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NOVATION AGREEMENT - CHANGING A PARTY TO A CONTRACT

A Novation Agreement is used to transfer the rights and obligations of one party under a contract to a third party, whilst the other contracting party remains the same.

 

In essence a Novation Agreement extinguishes the original contract and creates a new contract  between the remaining original party and the new incoming party in substitution for the previous contract in which the new incoming party takes up rights and obligations which duplicate those of the transferring party to the contract.

 

Novation is only possible with the consent of all the parties concerned. Thus all three parties, the remaining original party, the new incoming party and the transferring party, need to sign the Novation Agreement in order to effect the novation.

 

This Novation Agreement template can be used where a party to an existing contract wants to transfer the obligations and the benefits of the contract to a third party and the third party wishes to take on those benefits and obligations.

 

This Novation Agreement can be used to novate any type of commercial contract, for example this agreement can be used to transfer a service contract to another party.  

 

Generally, a Novation Agreement is used where a company is selling its business to another party, the buyer, and as part of the sale is transferring its contracts with its customers to the buyer. The buyer will take over the seller’s contracts with its customers and all the rights and obligations of the seller under the contract with the customers are transferred to the buyer. In the end the buyer replaces the seller as a party to the contract with the customers.

 

N.B. A Novation Agreement needs consideration. Consideration is the price paid (whether financial or otherwise) by the new party in return for the contract being novated. If there appears to be a lack of consideration then the Novation Agreement should be executed as a Deed. In other words, the Deed format is used where the new party does not provide any kind of consideration to the transferring party. For a Deed of Novation please see: Deed of Novation.

 

This Novation Agreement is fully comprehensive and can be used whether the parties to a contract are persons or companies as it contains provisions for both scenarios. Thus, it can be used to transfer the rights and obligations of one party under a contract to another person or company.

 

This Novation Agreement contains provisions stating that:

 

  • the new incoming party shall be responsible only for obligations and liabilities after the novation date;
  • the novation shall occur on the same date as execution of this agreement;
  • that there are no outstanding and unperformed obligations and liabilities (novation does not cancel past rights and obligations under the original contract).

 

 

N.B. Please do not confuse a Novation Agreement/Deed of Novation with a Deed of Assignment. Under a Deed of Assignment only the benefits of a contract can be assigned and not the burden. A Deed of Assignment involves the transfer of an interest or benefit from one person to another; however the obligations under a contract cannot be transferred. If you want to transfer the burden of a contract as well as the benefits under it, then you have to use a Novation Agreement or a Deed of Novation as novation transfers both the benefits and the burden under a contract. For a Deed of Assignment please see: Deed of Assignment - Assignment of Contract.

 

 

This Novation Agreement contains the following clauses:

 

  1. Definitions and Interpretation
  2. Warranties
  3. Novation, Transfer and Release
  4. Pre-existing Claims, Indemnity and Obligations
  5. The Contract
  6. Successors
  7. Variations
  8. Third Party Rights
  9. Assignment
  10. Governing Law and Jurisdiction

     

     SCHEDULE

 

 

This Novation Agreement is in Microsoft Word format, written in plain English, easy to use and edit.

 

 

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