Novation Agreement Template

When do I use this document?

• for the novation of a contract or agreement
• for a new party to replace one of the original parties to the contract
• where the other original party to the contract consents to the novation
• for a contract governed by English law

What are the key features?

• 9 clauses over 3 pages
• agreement in the form of a Deed of Novation
• wording for replacement party to become party to the novated contract
• alternative wording depending on whether the replaced party will be discharged from:
  • all liability under the contract from its commencement
  • liability under the contract from the date of novation
• indemnity from the new party in favour of the replaced party for failure to perform the novated contract

What else do I need to know?

A novation agreement is used where the original parties to the agreement have agreed that a new party should replace one of them and assume the obligations and liabilities of the replaced party.

Novation is an alternative to assignment – assignment of a contract can only apply to the benefit of a contract, which are the rights of a party under the contract.  The burden of a contract (the party’s performance obligations) cannot be assigned under English law.  If one party wants to transfer both the benefit and the burden of a contract, the contract will need to be novated.

Under a novation, the contract is effectively replaced with a new contact and the new party to the contract is treated as an original party to the contract in place of the departing party.  Novation requires the consent of the remaining original party to the contract and is documented in a novation agreement or deed of novation between the three parties.

Under the novation agreement:

• the original parties to the agreement agree that the new party takes the place of one of the original parties
• the new party agrees to perform the obligations of the replaced party and the remaining party agrees to accept the new party’s undertaking to perform these obligations
• the new party can either agree to be liable for all the obligations of the replaced party from the start of the agreement or only for its own performance obligations from the date of novation

What other documents are available?

For a template contract assignment, see

• Contract Assignment.