contract assignment or novation

Assignment vs Novation: Everything You Need to Know

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. 4 min read updated on September 19, 2022

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. The party transferring their rights and duties is the assignor; the party receiving them is the assignee. Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of the original counterparty.

The transfer of a benefit or interest from one party to another is referred to as an assignment. While the benefits can be transferred, the obligation or burden behind the contract cannot be. A contract assignment occurs when a party assigns their contractual rights to a third party. The benefit that the issuing party would have received from the contract is now assigned to the third party. The party appointing their rights is referred to as the assignor, while the party obtaining the rights is the assignee. 

The assignor continues to carry the burden and can be held liable by the assignee for failing to fulfill their duties under the contract. Purchasing an indemnity clause from the assignee may help protect the assignor from a future liability. Unlike notation, assignment contracts do not annul the initial agreement and do not establish a new agreement. The original or initial contract continues to be enforced. 

Assignment contracts generally do not require the authorization from all parties in the agreement. Based on the terms, the assignor will most likely only need to notify the nonassigning party.

In regards to a contract being assignable, if an agreement seems silent or unclear, courts have decided that the contract is typically assignable. However, this does not apply to personal service contracts where consent is mandatory. The Supreme Court of Canada , or SCC, has determined that a personal service contract must be created for the original parties based on the special characteristics, skills, or confidences that are uniquely displayed between them. Many times, the courts need to intervene to determine whether an agreement is indeed a personal service contract.

Overall, assignment is more convenient for the assignor than novation. The assignor is not required to ask for approval from a third party in order to assign their interest in an agreement to the assignee. The assignor should be aware of the potential liability risk if the assignee doesn't perform their duties as stated in the assigned contract.

Novation has the potential to limit future liabilities to an assignor, but it also is usually more burdensome for the parties involved. Additionally, it's not always achievable if a third party refuses to give consent.

It's essential for the two parties in an agreement to appraise their relationship before transitioning to novation. An assignment is preferential for parties that would like to continue performing their obligations, but also transition some of their rights to another party.

A novation occurs when a party would like to transfer both the benefits and the burden within a contract to another party. Similar to assignment, the benefits are transferred, but unlike assignment, the burden is also transferred. When a novation is completed, the original contract is deleted and is replaced with a new one. In this new contract, a third party is now responsible for the obligations and rights. Generally, novation does not cancel any past obligations or rights under the initial contract, although it is possible to novate these as well.

Novation needs to be approved by both parties of the original contract and the new joining third party. Some amount of consideration must also be provided in the new contract in order for it to be novated, unless the novation is cited in a deed that is signed by all parties to the contract. In this situation, consideration is referring to something of value that is being gained through the contract.

Novation occurs when the purchaser to the original agreement is attempting to replace the seller of an original contract. Once novated, the original seller is released from any obligation under the initial contract. The SCC has established a three-point test to implement novation. The asserting party must prove:

• The purchaser accepts complete liability
• The creditor to the original contract accepts the purchaser as the official debtor, and not simply as a guarantor or agent of the seller
• The creditor to the original contract accepts the new contract as the replacement for the old one

Also, the SSC insisted that if a new agreement doesn't exist, the court would not find novation unless the precedence was unusually compelling.

If you need help determining if assignment vs. novation is best for you, you can  post your job  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.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

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

Deed of Assignment or Deed of Novation: Key Differences and Legal Implications of Novation and Assignment Contracts

Novation and assignment stand out as pivotal processes for the transfer of contractual rights and obligations. These legal concepts allow a party to the contract to adapt to changing circumstances, ensuring that business arrangements remain relevant and effective. This article explores the nuances of novation and assignment, shedding light on their distinct legal implications, procedures, and practical applications. Whether you’re a business owner navigating the transfer of service contracts, or an individual looking to understand your rights and responsibilities in a contractual relationship, or a key stakeholder in a construction contract, this guide will equip you with the essential knowledge to navigate these complex legal processes.

Table of Contents

• What is a Deed of Novation? 
• What is a Deed of Assignment? 

Key Differences Between Novation and Assignment Deeds

Need a deed of novation or assignment key factors to consider, selecting the right assignment clause for your contract – helping you make the right choice, what is a deed of novation.

Novation is a legal process that allows a new party to a contract to take the place of an original party in a contract, thereby transferring both the responsibilities and benefits under the contract to a third party. In common law, transferring contractual obligations through novation requires the agreement of all original parties involved in the contract, as well as the new party. This is because novation effectively terminates the original contract and establishes a new one.

A novation clause typically specifies that a contract cannot be novated without the written consent of the current parties. The inclusion of such a clause aims to preclude the possibility of novation based on verbal consent or inferred from the actions of a continuing party. Nevertheless, courts will assess the actual events that transpired, and a novation clause may not always be enforceable. It’s possible for a novation clause to allow for future novation by one party acting alone to a party of their choosing. Courts will enforce a novation carried out in this manner if it is sanctioned by the correct interpretation of the original contract.

Novation is frequently encountered in business and contract law, offering a means for parties to transfer their contractual rights and duties to another, which can be useful if the original party cannot meet their obligations or wishes to transfer their contract rights. For novation to occur, there must be unanimous consent for the substitution of the new party for the original one, necessitating a three-way agreement among the original party, the new party, and the remaining contract party. Moreover, the novation agreement must be documented in writing and signed by all involved parties. Understanding novation is essential in the realms of contracts and business dealings, as it provides a way for parties to delegate their contractual rights and responsibilities while freeing themselves from the original agreement.

What is a Deed of Assignment?

A deed of assignment is a legal document that facilitates the transfer of a specific right or benefit from one party (the assignor) to another (the assignee). This process allows the assignee to step into the assignor’s position, taking over both the rights and obligations under the original contract. In construction, this might occur when a main contractor assigns rights under a subcontract to the employer, allowing the employer to enforce specific subcontractor duties directly if the contractor fails.

Key aspects of an assignment include:

• Continuation of the Original Contract: The initial agreement remains valid and enforceable, despite the transfer of rights or benefits.
• Assumption of Rights and Obligations: The assignee assumes the role of the assignor, adopting all associated rights and responsibilities as outlined in the original contract.
• Requirement for Written Form: The assignment must be documented in writing, signed by the assignor, and officially communicated to the obligor (the party obligated under the contract).
• Subject to Terms and Law: The ability to assign rights or benefits is governed by the specific terms of the contract and relevant legal statutes.

At common law, parties generally have the right to assign their contractual rights without needing consent from the other party involved in the contract. However, this does not apply if the rights are inherently personal or if the contract includes an assignment clause that restricts or modifies this general right. Many contracts contain a provision requiring the consent of the other party for an assignment to occur, ensuring that rights are not transferred without the other party’s knowledge.

Once an assignment of rights is made, the assignee gains the right to benefit from the contract and can initiate legal proceedings to enforce these rights. This enforcement can be done either independently or alongside the assignor, depending on whether the assignment is legal or equitable. It’s important to note that while rights under the contract can be assigned, the contractual obligations or burdens cannot be transferred in this manner. Therefore, the assignor remains liable for any obligations under the contract that are not yet fulfilled at the time of the assignment.

Choosing Between Assignment and Novation in a Construction Contract

Choosing between a deed of novation and an assignment agreement depends on the specific circumstances and objectives of the parties involved in a contract. Both options serve to transfer rights and obligations but in fundamentally different ways, each with its own legal implications, risks, and benefits. Understanding these differences and considering various factors can help in making an informed decision that aligns with your goals.

The choice between assignment and novation in a construction project scenario, where, for instance, an employer wishes to engage a subcontractor directly due to loss of confidence in the main contractor, hinges on several factors. These are:

• Nature of the Contract:  The type of contract you’re dealing with (e.g., service, sales) can influence which option is more suitable. For instance, novation might be preferred for service contracts where obligations are personal and specific to the original parties.
• Parties Involved: Consent is a key factor. Novation requires the agreement of all original and new parties, making it a viable option only when such consent is attainable. Assignment might be more feasible if obtaining consent from all parties poses a challenge.
• Complexity of the Transaction: For transactions involving multiple parties and obligations, novation could be more appropriate as it ensures a clean transfer of all rights and obligations. Assignment might leave the original party with ongoing responsibilities.
• Time and Cost: Consider the practical aspects, such as the time and financial cost associated with each option. Novation typically involves more complex legal processes and might be more time-consuming and costly than an assignment.

If the intention is merely to transfer the rights of the subcontractor’s work to the employer without altering the subcontractor’s obligations under a contract, an assignment might suffice. However, if the goal is to completely transfer the main contractor’s contractual role and obligations to the employer or another entity, novation would be necessary, ensuring that all parties consent to this new arrangement and the original contractor is released from their obligations.

The legal interpretations and court decisions highlight the importance of the document’s substance over its label. Even if a document is titled a “Deed of Assignment,” it could function as a novation if it transfers obligations and responsibilities and involves the consent of all parties. The key is to clearly understand and define the objective behind changing the contractual relationships and to use a deed — assignment or novation — that best achieves the desired legal and practical outcomes, ensuring the continuity and successful completion of the construction project.

Understanding the distinction between assignment deeds and novation deeds is crucial for anyone involved in contractual agreements. Novation offers a clean slate by transferring both rights and obligations to a new party, requiring the consent of all involved. Assignment, conversely, allows for the transfer of contractual benefits without altering the original contract’s obligations. Each method serves different strategic purposes, from simplifying transitions to preserving original contractual duties. The choice between novation and assignment hinges on specific legal, financial, and practical considerations unique to each situation. At PBL Law Group, we specialise in providing comprehensive legal advice and support in contract law. Our team is dedicated to helping clients understand their options and make informed decisions that align with their legal and business objectives. Let’s discuss!

Authored By Raea Khan

Director Lawyer, PBL Law Group

Find what you need

Share this article, book a 15-min consultation​, rated 5-star by our clients.

Latest insights & Practical Guides

Preparing for Strata Dispute Mediation in NSW: Essential Guide for Lot Owners and Owners Corporations

Strata disputes can be challenging and stressful, but mediation offers

Updates to NSW Strata Law under the Building, Development and Strata Legislation Amendment Regulation 2024

Recent updates to NSW Strata Law under the Building, Development,

Owners Corporation vs Strata Management: Understanding Key Differences Between Body Corporate and Strata Committee

When it comes to managing a property within a strata

Speak to us Now or Request a Consultation.

How can our expert lawyers help.

