use a standard, three-sided novation agreement.

If many contracts are being transferred at the same time, such as when one business buys another including customer contracts, it may be simply not practical to ask each other party (in our example, each customer) to sign a novation agreement.

So, the parties that are transferring the contracts sign an assignment agreement and hope that the other original parties not object.

So that the original parties cannot cancel the contract if they do object, most businesses that have large numbers of contracts make sure that the terms of each contract allow them to assign the contract without permission. In that case, there is no breach of contract and the other original party cannot cancel.

If a client or customer becomes aware that his supplier has changed, and he continues to accept services from the new supplier, he will be deemed to have accepted the new contract. There is no specific time period or circumstance when you can be sure this has happened.

Why novation should not be by deed?

You may hear or read of a “deed of novation”. Many documents that can be simply signed are also referred to as deeds. This is due in part to the continued mystification of the law in some quarters.

A novation never needs to be by deed. The deed format is used where one party to a contract receives no consideration. However, a novation is invariably "for value", and as such, a deed of novation confers little additional advantage.

In the unlikely event that a party agrees to novation out of pure kindness, the consideration can be entered as “one dollar”, or a "peppercorn". The sum does not need to have any relation to the value of the debt being novated.

Novating a debt

A common misconception is that novating a debt cancels an old debt and creates a new one to the new owner. Instead, novation just changes the parties to the original contract. However, in most cases, novation is an easier option than cancelling an old agreement and drawing a new one.

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Sample novation agreement format

This page provides a sample novation agreement. You can copy and paste the language that has a gray vertical border to its left, and fill in the text that is in [brackets] with your applicable information.

FAR 42.1204(i)

Novation agreement.

The ABC Corporation (Transferor), a corporation duly organized and existing under the laws of ________ [insert state] with its principal office in ________ [insert city]; the XYZ Corporation (Transferee), [if appropriate add “formerly known as the EFG Corporation”] a corporation duly organized and existing under the laws of________ [insert state] with its principal office in ________ [insert city]; and the United States of America (Government) enter into this Agreement as of ___________ [insert the date transfer of assets became effective under applicable State law].

(a) The parties agree to the following facts:

(1) The Government, represented by various Contracting Officers of the ________ [insert name(s) of agency(ies)], has entered into certain contracts with the Transferor, namely: ________ [insert contract or purchase order identifications]; [or delete “namely” and insert “as shown in the attached list marked `Exhibit A’ and incorporated in this Agreement by reference.’’]. The term “the contracts,” as used in this Agreement, means the above contracts and purchase orders and all other contracts and purchase orders, including all modifications, made between the Government and the Transferor before the effective date of this Agreement (whether or not performance and payment have been completed and releases executed if the Government or the Transferor has any remaining rights, duties, or obligations under these contracts and purchase orders). Included in the term “the contracts” are also all modifications made under the terms and conditions of these contracts and purchase orders between the Government and the Transferee, on or after the effective date of this Agreement.

(2) As of ________, 20___, the Transferor has transferred to the Transferee all the assets of the Transferor by virtue of a ________ [insert term descriptive of the legal transaction involved] between the Transferor and the Transferee.

(3) The Transferee has acquired all the assets of the Transferor by virtue of the above transfer.

(4) The Transferee has assumed all obligations and liabilities of the Transferor under the contracts by virtue of the above transfer.

(5) The Transferee is in a position to fully perform all obligations that may exist under the contracts.

(6) It is consistent with the Government’s interest to recognize the Transferee as the successor party to the contracts.

(7) Evidence of the above transfer has been filed with the Government.

• [When a change of name is also involved; e.g., a prior or concurrent change of the Transferee’s name, an appropriate statement shall be inserted (see example in paragraph (8) below)].

(8) A certificate dated __________, 20__, signed by the Secretary of State of ___________ [insert state], to the effect that the corporate name of EFG Corporation was changed to XYZ Corporation on ____ ________, 20__, has been filed with the Government.

(b) In consideration of these facts, the parties agree that by this Agreement —

(1) The Transferor confirms the transfer to the Transferee, and waives any claims and rights against the Government that it now has or may have in the future in connection with the contracts.

(2) The Transferee agrees to be bound by and to perform each contract in accordance with the conditions contained in the contracts. The Transferee also assumes all obligations and liabilities of, and all claims against, the Transferor under the contracts as if the Transferee were the original party to the contracts.

(3) The Transferee ratifies all previous actions taken by the Transferor with respect to the contracts, with the same force and effect as if the action had been taken by the Transferee.

(4) The Government recognizes the Transferee as the Transferor’s successor in interest in and to the contracts. The Transferee by this Agreement becomes entitled to all rights, titles, and interests of the Transferor in and to the contracts as if the Transferee were the original party to the contracts. Following the effective date of this Agreement, the term “Contractor,” as used in the contracts, shall refer to the Transferee.

(5) Except as expressly provided in this Agreement, nothing in it shall be construed as a waiver of any rights of the Government against the Transferor.

(6) All payments and reimbursements previously made by the Government to the Transferor, and all other previous actions taken by the Government under the contracts, shall be considered to have discharged those parts of the Government’s obligations under the contracts. All payments and reimbursements made by the Government after the date of this Agreement in the name of or to the Transferor shall have the same force and effect as if made to the Transferee, and shall constitute a complete discharge of the Government’s obligations under the contracts, to the extent of the amounts paid or reimbursed.

