Assignments and novations are ways for a party to transfer their interest in a contract to someone else.
The result is the same for a novation and an assignment but there is an essential difference.
Novation is a process where one party transfers all its obligations and rights under a contract to a third party. This is done with the consent of the other party in the original contract.
When a contract is novated, the original contracting party must be left in the same position they were before the novation. The original contract no longer exists and is replaced with a new one that contains the same rights and obligations but substitutes the original party with a third party.
Novating the contract will release the original party from any future obligations which may arise. This is a crucial difference between a novation and an assignment.
Under an assignment, one party continues to perform their obligations under the contract but transfers some, or all, of their rights to a third party. Contracts usually require the consent of the other party before an assignment can take place, and some contracts expressly prohibit assignments.
It is important to remember that you cannot assign obligations under a contract to another party, you can only assign your benefits or rights.
We regularly deal with:
- Assignment of business leases
- Assignment and collateral warranties in construction
We highly recommend seeking independent legal advice on whether you require a novation or an assignment to pass on your rights or obligations. If you assign when you should novate, you could be left in a position of being liable for your original contract with the other party not liable to perform their obligations.
You may also be interested in…
Our specialist Banking and Finance team bring together expertise from acting for both lender and borrower clients involved in a wide range of transactions. Now and then, most businesses need an injection of capital.
Commercial Landlord Must Payback Proceeds of Crime
A commercial landlord has been forced to pay back £174,000 in rental income that was declared to be the proceeds of crime. The tenant was operating an unlawful shisha smoking...
Commercial Update 99 – Dealing With Restrictive Covenants
Following a few enquiries on the subject over the last week, this week’s update deals with the vexing issue of how to challenge/deal with a restrictive covenant. Examples of restrictive...