Property and strata disputes, building defects claims, setting up new Owners Corporations and more…

Construction & Building Law

Construction and building disputes, building defects, delays and claims, debt recovery and more…

International Estate Planning

Cross-border estate planning, international wills and trusts, tax-efficient wealth transfer strategies and more…

Commercial & Business Law

Starting and scaling your business, banking and business financing, bankruptcy and insolvency and more…

Planning & Environment Law

Environment and planning regulation, land and environment court disputes, sub-divisions and more…

Wills & Estates

Creating, updating and contesting wills, estate planning and administration, probate applications and more…

Get In Touch

Helpful links, site information, how we can help.

Liability limited by a scheme approved under Professional Standards Legislation.

Copyright © 2024 PBL Law Group. All Rights Reserved

Built by Commersion.Legal

Thank You For Your Request.

We’ve received your consultation request and will contact you within the next 24 hours (excluding weekends).

Novation vs Assignment: Changing Parties in Contracts and Obligations

Readers looking to understand novation and assignment agreements will likely agree that navigating changing parties in contracts can be complex.

This guide provides a clear framework for deciding between novation and assignment, walking through key differences, legal considerations, real-world applications, and best practices to master the process.

You'll gain actionable insights on drafting novation agreements, securing consent, ensuring smooth obligation transfers, overcoming common hurdles, and more to confidently change parties in contractual obligations.

Introduction to Novation and Assignment

Novation and assignment are two legal concepts that involve transferring rights and obligations from one party to another in a contract.

Novation refers to substituting one party to an agreement with a new party, creating new contractual obligations. Assignment involves transferring rights or obligations from one party to another without necessarily releasing the assignor from their obligations.

Understanding the key differences between these two concepts is important when changing parties in legal agreements to ensure the intended legal implications.

Novation Meaning and Fundamentals

Novation means substituting an original party to an agreement with a new party. It discharges the existing contract between the original parties and creates a new contract with the new party.

In a novation, all parties involved must consent - the original parties to the contract agree to end obligations between them, and the new party agrees to take on those obligations. This releases the original obligor from the agreement and binds the new party.

For example, if party A has a contract with party B but wants party C to take over party B's obligations, a novation would end the AB contract and create a new AC contract. Party B would be released from the agreement.

Understanding Assignment in Contracts

Assignment refers to transferring rights or obligations under a contract from one party (the assignor) to another (the assignee).

In an assignment, the original parties to the contract remain the same. Only the beneficiary of rights or the obligated party changes. The assignor still owes obligations to the counterparty under the original agreement.

For example, party A has a contract with party B. Party A assigns their rights to payments or other benefits under the contract to party C. Party B still owes obligations, but payments now go to party C instead of party A.

Key Difference Between Assignment and Novation

The main difference between novation and assignment is that novation substitutes one of the original contracting parties with a new party, discharging the existing contract and creating a new one. Assignment keeps the original parties intact but transfers rights or obligations to a third party.

In a novation, the original party is released from the contract. In an assignment, the assignor remains a party to the original agreement.

Understanding this fundamental difference is crucial when changing parties in legal agreements to achieve the intended legal implications. Parties should clearly specify whether they intend a novation or an assignment during the amendment process.

How is a novation with a new party different than an assignment?

A key difference between a novation and an assignment is that a novation transfers both the benefits and obligations of a contract to a new party, while an assignment only transfers the benefits.

In an assignment , one party transfers the rights or benefits of a contract to another party. For example, Company A has a contract with Company B. Company A can assign their rights and benefits under that contract to Company C. However, Company A's obligations under the contract remain unchanged - Company A is still responsible for fulfilling those obligations, even though Company C now has the rights and benefits.

A novation goes a step further by also transferring the obligations. Using the example above, if Company A wanted to transfer both their rights/benefits AND obligations under the contract to Company C, that would be considered a novation. Company C would then take Company A's place as a party to the contract, taking on all the associated rights, benefits, and obligations.

In summary:

• Assignment: Transfers only rights/benefits to new party. Original party retains obligations.
• Novation: Transfers both rights/benefits AND obligations to new party. New party replaces original party to contract.

So while an assignment shifts some contract elements to a new party, a novation essentially substitutes the new party into the contract altogether. This transfer of obligations is the key distinction between the two.

What is the difference between novation assignment and transfer?

The key differences between a novation, an assignment, and a transfer are:

• Creates a new contract between the parties
• Transfers both rights and obligations to a new party
• Requires consent of all parties involved
• Transfers only rights/benefits to another party
• Does not transfer obligations/burdens
• Only requires consent of the assigning party
• Refers broadly to conveying rights or property from one party to another
• Encompasses both novation and assignment
• Does not create new contractual relationships

In summary, a novation replaces one party with another in an existing contract through mutual consent. An assignment transfers just the rights/benefits to another party. And a transfer is an overarching term for conveying rights or obligations from one party to another.

What is a novation which changes the parties to the obligation?

A novation is a legal concept where the parties to a contract agree to substitute one party for another, discharge an existing obligation, and create a new contractual obligation. This effectively changes the parties to the original obligation or contract.

There are a few key things that constitute a novation:

There must be a previous valid obligation between the parties that they want to change by bringing in a new party. This can be an existing contract.

All parties involved - the old debtor, the creditor, and the new debtor - must agree to the novation. This agreement can be oral or written.

The previous obligation is discharged. The new debtor takes on a new obligation to the creditor. Essentially, the new debtor steps into the shoes of the old debtor.

A new contract is formed between the creditor and the new debtor containing the new rights and obligations. This new contract discharges the old contract.

Some examples where novation is used:

Company A owes Company B money. Company C agrees to take on Company A's debt. Company B agrees to discharge Company A and instead hold Company C liable for the debt. This substitutes Company C for Company A in the obligation.

A tenant wants to leave before their lease term is up. The landlord, tenant and new tenant agree that the new tenant will take over the remaining lease obligations. This substitutes the new tenant into the lease contract, discharging the old tenant.

So in summary, a novation changes the parties to an obligation by substituting a new party and discharging the old party from their duties or obligations under the initial contract or agreement. All involved parties must consent.

Can obligations be transferred or assigned to another party if so then how?

Obligations under a contract can be transferred or assigned to another party through a process called novation or assignment.

A novation involves the substitution of a new contract between the same parties or between different parties. This substitutes the original rights and duties under the old contract with the rights and duties under the new contract.

For example, if party A and B have a contract, they can mutually agree with party C to novate the contract and substitute party C for party B. This transfers all rights and obligations from party B to party C.

The key requirements for novation are:

• Consent of all parties involved – the existing parties to the original contract and the new party
• Extinguishing the rights and duties under the old contract
• Creating new rights and duties under the new contract

An assignment involves transferring the rights/benefits under a contract from one party to another. However, the obligations remain with the original contracting party.

For example, party A assigns their rights and benefits under their contract with party B to party C. Party C can now enforce the rights that originally belonged to party A. However, the obligations still remain with party A.

The key requirements for a valid assignment are:

• The subject matter must be assignable
• Consent may be required from the other contracting party
• There must be absolute assignment of rights

So in summary, novation transfers both rights and obligations to a new party, while assignment only transfers rights.

sbb-itb-585a0bc

Deciding between novation and assignment.

Novation and assignment are two legal mechanisms for changing the parties in a contract. Understanding when to use each can help streamline your legal obligations.

How to Novate a Contract

Novation allows you to bring in a new party to a contract and end the relationship with the existing party. For example:

• Company A has a contract with Company B
• Company A wants to replace Company B with Company C in the contract
• Company A, B, and C sign a novation agreement
• This agreement ends Company A and B's contract and creates a new one between Company A and C

Key things to know about novation:

• Requires consent of all parties
• Discharges original contract obligations
• Creates new contract with new terms

So if you need to completely replace one of the parties, novation may be the best approach.

Assigning Obligations Without Changing Parties

Assignment transfers rights or obligations from one party to another without changing the original contractual relationship. For example:

• Company X has a contract with Company Y
• Company X assigns certain rights or duties under the contract to Company Z
• Company X and Y's original contract remains intact

With assignment:

• Original parties remain the same
• Only transfers specific rights/obligations
• Requires consent for total transfer of contract

So if you just need to transfer particular rights or duties, assignment may suffice without completely rewriting the contract.

Identifying Implied Novation

Sometimes a new contract can implicitly replace an earlier contract - this is an implied novation. Courts may rule a novation has occurred even without a formal agreement if the parties' conduct demonstrates intent. For example:

• Company A defaults on contract with Company B
• The parties enter a settlement agreement with new terms
• They act according to the new terms
• A court may decide this created an implied novation

So understand that entering new contracts can potentially impact previous ones. Seek legal advice to avoid unintended novations.

Executing a Novation Agreement

Executing a novation agreement formally transfers the rights and obligations under a contract from one party to another. There are several key steps involved:

Drafting a Novation Agreement

A novation agreement should clearly identify the original parties to the contract, the party transferring rights/obligations (the assignor), the party assuming rights/obligations (the assignee), and the consent of all parties. Key provisions include:

• Identifying information of original contract
• Clear statement of assignor's intent to novate
• Assignee's acceptance of rights and obligations
• Original parties' consent
• Signatures of all parties

Proper drafting ensures all parties understand the changes in legal relationships.

Understanding Consent in Novation

For a novation to be legally valid, all parties to the original contract must consent:

• The assignor must consent to be released from the contract
• The assignee must consent to assume the rights and obligations
• The other original contracting party must consent to the substitution of parties

Unanimous consent is essential. If any party objects, the novation is not valid.

Incorporating a Novation Clause in Contracts

Parties can include a novation clause permitting novation under specified conditions, without needing further consent. This clause defines:

• Conditions allowing novation
• Notice procedures
• Effective date

With a novation clause, parties agree in advance to potential future reassignments of contract rights/duties. This streamlines the novation process.

In summary, executing a valid novation requires proper drafting of terms, unanimous consent, and may be simplified by a novation clause. These steps formally transfer contractual rights and duties between parties.

Navigating Novation and Assignment Challenges

Novation and assignment of contracts can present legal and operational challenges. Here are some common issues and strategies to address them:

Securing Consent for Novation or Assignment

• Identify all parties that need to consent and determine process for securing approvals
• Highlight benefits to all parties to incentivize consent
• For novation, offer reasonable concessions to relieve existing party of obligations
• Consult legal counsel to ensure proper consent procedures are followed

Ensuring Smooth Transfer of Obligations

• Create transition plan outlining handoff of duties and assets
• Schedule meetings with involved parties to coordinate transfer
• Establish clear timelines for assuming obligations under the new contract
• Designate point persons to handle issues during transition period

Renegotiating Terms During Novation

• Assess existing terms to identify areas for improvement
• Consult legal counsel when drafting proposed amendments
• Present suggested changes collaboratively, focusing on mutual benefits
• Be prepared to offer reasonable concessions to facilitate agreement
• Allow reasonable time for review and negotiation of new terms

Following structured processes can facilitate successful novations and assignments. Engaging partners collaboratively and securing proper legal guidance are key.

