Novation agreement between the original parties and new party to an agreement
What is a novation agreement?
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.
The assignment of a contract can only apply to the transfer of the rights under the contract. The burden of a contract (the performance obligations) cannot be assigned under English law. If one party wants to transfer the burden of a contract, the contract will need to be novated.
Under a novation, the contract is 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 other party to the contract (the remaining party) 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
About this document
This novation is in the form of a deed, for the novation of contract to a replacement party. It is suitable for a contract which is governed by English law.
- Novation of the agreement to the new party
- 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
- Indemnities given by the new party to the replaced party for the new party’s failure to perform the contract from the date of novation
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