(7) The Transferor and the Transferee agree that the Government is not obligated to pay or reimburse either of them for, or otherwise give effect to, any costs, taxes, or other expenses, or any related increases, directly or indirectly arising out of or resulting from the transfer or this Agreement, other than those that the Government in the absence of this transfer or Agreement would have been obligated to pay or reimburse under the terms of the contracts.

(8) The Transferor guarantees payment of all liabilities and the performance of all obligations that the Transferee —

• (i) Assumes under this Agreement; or
• (ii) May undertake in the future should these contracts be modified under their terms and conditions. The Transferor waives notice of, and consents to, any such future modifications.

(9) The contracts shall remain in full force and effect, except as modified by this Agreement. Each party has executed this Agreement as of the day and year first above written.

United States of America, By    ___________________________________________

Title  ___________________________________________

ABC Corporation,

By    ___________________________________________

[Corporate Seal]

XYZ Corporation,

Certificate

I, ________, certify that I am the Secretary of ABC Corporation; that ________, who signed this Agreement for this corporation, was then ________ of this corporation; and that this Agreement was duly signed for and on behalf of this corporation by authority of its governing body and within the scope of its corporate powers. Witness my hand and the seal of this corporation this day of ________ 20 ____.

By_____________________________________________

 Certificate

I, ________, certify that I am the Secretary of XYZ Corporation; that ________, who signed this Agreement for this corporation, was then ________ of this corporation; and that this Agreement was duly signed for and on behalf of this corporation by authority of its governing body and within the scope of its corporate powers. Witness my hand and the seal of this corporation this day of ________ 20 ____.

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Loan Novation Agreement: Everything You Need to Know

A loan novation agreement is a contract between parties in which one of the obligations under the contract is replaced with another requirement. 3 min read updated on January 01, 2024

A loan novation agreement is a contract between parties in which one of the parties is replaced with another, or one of the obligations under the contract is replaced with another requirement. This is the exact definition of novation. It is similar to the concept of an assignment; however, there are some key differences between the two.

Novation vs. Assignment

There are 3 key differences between a novation and assignment, as follows:

1.Transferring of responsibility

2.Consent requirement

3.Termination of the original contract

Novation involves transfers of the obligations and responsibilities under the contract, whereas an assignment doesn’t transfer such responsibilities. Furthermore, the assignment of a contract doesn’t generally require consent of the benefiting party; novation does require such consent. Lastly, assignment doesn’t terminate the original contract where novation does in fact terminate the original contract, and the loan novation agreement steps in as the refreshed version.

Novation Agreement: An Overview

The novation is a way to transfer debt to a wholly unique party, who will then step in and take the place of the original party in the contract. Such change requires consent of both parties, including the party that is benefiting from the change. An example of this would be if a person obtains a loan from a lending bank for coverage of student fees. Thereafter, while the student (debtor) is paying back the loan, the lender will sell the remainder of the loan to another lending institution. This is common in student loans as well as home mortgages. Thereafter, the old lender will have no obligation under the original contract; it will be as if the original contract ceased to exist and is replaced with the new loan agreement.

When engaging in novation, the parties will cancel the original contract and create a brand new contract. However, the same terms and provisions must be kept in the agreement, since it would be too burdensome for the debtor to modify the repayment terms. With that said, the lender might continue to keep some obligations that the debtor hasn’t taken advantage of. This could occur if the debtor hasn’t used loan funding that was previously available via a revolving credit facility.

Novation Agreement Examples

For example, if John owes Sue $100, but Sue owes George $100, the responsibility under both parties could be subject to a novation in which John will directly pay George $100 rather than have Sue involved. Thus, John, Sue, and George can all come to an agreement that instead of Sue being involved in the payments, John will pay George the $100 without involving Sue in the transaction. As such, John and George might come up with their own agreement, i.e., John might offer George a $100 gift card that George might accept as a form of payment.

Novation could also occur in property arrangements whereby a tenant signs an annual lease with a landlord. During such lease, the tenant might wish to sublet the apartment to a third party, so long as the landlord agrees. If the landlord agrees to this, then the person subletting and landlord could enter a novation removing the original tenant from the contract, and starting their own contract. However, this is only if all parties agree, including the original tenant.

Novation agreements can also be found in construction contracts . An example of this would be if a contractor transfers duties to another contractor, i.e., subcontracting, with the client’s approval. If the subcontractor takes over full responsibilities for the contractor, then the client and subcontractor might enter into a loan novation agreement discharging the original contractor from his duties.

In the derivative market industry , novation will have a different meaning. It refers to an agreement with a clearing house. Instead of transacting directly with buyers, the seller transfers his securities to the clearing house, which in turn will sell them to the buyer. Therefore, while the transaction is bilateral, the clearing house will still act as the middle man. This reduces the credit risk for participants of the transaction who might be unable to identify the credit rating or worthiness of the other party involved. The only risk on the part of both parties is that the clearing house will be insolvent.

If you need help learning more about a loan novation agreement, you can post your legal need 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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Content Approved by UpCounsel

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

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Assignment and Novation Agreement

You may also be interested in.

This is a sample assignment and novation agreement where the Assignor assigns its rights and obligations under insurance policies to the insured companies, which are the assignees. The sample includes a choice of the laws of the Cayman Islands.

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