Real-World Applications of Novation and Assignment

Novation and assignment are important legal concepts that allow for changing parties and obligations in contracts. Here are some real-world examples and case studies showing how they are applied in practice:

Deed of Novation: A Case Study

A common scenario for novation is when Company A has a contract with Supplier B, but Company A is acquired by Company C. The three parties may execute a Deed of Novation so that Company C replaces Company A as the counterparty in the supply contract with Supplier B.

For example, Tech Startup Z had a 5-year licensing agreement with Software Company Y to use their proprietary platform. When Tech Startup Z was acquired by Conglomerate X, a Deed of Novation was signed so that Conglomerate X replaced Tech Startup Z as the licensee in the software agreement with Company Y. The original contract terms remained unchanged.

This allowed for a smooth transition of contractual obligations to the new party without needing to create an entirely new contract. It provided continuity for Supplier B while releasing Tech Startup Z from the duties owed under the licensing agreement.

Applying the ISDA Novation Protocol

The ISDA Novation Protocol is a standardized procedure that allows multiple parties to concurrently novate credit derivative contracts.

For instance, when Bank A merges with Bank B, the two institutions need to transition the derivatives contracts they each held to the merged entity, Bank C. Rather than negotiating many bilateral novations between counterparties, they can follow the ISDA protocol which allows them to novate contracts en masse.

The ISDA protocol sets forth the terms and documentation all parties must sign and exchange to implement the novations. This greatly simplifies and streamlines the process of transferring large volumes of complex financial contracts to a successor party.

Legal Considerations in Novation and Assignment

Novation and assignment are common practices in contract law that allow for changing the parties involved in a contract or transferring obligations from one party to another. However, there are important legal considerations surrounding these practices that must be examined.

Novation in Law: An Overview

Novation refers to the act of replacing one party to an agreement with a new party. Essentially, novation discharges the contractual duties between the original parties and creates a new contract with the same terms between the remaining original party and a new party. There are a few key legal principles governing novation:

All parties to the original contract must consent to the novation. This includes the party being replaced, the remaining original party, and the new incoming party.

The new contract created by the novation stands independent from the original. The new party assumes the obligations going forward but is not liable for any previous breach by the party it replaced.

For a novation to be legally valid, there must be consideration furnished by all parties. Typically the new incoming party provides fresh consideration in the form of money, services, etc.

Over the years, courts have further refined novation law through key rulings. For example, novation does not necessarily have to be expressly stated, but can be implied based on the conduct of the parties. Overall, meeting the legal requirements for valid novation ensures smooth transitions between contracts.

Understanding Subpart 42.12 - Novation and Change-of-Name Agreements

For government contracts, novation and change-of-name agreements have specific regulations under Subpart 42.12. Some key requirements under these rules include:

The contractor must submit a written request to the government contracting officer to recognize a successor regarding a name change or novation.

For a novation, the proposed new party must submit all the required documentation, like the proposed novation agreement and evidence of disposition of assets.

The contracting officer must determine if recognizing a successor to a contract is in the government's interest and if the proposed new party can fulfill the contract.

All parties must execute a legal novation agreement which is then recognized by the government. The new party formally assumes all obligations under the contract.

Adhering to Subpart 42.12 ensures proper novation protocol and protects the government's interests when parties change in their contracts. Following the guidelines facilitates swift approval of the agreement.

Overall, understanding the legal principles around novation and assignment enables smooth changing of parties in contracts. Both commercial and government transactions must meet key regulations for valid transfers of obligations.

Conclusion: Mastering Novation and Assignment

Summarizing the decision criteria for novation vs assignment.

When deciding between using novation or assignment, key considerations include:

Consent requirements : Novation requires consent of all three parties, while assignment only requires consent of the assignor and assignee.

Transfer of rights vs obligations : Assignment transfers rights under a contract to a new party. Novation transfers both rights and obligations to a new party.

Formality : Novation often requires more formal documentation than assignment.

Credit risk : Novation transfers credit risk to the new party. Assignment does not.

Best Practices for Novation and Assignment Processes

To ensure smooth novation and assignment processes:

Obtain proper consents from all parties as needed.

Execute formal documentation like a Deed of Novation or Assignment Agreement.

Notify relevant parties of the transfer once completed.

Formalize transfer timing and effective dates.

Overcoming Common Novation and Assignment Hurdles

Common challenges can be addressed by:

Allowing reasonable time for consents to be obtained.

Having templates ready for any required documentation.

Closely reviewing contract terms around amendments, transfers, assignments etc.

Maintaining open communication with all parties.

Related posts

• Assignment Clauses: Transferring Contractual Rights and Obligations
• Void Contract vs Voidable Contract: Validity and Enforceability in Contract Law
• Void and Voidable: Legal Concept Explained

The Illegal Immigration Reform and Immigrant Responsibility Act: Law Explained

Cost-Effective Legal Solutions with Virtual Assistant Lawyers

The Benefits of Remote Staffing Agencies

Unlock the talent your business deserves.

Hire Accounting and Finance Professionals from South America.

• Start Interviewing For Free

Novation Contracts: Key Elements, Types, and Legal Framework

Explore the essentials of novation contracts, their types, and the legal framework that governs them, including key differences from assignment agreements.

In the world of contracts and agreements, novation plays a crucial role in ensuring that obligations can be transferred smoothly from one party to another. This legal mechanism is essential for businesses undergoing restructuring, mergers, or acquisitions, as it allows them to maintain continuity without breaching existing contractual terms.

Understanding novation contracts is vital because they offer a structured way to replace an original party with a new one while preserving the integrity of the agreement.

Key Elements of Novation Contracts

At the heart of novation contracts lies the concept of mutual consent. All parties involved—the original party, the new party, and the counterparty—must agree to the substitution. This tripartite agreement ensures that the new party steps into the shoes of the original party, assuming all rights and obligations under the contract. Without this mutual consent, the novation cannot be legally binding, making it a fundamental aspect of the process.

Another significant element is the discharge of the original party from their obligations. Once the novation is executed, the original party is released from any future liabilities related to the contract. This is particularly important in scenarios where the original party may no longer be in a position to fulfill their contractual duties, such as in cases of corporate restructuring or asset sales. The discharge provides a clean break, allowing the original party to move forward without lingering responsibilities.

Documentation is also a critical component. A novation agreement must be meticulously drafted to capture the terms of the substitution, the consent of all parties, and the release of the original party. This document serves as the legal record of the novation and must be executed with the same level of formality as the original contract. Proper documentation ensures that there is no ambiguity about the terms of the novation, thereby preventing potential disputes in the future.

Types of Novation

Novation can take various forms, each tailored to specific circumstances and needs. Understanding these types helps in selecting the appropriate method for transferring contractual obligations. Here, we explore three primary types of novation: Standard Novation, Ab Initio Novation, and Tripartite Agreement.

Standard Novation

Standard novation is the most common form, where an existing contract is transferred from the original party to a new party. This type of novation is typically used in business transactions such as mergers and acquisitions. In a standard novation, the new party assumes all rights and obligations of the original party from the date of the novation agreement. The original contract remains in effect, but the parties to the contract change. This ensures continuity and minimizes disruption to the contractual relationship. For instance, if Company A sells a division to Company B, a standard novation would allow Company B to take over all existing contracts related to that division, ensuring that clients and suppliers experience no interruption in service.

Ab Initio Novation

Ab initio novation, meaning “from the beginning,” involves replacing the original party with a new party as if the new party had been part of the contract from the start. This type of novation is less common and is typically used in more complex legal and financial arrangements. In an ab initio novation, the new party assumes all past, present, and future obligations and rights under the contract. This can be particularly useful in situations where historical continuity is crucial, such as in long-term service agreements or financial instruments. For example, if a long-term lease agreement is novated ab initio, the new tenant would be responsible for all past rent payments and any historical obligations, providing a seamless transition.

Tripartite Agreement

A tripartite agreement involves three parties: the original party, the new party, and the counterparty. This type of novation is often used in complex transactions where the consent of all three parties is necessary to effect the novation. The tripartite agreement clearly outlines the terms of the novation, including the release of the original party and the assumption of obligations by the new party. This type of novation is particularly useful in industries such as construction and finance, where multiple stakeholders may be involved. For instance, in a construction project, a tripartite agreement might be used to transfer the obligations of a subcontractor to a new subcontractor, ensuring that the project continues smoothly without legal complications.

Legal Framework Governing Novation

The legal framework governing novation is rooted in contract law, which varies by jurisdiction but generally adheres to similar principles. At its core, novation requires the mutual consent of all parties involved, a concept enshrined in legal systems worldwide. This consent must be explicit and documented, ensuring that all parties are fully aware of the changes being made to the contractual relationship. The requirement for mutual consent is not merely a formality; it is a safeguard that protects the interests of all parties, ensuring that no party is unfairly disadvantaged by the novation.

Jurisdictions may have specific statutes or case law that further define and regulate the process of novation. For example, in the United Kingdom, the Contracts (Rights of Third Parties) Act 1999 allows third parties to enforce contractual terms under certain conditions, which can intersect with novation agreements. Similarly, in the United States, the Uniform Commercial Code (UCC) provides a framework for commercial transactions, including provisions that can impact novation. Understanding these legal nuances is crucial for drafting effective novation agreements that comply with local laws and regulations.

The role of consideration in novation is another important legal aspect. In many jurisdictions, for a novation to be valid, there must be consideration—something of value exchanged between the parties. This could be a payment, a promise, or another form of benefit. The concept of consideration ensures that the novation is not merely a gratuitous promise but a binding legal agreement. This requirement can sometimes complicate the novation process, particularly in complex commercial transactions where the value exchanged may not be immediately apparent.

Legal precedents also play a significant role in shaping the framework for novation. Courts have ruled on various aspects of novation, providing guidance on issues such as the necessity of explicit consent, the interpretation of novation clauses, and the enforceability of novation agreements. These precedents help to clarify ambiguities and provide a roadmap for future novation agreements. For instance, court rulings have established that implied consent is generally insufficient for novation, emphasizing the need for clear, documented agreement among all parties.

Differences Between Novation and Assignment

While both novation and assignment involve the transfer of contractual rights and obligations, they are fundamentally different processes with distinct legal implications. Novation, as previously discussed, requires the mutual consent of all parties involved and results in the complete substitution of one party for another. This means that the original party is entirely released from the contract, and the new party assumes all rights and obligations as if they were an original signatory.

Assignment, on the other hand, is a more limited transfer mechanism. In an assignment, the assignor transfers their rights under the contract to the assignee, but the assignor remains liable for any obligations. This means that while the assignee can benefit from the contract, the assignor is still responsible for fulfilling any duties or liabilities. For example, if a landlord assigns the right to receive rent payments to a third party, the landlord still retains the responsibility for maintaining the property.

Another key difference lies in the necessity of consent. While novation requires the explicit agreement of all parties, assignment typically does not. The assignor can transfer their rights without needing the consent of the counterparty, unless the contract explicitly prohibits assignment. This makes assignment a more straightforward process but also one that offers less protection to the counterparty, who may find themselves dealing with an unfamiliar party without their input.

Role of Consent in Novation Agreements

Consent is the linchpin of any novation agreement, ensuring that all parties are on the same page regarding the transfer of rights and obligations. This mutual agreement is not just a procedural formality but a substantive requirement that upholds the integrity of the contractual relationship. Without the explicit consent of the original party, the new party, and the counterparty, the novation cannot proceed. This tripartite consent ensures that the new party is fully aware of and willing to assume the responsibilities, and the counterparty is comfortable with the substitution.

The process of obtaining consent can be intricate, often involving negotiations to address any concerns or conditions that the parties may have. For instance, the counterparty might require assurances about the new party’s ability to fulfill the contract’s terms, such as financial stability or technical expertise. These negotiations can be formalized through written agreements, which serve as a record of the consent and the terms under which it was given. This documentation is crucial for legal enforceability, providing clear evidence that all parties agreed to the novation.

In some cases, obtaining consent can be a hurdle, particularly if the counterparty is reluctant to accept the new party. This is where the skill of negotiation and the clarity of the novation agreement come into play. Legal advisors often play a pivotal role in facilitating these discussions, ensuring that the terms are fair and that the consent is genuinely informed. The importance of clear, documented consent cannot be overstated, as it prevents future disputes and provides a solid foundation for the new contractual relationship.

Detecting and Preventing Bait and Switch Scams in Finance

Recognizing and avoiding pyramid schemes: a comprehensive guide, you may also be interested in..., leadership transitions and member engagement in cpa societies, awscpa to aicpa transition: key changes and benefits, maintaining ethical standards in accounting, credit union governance: structure, roles, and financial impact.

• Search Search Please fill out this field.

What Is Novation?

How novation works, novation vs. assignment.

• Novation FAQs

The Bottom Line

• Corporate Finance

Novation: Definition in Contract Law, Types, Uses, and Example

Investopedia / Julie Bang

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

For example, a supplier who wants to relinquish a business customer might find another source for the customer. If all three agree, the contract can be torn up and replaced with a new contract that differs only in the name of the supplier. The old supplier relinquishes all rights and obligations of the contract to the new supplier.

Key Takeaways

• To novate is to replace an old obligation with a new one.
• In contract law, a novation replaces one of the parties in a two-party agreement with a third party, with the agreement of all three parties.
• In a novate, the original contract is void. The party that drops out has given up its benefits and obligations.
• In the financial markets, using a clearinghouse to vet a transaction between two parties is known as a novation.
• Novation is different than an assignment, where the original party to the agreement retains ultimate responsibility. Therefore, the original contract remains in place.

In legal language, novation is a transfer of both the "benefits and the burdens" of a contract to another party. Contract benefits may be anything. For example, the benefit could be payments for services. The burdens are the obligations taken on to earn the payment—in this example, the services. One party to the contract is willing to forgo the benefits and relinquish the duties.

Canceling a contract can be messy, expensive, and bad for an entity's reputation. Arranging for another party to fulfill the contract on the same terms, with the agreement of all parties, is better business.

Novations are often seen in the construction industry, where subcontractors may be juggling several jobs at once. Contractors may transfer certain jobs to other contractors with the client's consent.

Novations are most frequently used when a business is sold, or a corporation is taken over. The new owner may want to retain the business's contractual obligations, while the other parties want to continue their agreements without interruption. Novations smooth the transition.

Types of Novations

There are three types of novations:

• Standard : This novation occurs when two parties agree that new terms must be added to their contract, resulting in a new one.
• Expromissio : Three parties must be involved in this novation; a transferor, a counterparty, and a transferee. All three must agree to the new terms and make a new contract.
• Delegation : One of the parties in a contract passes their responsibilities to a new party, legally binding that party to the terms of the contract.

A novation is an alternative to the procedure known as an assignment .

In an assignment, one person or business transfers rights or property to another person or business. But the assignment passes along only the benefits, while any obligations remain with the original contract party. Novations pass along both benefits and potential liabilities to the new party.

For example, a sub-lease is an assignment. The original rental contract remains in place. The landlord can hold the primary leaseholder responsible for damage or non-payment by the sub-letter.

Novation gives rights and the obligations to the new party, and the old one walks away. The original contract is nullified.

In property law, novation occurs when a tenant signs a lease over to another party, which assumes both the responsibility for the rent and the liability for any subsequent damages to the property, as indicated in the original lease.

Generally, an assignment and a novation require the approval of all three parties involved.

A sub-lease agreement is usually an assignment, not a novation. The primary leaseholder remains responsible for non-payment or damage.

Novation Uses

Because a novation replaces a contract, it can be used in any business, industry, or market where contracts are used.

Financial Markets

In financial markets, novations are generally used in credit default swaps, options, or futures when contracts are transferred to a derivatives  market clearinghouse. A bilateral transaction is completed through the clearinghouse , which functions as an intermediary.

The sellers transfer the rights to and obligations of their securities to the clearinghouse. The clearinghouse, in turn, sells the securities to the buyers. Both the transferor (the seller) and transferee (the buyer) must agree to the terms of the novation, and the remaining party (the clearinghouse) must consent by a specific deadline. If the remaining party doesn't consent, the transferor and transferee must book a new trade and go through the process again.

Real Estate

Contracts are a part of real estate transactions, so novation is a valuable tool in the industry. If buyers and sellers enter into a contract, novation allows them to change it when issues arise during due diligence, inspection, or closing.

Commercial and residential rental contracts can be changed using novation if tenants or renters experience changes that affect their needs or ability to make payments.

Government Contracting

Federal, state, and local governments find it cheaper and beneficial for the economy to contract specific tasks rather than create an official workforce. Contracts are critical components for private or public companies who win a bid to do work for governments. If the contractor suddenly can't deliver on the contract or other issues prevent it from completing its task, the contractor can ask the government to recognize another party to complete the project.

A novation is not a unilateral contract mechanism. All concerned parties may negotiate the terms until a consensus is reached.

Banks use novation to transfer loans or other debts to different lenders. This typically involves canceling the contract and creating a new one with the exact terms and conditions of the old one.

Example of Novation

Novation can occur between any two parties. Consider the following example—Maria signed a contract with Chris to buy a cryptocurrency for $200. Chris has a contract with Uni for the same type of cryptocurrency for $200. These debt obligations may be simplified through a novation. By agreement of all three parties, a novation agreement is drawn, with a new contract in which Chris transfers the debt and its obligations to Maria. Maria pays Uni $200 in crypto. Chris receives (and pays) nothing.

Novations also allow for revisions of payment terms as long as the parties involved agree. For example, say Uni decided not to accept crypto but wanted cash instead. If Maria agrees, a novation occurs, and new payment terms are entered on a contract.

What Is a Novation?

In novation, one party in a two-party agreement gives up all rights and obligations outlined in a contract to a third party. As a result, the original contract is canceled.

What Is The Meaning of Novation Agreement?

In novation, the rights and obligations of one party to a two-party contract are transferred to a third party, with the agreement of all three parties.

Is Novation a New Contract?

Yes, because the old contract is invalidated or "extinguished" when the new contract is signed.

In a novation, when all parties agree, one party in a two-party agreement gives up all rights and obligations outlined in a contract to a third party. As a result, the original contract is canceled.

Novation differs from an assignment, where one party gives up all rights outlined in the contract but remains responsible for fulfilling its terms. The original contract remains in place.

International Swaps and Derivatives Association. " ISDA Novation Protocol ."

General Services Administration. " Subpart 42.12 - Novation and Change-of-Name Agreements ."

• Terms of Service
• Editorial Policy
• Privacy Policy

How can we help?

• 13 March 2018
• Commercial Real Estate

Novation and Assignment: Sisters, Not Twins

There’s often, understandably, a bit of uncertainty about whether (and how) a party to a contract can “assign” (transfer) its rights, or pass on its obligations, under that contract, to another person.

In law, the general rule is that only the original parties to the contract can discharge or fulfil the obligations and enforce the rights created under it and nobody else gets a look in. This is called “privity of contract”.

Essentially, novation and assignment are both mechanisms to get around this restriction. However, while the end result is the same, there are some important differences between these two mechanisms.

Under an assignment, one party (the assignor) keeps performing their obligations under the contract, but transfers some or all rights to a third party (the assignee). The parties to the contract remain the same so privity of contract is preserved.

Assignments can be legal or equitable. In order for an assignment to be a legal assignment, the assignment must be agreed in writing, signed by the assignor, and the other party to the contract must be given notice of the assignment. A legal assignment is usually preferable as this allows the assignee to enforce the rights in their own name directly.

If the assignment is an equitable assignment because it does not fit the criteria for a legal assignment (for example, the other party was not given notice of it), the assignee will need to get the assignor to enforce the assigned rights on its behalf.

Contracts often require the consent of the other party before any assignment can take place. Some contracts expressly prohibit assignment. However, even where there is such wording in the contract, there is nothing stopping you from asking the party to consent to the assignment anyway, though you should take care to record any agreement in writing.

The main point to remember is that you cannot assign obligations under a contract to another party – you can only assign your benefits or rights. Even if the assignee agrees that they will take on the obligations under the contract, it is still the assignor who remains responsible for performance of the obligations and liable if they are not. In practice, what often happens is that the assignee does take over the performance of the contractual obligations but simply agrees to indemnify the assignor for any failures in performance.

It is also important to note that some rights may not be legally capable of assignment.

When you novate a contract, the original contract effectively ceases to exist and is replaced with a new contract. The new contract contains exactly the same rights and obligations as the original contract, except that it substitutes one of the original parties (the outgoing party) with a third party (the incoming party).

As you are creating a new contract, technically you need to provide fresh consideration. Usually a simple novation agreement between all the parties will be enough, but, if there is any doubt, the parties may choose to execute the novation as a deed instead, which dispenses with the need for consideration.

The novation agreement (or deed) will specify what happens to the liabilities under the original contract. In a typical novation, the outgoing party would be released from all liabilities and the incoming party would inherit these. However, this is up to the parties to decide; they could even decide that the outgoing party will remain liable for all of the liabilities under the original contract.

Novating the contract will release the outgoing party from any future obligations which may arise. This is a crucial difference between novation and assignment.

Although the novation agreement itself can be simple, the process of getting all the parties to the table to agree and execute might be more complex. The main issue for an outgoing party will be persuading the other original party to sign. The other original party often has concerns about service continuity and may want certain assurances or information about the incoming third party.

Equally, the other original party is not obliged to agree: they can refuse to novate and then sue for breach if the party trying to exit the contract fails to meet its contractual obligations. As they still have this other option, in any novation scenario, the outgoing party is probably in a weaker bargaining position, and the other original party may well use this to their advantage.

About this article

• Subject Novation and Assignment: Sisters, Not Twins
• Expertise Commercial Real Estate
• Published 13 March 2018

Disclaimer This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

Read, listen and watch our latest insights

• 06 September 2024
• Corporate and M&A

How to exit your business – Reading Seminar

Due to popular demand, Nicky Goringe Larkin and Stuart Mullins, will be hosting a repeat of the ‘How to exit your business’ seminar at Clarkslegal’s Reading office.

• 05 September 2024
• Public Procurement

Public Procurement Annual Update 2024

The Procurement Act 2023 is coming into force on 28 October 2024, bringing with it major changes to public procurement procedures and legal remedies. Join our Public Procurement team as they provide you with the essential information you need to know.

• 29 August 2024
• Privacy and Data Protection

What a controller or a processor needs to know…in a nutshell

Data processing agreements are a common feature of contracts for the supply of services, for example often featuring as self-contained schedules to master services agreements.

• 28 August 2024

The Next Equal Pay Decision: market forces not enough to justify differences

This is the first equal pay claim against a major retailer to be heard by the tribunal and therefore is expected to have wide-reaching consequences in how employers determine their pay practices.

• 26 August 2024

Hidden Disabilities in the Workplace: Navigating Fatigue

It is estimated that in the UK in 2023 some 16 million people were disabled, including 23% of working adults. Of these, 70-80% are estimated to have invisible disabilities, also known as hidden disabilities.

• 21 August 2024
• Immigration

What Employers need to know about Biometric Residence Permits

Biometric Residence Permits (BRPs) are biometric immigration documents that are issued to non-EEA nationals and EEA nationals, who have been granted permission to stay in the UK.

• eSignatures
• Product updates
• Document templates

How to legally transfer obligations and rights through contract novation

Olga Asheychik Senior Web Analytics Manager at PandaDoc

Reviewed by:

Ashley Kemper VP of Revenue Marketing

• Copy Link Link copied

Novation of a contract means replacing initial legal obligations with a new contract.

During business mergers or restructuring, the originating party (business owners) may seek to transfer legal responsibilities and commitments to a new third party.

This is where the novation occurs — a legal process that helps replace the original agreement while keeping to the initial contract’s intent.

As your business grows and signs new partnerships, contract novation helps transform original agreements.

It refreshes contractual obligations and introduces a new player on the contractual field. 

In this article, we’ll discuss the important role of contract novation and how it differs from contract assignment.

We’ll also shed light on valuable tools that you can use to make the contract transferring process smooth and secure.

Key takeaways

• Novation replaces the original contract. It allows for the change of terms in the initial agreement between two parties or lets a new third party on board.
• A new contract adapts to the terms of a new partnership. All parties involved in the old agreement receive their initially promised benefits. 
• The novation of contract process typically occurs during business mergers, lease agreements, transactions in financial markets, and real estate deals.
• Novation can be streamlined by incorporating modern solutions like contract management software.

How novation in contract law works

Novation of contract breathes new life into two-party contracting .

During this process, one of the original parties consents to transfer the contract to a third party.

As a result, three main parties play their respective roles:

• One of the original parties wishes to exit the contract
• The second original party remains in the contractual relationship
• The incoming party agrees to assume responsibilities

Everyone involved negotiates a new contract and consents that contractual rights, duties, and obligations transfer from the original party to the newcomer.

That doesn’t mean just copying and pasting obligations over for the new party to sign on the dotted line.

A new, valid contract weaves in needed changes while respecting the terms of the original contract.

In real estate markets, investment banking, or other sectors heavily reliant on financial documentation , contracts must be dependable, and novation guarantees a high level of reliability.

The novation process ensures that projects, services, and contractual relationships alike will keep going when one of the parties gets replaced.

Let’s pivot to an illustrative example.

Picture a real estate company that secures a government contract to develop a new community center.

The contract lays out important details, such as deadlines, budget, and quality standards — everything needed to kick off the work legally.

Now imagine this real estate company acquired by a larger firm.

According to contract law, the company has to relinquish its rights under the original contract.

Novation helps transfer the contract to the new contracting firm that is now responsible for developing the community center.

The old contract is voided , and the new player receives all the rights as well as the obligations — and the project can continue without legal roadblocks.

Contract novation vs assignment: what’s the difference

An alternative to the novation of contract is contract assignment.

In the construction industry , if a company assigns a subcontractor to handle part of a development project — like implementing solar panels or landscaping — the original company, not the subcontractor, answers for any issues. 

On the flip side, novation allows an incoming party to step in and take over rights, obligations, and contract liabilities.

The transition is seamless, and the new party fully integrates into the contractual relationships. 

The table below sums up the discrepancies between these two terms:

So, why does this difference matter in contract law? 

When it comes to legal disputes , adversarial parties need contracts that clearly define the specific responsibilities of each party. 

In case of contract novation, the original contract, its derivative, and liabilities sail from the transferor to a new party. 

On the other hand, contract assignment means the original party is responsible for contractual obligations, and assignees only deliver their part of the work.

The three types of novations

Novation helps all parties involved create a new contract without the hassle of starting from scratch. 

Let’s look closer at various types of novation:

Standard novation

This is a two-party contract version when parties decide to tweak the contract terms and refresh the original contract.

In this context, novation ensures that changes align with the evolving needs of the parties involved. 

Expromissio — a new party becomes the debtor

This type of novation involves three parties signing a new contract.

One of the original parties, as debtor (obligor), acts as a transferor and steps back from obligations by handing over the contract to a new party, the new debtor — the creditor (obligee) remains the same.

Novation allows for a smooth transition and accommodates changes in contractual roles. 

Delegation — a new party becomes the creditor

One of the original parties delegates their responsibilities to a new party — in this example, a creditor (obligee) transfers debtor (obligor) responsibilities to a new creditor.

Novation plays a crucial role in this process, binding the incoming party to the current terms of the contract. 

Handling different types of contract novations is an arduous experience — but handy tools can ease it for you.

Software solutions in contract management are instrumental when it comes to novating agreements and other business contracts.

And document automation software can dramatically reduce time spent on contract updates and help better collaborate with other parties by incorporating the use of electronic signatures and document analytics reports.

How novation occurs in business

Novation is a vital part of various business applications.

From streamlining transitions in mergers to restructuring partnerships, it’s key to help you and other parties adapt to changing business needs while ensuring that contract performance remains unimpeded.

Let’s explore several examples where novation takes the spotlight.

Business acquisitions

Imagine your company has recently acquired a smaller firm, and now you have a bunch of new contracts under the old owner’s name.

You can novate contracts and transfer them to your company, without the headache of creating contracts from scratch.

Contract management software makes the process run smoothly and keeps all projects moving forward without interruptions. 

Real estate transactions

If you’re selling your house, and the buyer wishes to prolong any existing warranties currently in place (for example, say you just paid for a new roof), this is also a novation of contract.

You will transfer the current warranty to the buyer, providing them with the same coverage. 

Service contract transfers

Let’s imagine you’re switching from your current cloud services provider to a company that just bought them out.

Technically, you’re being switched — and if you have the option, you can decline the new contract.

Should you decide to stay, novation helps replace the old service agreement with a new one, making the contract transfer process frictionless.

Partnership changes

As business partnerships evolve, changes are inevitable.

Novation helps revitalize partnership agreements , updating who’s currently on board and clarifying the current responsibilities of each party. 

No need to draft an entirely new agreement with all the requisite back and forth negotiations and redlining — the original contract gets a seamless update.

Handle all your business contracting needs with PandaDoc

Managing contracts is not always an easy ride.

The PandaDoc suite of tools can lead you through every step, ensuring you never miss a beat by automating routine tasks so that every contract gets the green light from the right party.

Start your work with document management software designed to simplify a secure way to create, collaborate on, and store documents.

You can integrate tools with your existing CRM and then extract and insert data directly into contracts with just a few clicks.

Moreover, a library of templates is available, as well as a cloud-based document repository to store and manage all your business contracts.

Ready to take the plunge?

Connect with us to sign up for a 14-day trial or schedule a demo .

Frequently asked questions

Does novation cancel the contract.

Yes, novation replaces the original contract with a new one, effectively canceling the original agreement and releasing the original parties from their obligations.

What are the risks of contract novation in contract law?

Risks include potential disputes over the terms of the new contract, loss of rights or protections from the original contract, and the complexity of obtaining the necessary consent from all parties involved or affected.

Who must consent to a novation?

All parties involved in the original contract and the new party taking over the obligations must agree to the novation.

Is novation a breach of contract?

No, novation is not a breach of contract; it’s a legal process agreed upon by all parties to replace the original contract with a new one.

PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDoc services are governed by our Terms of Use and Privacy Policy.

Related articles

Contracts 6 min

Contracts 7 min

This website uses cookies so that we can provide you with the best user experience possible. Our Cookie Notice is part of our Privacy Notice and explains in detail how and why we use cookies. To take full advantage of our website, we recommend that you click on “Accept All”. You can change these settings at any time via the button “Update Cookie Preferences” in our Cookie Notice .

Technical cookies are required for the site to function properly, to be legally compliant and secure. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. Persistent cookies, however, remain and continue functioning on repeat visits.

CMS does not use any cookie based Analytics or tracking on our websites; see details here .

Personalisation cookies collect information about your website browsing habits and offer you a personalised user experience based on past visits, your location or browser settings. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. Some functionality will not work if you don’t accept these cookies.

Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our Privacy Notice .

How to bookmark a page on iPhone 

• Tap the Share button at the bottom of the Safari screen for the website you're on
• Tap the icon labelled 'Add to Home Screen'
• Tap the 'Add' button in the upper right corner
• Launch the website from your Home screen by tapping its icon.

How to bookmark a page on Android 

• Click on the 'menu' button.
• Click on the 'start' button and save as a bookmark.
• Click on the 'menu' button again and select "Bookmarks".
• Press and hold the LawNow icon and then click "Add to home screen".

How to bookmark a page on Windows 

• Click on the "..." icon in the bottom-right of the screen.
• Select "pin to start"
• A new tile linking to LawNow will now appear on the start menu

How to bookmark a page on Blackberry 

• Click on the BlackBerry 'menu' icon.
• Select "Add to Home Screen".
• In the "Add to Home Screen" dialog window, select the "add" button.

Search Filters

• Member log in

Jurisdiction / Region

Our combination of practice excellence and deep industry expertise provides a distinct competitive advantage to our clients, bringing together legal expertise, commercial insight and close professional support.

• Bosnia and Herzegovina
• Czech Republic
• Latin America
• Middle East
• Netherlands
• North Macedonia
• Saudi Arabia
• South Africa
• Switzerland
• United Arab Emirates
• United Kingdom
• Consumer Products (all)
• Consumer Products - fashion & luxury
• Consumer Products - FMCG
• Consumer Products - food & drink
• Consumer Products - retail
• Data Centres
• Energy (all)
• Energy - Conventional Power
• Energy - Nuclear
• Energy - Oil & Gas
• Energy - Power
• Energy - Renewables & Climate
• Energy - Water
• Higher Education
• Hotels & Leisure
• Infrastructure & Projects
• Life Sciences
• Manufacturing
• Private Equity
• Public Sector
• Real Estate & Construction
• Technology, Media and Communications

Our Expertise

• ADR/mediation
• Advertising & Marketing
• Agriculture
• Anti-bribery & Corruption
• Asset Finance
• Asset Management, Funds and Capital Investment Law
• Banking & Finance
• Class actions
• Commercial & General Business Issues
• Commercial Contracts
• Commercial Distribution
• Communications
• Competition/antitrust
• Construction
• Corporate Finance
• Corporate Law & Transactions
• Corporate Recovery & Insolvency
• Criminal Law
• Crypto, FinTech & Digital Assets
• Data Protection & Privacy
• Debt Capital Markets
• Derivatives & Structured Finance
• Directors' Issues
• Distribution and Franchising
• Employee Share Schemes
• Energy Disputes
• Environment
• Environment - Cleantech
• Environmental, Social and Governance (ESG)
• Equity Capital Markets
• EU Sales Law
• Financial Institutions Regulation
• Health and Safety
• Hotels - Financing
• Infrastructure
• Insolvency law & restructuring
• Insurance & Reinsurance
• Intellectual Property
• International Arbitration
• Investigations & Dawn Raids
• Investing in Europe
• Investment Arbitration
• Islamic finance
• IT Security Law
• Life Sciences - Healthcare
• Life Sciences - Regulation
• MBOs/MBIs & Private Equity
• Merger Control
• Mergers & Acquisitions
• Mining and Minerals
• Outsourcing
• Personal Injury
• Private Clients
• Procurement
• Product Liability
• Professional Indemnity/ Negligence
• Projects & Project Finance
• Real Estate
• Real Estate - Finance
• Sustainability
• Tax - Transfer Pricing
• US Securities

Contracts: The critical difference between Assignment and Novation

Introduction

An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation. The distinction between assignment and novation was addressed recently in the case of Davies v Jones (2009), whereby the court considered whether a deed of assignment of the rights under a contract could also transfer a positive contractual obligation, which in this instance included the obligation to pay.

Mr Jones (the first defendant) contracted to sell Lidl (the second defendant) a freehold property (the “Lidl Contract”). At that time, the freehold was vested in the claimants as trustees of a retired benefit scheme. Mr Jones contracted to buy the land from the claimants (the “ Trustee Contract”) and assigned his right, title and interest to the Trustee Contract to Lidl by way of a deed of assignment.

Clause 18 of the Trustee Contract permitted Mr Jones, as purchaser, to retain £100,000 from the purchase monies payable to the claimants until the outstanding works (ground clearance and site preparation) had been completed. Following completion of the works Mr Jones was entitled to retain one half of the proper costs from the retention and release the balance to the claimants. There was a similar clause in the Lidl Contract, which allowed Lidl to retain the proper costs from the retention. Importantly, although similar, under the Lidl Contract Lidl was entitled to retain the whole cost of carrying out the works as against only half in the Trustee Contract.

Lidl retained the sum of £100,000 from the money due by Mr Jones to the claimants on completion of the contract. Once the works were completed Mr Jones failed to pay the claimant the retention monies claiming that the proper cost of the works was over £200,000.

The claimants argued that the benefits granted by way of the assignment were conditional on Lidl performing Mr Jones’ obligations under the Trustee Contract. Therefore, the question considered by the court was whether Lidl was bound to observe the terms of the Trustee Contract and in particular clause 18, given that benefit of the contract had been assigned to them.

The court held that the benefit which passed to Lidl by way of the deed of assignment did not require Lidl to perform the obligations of Mr Jones under the Trustee Contract. The assignment did not impose any burden on Lidl. The only person who clause 18 of the Trustee Contract was binding on was Mr Jones. The transfer to Lidl could not impose on Lidl the obligation to perform Mr Jones’ obligations and these therefore remained with Mr Jones. This reaffirms the principle that when you take an assignment of a contract, you don’t take on the burden (except in limited circumstances where enjoyment of the benefit is conditional on complying with some formality). Therefore, if an owner assigns a building contract to a purchaser of land and the building is still under construction, the obligation to pay the contractor remains with the original owner and does not pass to the new owner.

Assignment and novation in the Construction Industry

Both assignment and novation are common within the construction industry and careful consideration is required as to which mechanism is suitable. Assignments are frequently used in relation to collateral warranties, whereby the benefit of a contract is transferred to a third party. Likewise, an assignment of rights to a third party with an interest in a project may be suitable when the Employer still needs to fulfil certain obligations under the contract, for example, where works are still in progress. A novation is appropriate where the original contracting party wants the obligations under the contract to rest with a third party. This is commonly seen in a design and build scenario whereby the Employer novates the consultants’ contracts to the Contractor, so that the benefit and burden of the appointments are transferred, and the Employer benefits from a single point of responsibility in the form of the Contractor.

If the intention is that the assignee is to accept both the benefit and burden of a contract, it is not normally sufficient to rely on a deed of assignment, as the burden of the contract remains with the assignor. In these instances a novation would be a preferable method of transferring obligations, and this allows for both the benefit and burden to be transferred to the new party and leaves no residual liability with the transferor.

Reference: Davies v Jones [2009] EWCA Civ 1164.

Related content

Grenfell tower inquiry final report: key findings and recommendations, one case to bind them all - class actions and res judicata, ukraine launches large-scale privatisation.

• Follow us on:
• LinkedIn  

© CMS Legal 2024

• Terms of Use
• Privacy Notice
• Cookie Notice

You are using an outdated browser. Please upgrade your browser or activate Google Chrome Frame to improve your experience.

To Avoid Costly Mistakes Call (866) 601-5518 for a Free Initial Consultation

Government Contract Novation Vs Assignment of Contract & FAR 42.1204 Novation Clause

All should be aware that the contracting officer does not have to approve every assignment of contract transactions under the FAR 42.1204 contract novation clause .

• Avoid the costly mistake of assuming that the government must approve all novations.
• If done improperly, contractors can be found in breach of contract terms and can even face suspension or debarment .

Novation Agreement FAR 42.1204 Definition

In federal government contracting,  developing a novation can be somewhat unique because depending on the facts of each case, the original parties may still be responsible for performance to the government.  Whereas, in the commercial sector, the contract novation definition means that a new party to the contract essential substitutes the original party. In other words in the commercial sector, the original party’s obligation is discharged and substitution of an original party to a contract with a new party, or substitution of an original contract with a new contract.

Federal Government Contract Novation vs Assignment of Contract

Business Asset Purchase Agreement and Contract Assignment  Clause Issues

What is the difference between assignment and novation? Simply executing a business asset purchase agreement and a signed novation contact agreement  when buying or selling a business is not the end of the legal analysis when there is a government contract involved.  The contracting officer must approve the assignment of government contracts and or novation agreement . Your novation letter should address critical issues that answer the contracting officer’s concerns about the risk of performance. Novating government contracts is all about minimizing the risk to the agency.

In one case , SBA OHA ignored the argument that when novating a contract, its purchase and sale contract with the buyer had the legal effect of divesting the seller of any control over the current contracts. In that case, there was no formally approved novation agreement FAR contract. As a result, the whole transaction went to waste because the parties lacked a full understanding of the rules. A Government contract may not be automatically transferred to a third party. See 41 USC 15.

• In government contracting, if there is a performance problem, for example in construction, and a termination for default is an issue, or the surety is called upon for obligations under a performance bond, then the original party may not necessarily be discharged.
• Assignment of government contracts decisions, when there is a purchase and sale agreement involving a company that has existing government contracts, should be met with caution.

On the issue of contract novation vs assignment , although the FAR 42.1204 assignment novation clause allows the buying and selling parties to execute a novation vs assignment agreement due to an asset purchase or stock sale, companies should still assess legal issues related to violation of SBA small business size standards. 

• Companies should always keep the agency involved from the beginning of the process to the end.

41 USC 6305 – Contract Assignment Clause – Prohibition on transfer of contract and certain allowable assignments

Under the federal contract assignment clauses, when there are business sales that involve government contracts, the purchase and sale agreement suggests that the contracts would be transferred to the buyer either through a business asset purchase agreement sale or stock sale.

However, the reality is that although FAR 42.1204 allows for a novation of contract agreement, the contracting officer is not obligated to approve it.  A federal government contracting agency, only when it determines it to be in its interest, may accept a third party as the successor in interest when the third party’s interest in the contract arises out of the transfer of all of the contractor’s assets or the entire portion of the contractor’s assets involved in performing the contract. FAR 42.1204 (a). See also How Do Federal Government Contractors Deal With COVID-19 Problems ?

• The contracting officer is not forced to approve the  FAR novation clause language if the transaction is not in the government’s best interest.
• If the government declines to novate a contract, the original contractor is still responsible for performance. FAR 42.1204 (c) contract novation clause.
• If the assignment of contract is not recognized by the contracting officer, and the original contractor does not perform, the original contractor can be terminated for default.

Potential SBA Size Standard Violations

When assessing government novation contract law rules, the SBA found in one case that since there was no approved assignment of the contract through an approved government novation agreement, the two businesses were deemed affiliated through the identity of interest rule.

On appeal, OHA found that since there was no formal contract novation, the seller was still responsible for the contract performance, and both companies were in the same line of business. In that case, the SBA also found that there was no clear fracture between the buyer and seller. The two businesses were therefore also affiliated with the newly organized concern rule.

Help With Government Contracting Companies for Sale

Oftentimes, buyers and sellers do not understand the complex regulations involved with government contracting companies for sale. Not only are novation agreements a potential issue, the due diligence needed and the ability to address buyers’ other business relationships that can impact their small business size status can be a huge problem. Contact Theodore Watson at 720.941.7200 for immediate help.

Legal Issues Regarding Novation Vs Assignment 

Assignment vs novation. Know the difference: There are several legal issues that arise under federal contract novation agreement FAR law during the purchase and business sales, assignment and transfer of federal contracts when government contracts are involved.  Common issues that occur with the assignment novation clause terms include: (1) whether the seller is simply trying to sell the contract with no real assets, (2) how to structure the asset purchase agreement and whether wait for contracting officer novation approval first and (3) to what degree does the contracting officer have to approve the novation. The first step is to be proactive in the early stages of the asset purchase or stock sale process.

Having the right contract clauses in the sales agreement is critical in the event that the contracting officer does not approve the contract novation. Other issues with novating a contract include the buyer maintaining its small business status in the event of recertification or option year decisions. Find out more about Signs of Being Under Investigation (Federal)

For additional questions about what is the difference between assignment and novation for federal contractors buying and selling a business that includes an assignment and FAR novation agreement or assignment of contract issues under FAR 42.1204 novation clause, or need help with government contracting companies for sale, call Watson & Associates’ government  contract novation law lawyers for immediate help. Call 1-866-601-5518. FREE INITIAL CONSULTATION.

4 comments on “ Government Contract Novation Vs Assignment of Contract & FAR 42.1204 Novation Clause ”

Comments are closed.

Privacy Overview

Assignment and Novation: Spot the Difference 12 November 2020

The english technology and construction court has found that the assignment of a sub-contract from a main contractor to an employer upon termination of an epc contract will, in the absence of express intention to the contrary, transfer both accrued and future contractual benefits..

In doing so, Mrs Justice O’Farrell has emphasised established principles on assignment and novation, and the clear conceptual distinction between them. While this decision affirms existing authority, it also highlights the inherent risks for construction contractors in step-in assignment arrangements.

"This decision shows the court’s desire to give effect to clear contractual provisions, particularly in complex construction contracts, even where doing so puts a party in a difficult position."

This preliminary issues judgment in the matter of Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Others¹ , is the latest in a long series of decisions surrounding the Energy Works plant, a fluidised bed gasification energy-from-waste power plant in Hull². The defendant, MW High Tech Projects UK Ltd (“MW”), was engaged as the main contractor by the claimant and employer, Energy Works (Hull) Ltd (“EWHL”), under an EPC contract entered into in November 2015. Through a sub-contract, MW engaged Outotec (USA) Inc (“Outotec”) to supply key elements for the construction of the plant.

By March 2019, issues had arisen with the project. EWHL terminated the main contract for contractor default and, pursuant to a term in the EPC contract, asked MW to assign to it MW’s sub-contract with Outotec. The sub-contract permitted assignment, but MW and EWHL were unable to agree a deed of assignment. Ultimately, MW wrote to EWHL and Outotec, notifying them both that it was assigning the sub-contract to EWHL. EWHL subsequently brought £133m proceedings against MW, seeking compensation for the cost of defects and delay in completion of the works. The defendant disputed the grounds of the termination, denied EWHL’s claims, and sought to pass on any liability to Outotec through an additional claim under the sub-contract. Outotec disputed MW’s entitlement to bring the additional claim on the grounds that MW no longer had any rights under the sub-contract, because those rights had been assigned to EWHL.

The parties accepted that a valid transfer in respect of the sub-contract had taken place. However, MW maintained that the assignment only transferred future rights under the sub-contract and that all accrued rights – which would include the right to sue Outotec for any failure to perform in accordance with the sub-contract occurring prior to the assignment – remained with MW. In the alternative, MW argued that the transfer had been intended as a novation such that all rights and liabilities had been transferred. As a secondary point, MW also claimed eligibility for a contribution from Outotec under the Civil Liability (Contribution) Act 1978 for their alleged partial liability³.

An assignment is a transfer of a right from one party to another. Usually this is the transfer by one party of its rights and remedies, under a contract with a counterparty, to a third party. However, importantly, the assignor remains liable for any obligations it owes under the contract. As an example, Party A can assign to Party C its right to receive goods under a contract with Party B, but it will remain liable to pay Party B for those goods. Section 136 of the Law of Property Act 1926 requires a valid statutory assignment to be absolute, in writing, and on notice to the contractual counterparty.

Key contacts

Rebecca Williams

Partner London

Mark McAllister-Jones

Counsel London

"In the absence of any clear contrary intention, reference to assignment of the contract by parties is understood to mean assignment of the benefit, that is, accrued and future rights."

In this case, the precise scope of the transferred rights and the purported assignment of contractual obligations were in issue. Mrs Justice O’Farrell looked to the House of Lords’ decision in Linden Gardens⁴ to set out three relevant principles on assignment:

• Subject to any express contractual restrictions, a party to a contract can assign the benefit of a contract, but not the burden, without the consent of the other party to the contract;
• In the absence of any clear contrary intention, reference to assignment of the contract by parties is understood to mean assignment of the benefit, that is, accrued and future rights; and
• It is possible to assign only future rights under a contract (i.e. so that the assignor retains any rights which have already accrued at the date of the assignment), but clear words are needed to give effect to such an intention.

Hence, in relation to MW’s first argument, it is theoretically possible to separate future and accrued rights for assignment, but this can only be achieved through “careful and intricate drafting, spelling out the parties’ intentions”. The judge held that, since such wording was absent here, MW had transferred all its rights, both accrued and future, to EWHL, including its right to sue Outotec.

Whereas assignment only transfers a party’s rights under a contract, novation transfers both a party’s rights and its obligations . Strictly speaking, the original contract is extinguished and a new one formed between the incoming party and the remaining party to the original contract. This new contract has the same terms as the original, unless expressly agreed otherwise by the parties.

Another key difference from assignment is that novation requires the consent of all parties involved, i.e. the transferring party, the counterparty, and the incoming party. With assignment, the transferring party is only required to notify its counterparty of the assignment. Consent to a novation can be given when the original contract is first entered into. However, when giving consent to a future novation, the parties must be clear what the terms of the new contract will be.

"Mrs Justice O’Farrell stressed that “it is a matter for the parties to determine the basis on which they allocate risk within the contractual matrix.”"

A novation need not be in writing. However, the desire to show that all parties have given the required consent, the use of deeds of novation to avoid questions of consideration, and the use of novation to transfer ‘key’ contracts, particularly in asset purchase transactions, means that they often do take written form. A properly drafted novation agreement will usually make clear whether the outgoing party remains responsible for liabilities accrued prior to the transfer, or whether these become the incoming party’s problem.

As with any contractual agreement, the words used by the parties are key. Mrs Justice O’Farrell found that the use of the words “assign the sub-contract” were a strong indication that in this case the transfer was intended to be an assignment, and not a novation.

This decision reaffirms the established principles of assignment and novation and the distinction between them. It also shows the court’s desire to give effect to clear contractual provisions, particularly in complex construction contracts, even where doing so puts a party in a difficult position. Here, it was found that MW had transferred away its right to pursue Outotec for damages under the sub-contract, but MW remained liable to EWHL under the EPC contract. As a result, EWHL had the right to pursue either or both of MW and Outotec for losses arising from defects in the Outotec equipment, but where it chose to pursue only MW, MW had no contractual means of recovering from Outotec any sums it had to pay to EWHL. Mrs Justice O’Farrell stressed that “it is a matter for the parties to determine the basis on which they allocate risk within the contractual matrix.” A contractor in MW’s position can still seek from a sub-contractor a contribution in respect of its liability to the employer under the Civil Liability (Contribution) Act 1978 (as the judge confirmed MW was entitled to do in this case). However, the wording of the Act is very specific, and it may not always be possible to pass down a contractual chain all, or any, of a party’s liability.

Commercially, contractors often assume some risk of liability to the employer without the prospect of recovery from a sub-contractor, such as where the sub-contractor becomes insolvent, or where the sub-contract for some reason cannot be negotiated and agreed on back-to-back terms with the EPC contract. However, contractors need to consider carefully the ramifications of provisions allowing the transfer of sub-contracts to parties further up a contractual chain and take steps to ensure such provisions reflect any agreement as to the allocation of risk on a project.

This article was authored by London Dispute Resolution Co-Head and Partner Rebecca Williams , Senior Associate Mark McAllister-Jones and Gerard Rhodes , a trainee solicitor in the London office.

[1] [2020] EWHC 2537 (TCC)

[2] See, for example, the decisions in Premier Engineering (Lincoln) Ltd v MW High Tech Projects UK Ltd [2020] EWHC 2484, reported in our article here , Engie Fabricom (UK) Ltd v MW High Tech Projects UK Ltd [2020] EWHC 1626 (TCC) and C Spencer Limited v MW High Tech Projects UK Limited [2020] EWCA Civ 331, reported in our article here .

[3] The Civil Liability (Contribution) Act 1978 allows that “ any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage whether jointly with him or otherwise .”

[4] Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85

DOWNLOAD PDF

• Transfer of rights
• Contribution
• EPC Contract
• Power Plant

Related insights

Wfw enhances athens maritime dispute offering with new partner hire, esg in aviation: brace for a hard landing, fraud: neither mindful nor demure, follow us on.

• X (Twitter)

• Contact Support
• Returning Customer?
• Sign in to your account
• Contact support
• New Zealand
• South Africa

Novation and assignment

Changing the parties bound to a contract

What is novation, is novation a new contract, what is a deed of novation, why novation can be difficult, when do you use an assignment agreement to transfer a debt or obligation, transfer of a debt, transfer of service contracts.

Novation and assignment are ways for someone to transfer their interest in a contract to someone else.

Whilst the difference between assignment and novation is relatively small, it is an essential one. Assigning when you should novate could leave you in a position of being liable for your original contract when the other party is not liable to perform their obligations.

In contract law the principle of privity of contract means that only the parties to a contract have the obligation to fulfill it and the right to enforce it. Statute law has created a few exceptions but they apply rarely.

The legal concepts of novation and assignment have been developed to overcome the restrictions imposed by the doctrine.

Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of their original counter-party.

Novation in practice

Let us suppose Michael buys a car from Peter, owing him £5,000 as part of the sale price until Peter obtains a certifcate of authenticity.

Michael then sells the car to Fred under the same terms. Michael wants out, but has obligations to both parties.

Michael persuades Peter and Fred to enter into a novation agreement, signed by all three of them, whereby Fred takes over Michael’s obligations to Peter and Fred now deals with Peter in Michael’s place.

Other examples

The seller of a business transfers the contracts with their customers and suppliers to the buyer. A novation process transfers each contract by the mutual agreement of all three parties.

A design and build contractor in the construction industry transfers a construction contract to a new, substitute contractor. A novation agreement is necessary.

A novation agreement is a new contract that 'extinguishes' the old one.

Because it is a new contract, there can be new terms within it, giving additional rights and obligations.

There are times when and why you should use a deed explains exactly when you need to use one. Novation is not among them.

A Deed of Novation is a relic from long ago when lawyers were even more inclined to cloak their knowledge in obscurity.

One of the main purposes in using the deed format is that it provides the necessity for an unconnected witness to sign the document. So it is that much more difficult for one of the parties to say it was forged or signed a year later than the date shown.

But in a novation, there are at least three parties by definition; three parties who are most unlikely to be connected and each of whom has their separate interest. So you can be pretty sure the agreement has not been tampered with. A witness cannot improve on that. So you do not need a deed.

Another reason to use a deed could be when there is no 'consideration', that is when one of the original contracting parties receives no benefit - monetary or otherwise - in return fot the novation. However, in commercial circumstances you could nearly always argue that there is an advantage to each of the parties. The extinction of the old contract or subjectively more favourable terms within the new contract would both count as fair consideration.

Do you need a deed of novation for your situation? The answer is usually no, as an agreement is fine.

The exception to the rule is that if the original contract was signed as a deed, you need to use a deed to novate it. Real property transaction are by deed. That includes a consent to assign a lease, which has three parties. There are special reasons for that.

There are other examples too, which are more obscure.

When a contract is novated, the other (original) contracting party must be left in the same position as they were in prior to the novation being made.

Novation requires the agreement of all three parties. While obtaining the agreement of the transferor and transferee is easy, obtaining the agreement of the other original party can be more difficult:

The other original party may not understand the benefit to them of having the original contract novated and require extra information about the process that is time consuming to provide.

They may need extra assurance to be persuaded that they won’t be worse off as a result of the novation (especially common where there is a transfer of service contracts between suppliers).

It is possible that they could play up to delay the transfer and squeeze extra concessions from you.

The only way to transfer your rights or obligations is by an agreement signed by all three parties.

But what happens if you are a service provider selling your business with tens of thousands of customers? You can hardly ask every one of them to sign up to their own separate novation.

In practice, a well drawn original agreement will contain a provision which permits the service provider to assign (transfer its contract) without the permission of the customer.

But what happens if it does not?

In practice what happens is that the buyer 'takes a flyer'. The deal is done in the hope that the customers stay with the new owner.

Maybe the buyer obtains an indemnity from the seller to cover their loss if many leave. Maybe the buyer will write to the customers to encourage them to stay. Maybe the customers simply make the next payment and thereby confirm acceptance in law.

In each of those cases, the acquirer will be safe because the customers remain (or become) bound to the terms of the original contract.

Net Lawman offers an assignment agreement to cover that exact situation, together with a draft letter of the sort that might convince customers to stay with the new owner.

The other situation in which assignment is used is where the new party trusts the original party assigning the contract. For example, a subsidiary company may assign contractual obligations to a parent company confident that the parent will uphold the contract.

A construction company is a subsidary in a group. It is working in partnership with another business on several projects to build houses. The other business is a minor partner in the deal. The partnership has run out of money and the smaller partner is unable to inject any more funds. The parent business is unwilling to have its subsidiary fund the remainder of the projects by itself.

A solution may be for the parent to pay both its subsidiary and the third party for the construction contracts to be assigned to it (in other words, buy the contractual rights from the partnership). The assignment provisions would give the parent the obligation to finish the project, which it may be able to do without the third party.

Assignment transfers benefits only

Even if the assignee promises to take on the liability of the assignor to the third parties, the assignor remains personally liable if they fail to do so. An obligation to a third party cannot be assigned without their consent.

When assignment can invalidate your contract

Terms in an original contract can restrict or prohibit assignments. This is particularly common in construction contracts but can apply in any agreement. If you attempt to assign a contract that cannot be assigned, you risk invalidating the original contract.

Personal obligations and assignment

Be particularly careful of an assignment if your obligations can only be performed personally. A good example would be sale of a hair dressing business. Quite apart from the risk of the clients leaving, the actual forward appointments could be interpreted as contracts with the seller, even though they would have no way to fulfill them because they have sold the business.

Buying the right document

Very generally, if you are unsure whether you should assign or novate, we recommend that you novate and obtain consent of all parties. We offer a number of novation and assignment agreement templates for different situations.

For example: You borrow from a lender and you later want to transfer the debt to someone else (maybe a friend, a business partner or a the buyer of your business) so that they become liable to repay the lender instead of you. In this situation you should use an agreement that novates the debt .

This is a common consideration when a business is sold and outstanding debts of the business are transferred to the new owner (perhaps loans of money but maybe also loans of goods for sale).

Alternatively, you could novate in order to change who should pay back a personal loan between individuals.

Transfer of a right to receive the repayment of a debt

For example: You make a loan to someone (it could be money or goods) and later you want to change who receives the repayment (an agreement to change who the creditor is ).

The transaction might relate to the sale of a business where the buyer takes on the assets of the seller (the loans to other parties), or when factoring debt.

For example: You provide a service to someone and you want to transfer the obligation of providing that service to another person or company.

Again, a common use for a service contract novation agreement is where a business is sold and the buyer takes on the service contracts of the seller. The service could be in any industry, from a fixed period gardening contract to an on-going IT or website maintenance. Novation changes who is providing the service.

Transfer of an architectural or building contract

For example: You buy a building or property development that is still under construction and you want the existing contractor to continue work despite the original contract being between the contractor and the seller.

In this situation you should use a novation agreement for a building contract .

Our standard assignment agreement can be used for most assignments (exceptions given below). It is not specific to circumstances.

Assignment of a business lease

If you wish to transfer a commercial property lease to another business tenant during the fixed term, Net Lawman offers an agreement to assign a lease .

We have an article specifically about assigning a business lease that may be useful further reading.

It is not advisable to assign a residential tenancy agreement. We would suggest that you cancel the original agreement and draw up a new agreement with the new tenants.

Assignment of copyright

We have  number of assignment agreements for intellectual property rights .

They are effectively sale or transfer agreements where some rights are retained by the seller (such as to buyback the assigned work, or for the work only to be used in certain locations).

They relate to IP in media (such as a film or a music score) and to inventions.

Assignment of a life insurance policy or endowment policy

These agreements allows you to transfer the rights to receive payments from a life insurance policy or endowment policy. We offer both a deed of assignment of a policy on separation or divorce and a deed of assignment to gift or sell the policy to someone else .

Assignment and collateral warranties in the construction industry

Probably the most common use of assignment in the construction industry today is in relation to collateral warranties.

The collateral warranties given by consultants, contractors and sub-contractors in construction contracts are often assigned to subsequent owners or leases. Assignment can do no more than transfer rights available to the assignor. It is not capable of creating new rights and obligations in favour of an assignee.

So while the client can, in theory, assign the right to have a building adequately designed, it is unclear what right would be transferred to sue for damages in the event of breach. If the developer (who would usually be the assignor) has sold the building or created a full-repairing lease, then their right would be to nominal damages only. This is one situation where you should definitely use a deed of novation.

Novation Agreement: Purpose and Examples

Jump to section, what is a novation agreement.

A novation agreement is a legal contract that transfers contractual obligations of one party to a third party. It can also replace a contractual obligation with another one. Either way, the new obligation must be agreed upon by all parties involved. Generally, a transferee, transferor and counterparty, must agree to these changes.

Novation Explained

Novation is used in contract law and business law which defines the act of:

• Replacing an obligation with another obligation
• Adding an obligation to perform
• Replacing a party with another in an agreement.

There are three main ways to make a novation:

• Novation: A simple novation doesn’t involve entry of a third party. Instead, someone who owes debt enters in a new agreement with their lender. Basically, you substitute a new contract in place of the old one.
• Expromissio: Expromissio involves entry of a third party on to an agreement. This new party takes on obligations of the original party. Usually, a creditor accepts a new debtor in place of the original debtor.
• Delegation: In this case, the party to a contract transfers their responsibility to another party. For example, you hire a general contractor to perform work on your house. The general contract delegates their responsibilities to a subcontractor. The subcontractor now has a duty to you to complete the work.

Novation vs Assignment:

Novation in contract and business law is different from assignment .

Assignment is generally valid as long as the party is provided notice whereas a novation requires agreement of all parties. An assignment only passes along benefits. whereas a novation transfers both benefits and obligations. For instance, a sublease is an assignment. The landlord can still hold the primary renter responsible. In a novation, the primary party of the contract would also transfer all obligations and cannot be held accountable for the contract after novation is complete.

There are advantages and disadvantages to both a novation and an assignment. Assignment is often more convenient than a novation. Novation can protect sellers from future liabilities despite being a tedious process.

Want to learn more about novation? Here is an article on novation for you .

Purpose of a Novation Agreement

Novation is used when a third party enters an agreement to replace a departing party in a contract. Usually, a new party would assume obligations to pay another party that the original party had intended to pay. This releases the debt from one party to another. There would generally be three parties involved: a transferee, transferor and the counterparty. All parties must sign the agreement.

Cancelling a contract can be messy and expensive. In such cases, one might find novation to be a better option. Through novation one party can simply find a third party to complete an original agreement. A few examples where a novation can be used are leases, transferring debt, real estate transactions, business deals, and construction projects.

There are certain risks of a novation. If the counterparty is unsure that the new party will be able to adequately complete obligations set under the contract, the counterparty might face consequences in the future but will not be able to hold the primary party accountable after novation.

Still not sure about the purpose of novation? Here is an article for you .

Examples of Novation

A few examples of novation can help you understand the process better. For instance, consider this case. Person A owes Person B $100. Person B already owes Person C $100. In this case, Person A and Person B can simply transfer their debt obligations through a novation. If all parties agree, Person A can just pay Person C $100. Person B will receive and pay no amount.

Novation can also allow for modified payment terms if all parties agree. Take the case of Person A, B and C mentioned above. Person C might agree to accept Person A’s jewelry as payment which has a value of $100–the debt amount. This transfer of jewelry can still constitute as repayment and resolution of all debt between the three parties.

Novation in mergers and acquisitions is common. A classic example is when a company, X, enters into a contract with another Company, Y. A novation can be included to ensure that if company Y sells, merges or transfers their business or parts of their business to another company, the new company that merges with or acquires company Y or parts of it, will assume obligations and liabilities of company Y in the contract with Company X. In this contract, a purchaser, merging party or transferee of Company Y will step into the role of Company Y in respect to their contract with Company X.

Novation is also used in financial markets. A bilateral transaction done through a clearinghouse intermediary in the derivatives markets is called novation. Here, sellers transfer securities to the intermediary or the clearinghouse which then sells the securities to buyers. The clearinghouse assumes the obligations and counterparty risk in case of a party defaulting. The clearinghouse also becomes responsible for vetting buyers based on creditworthiness.

Here is an article with more examples of novation .

Image via Pexels by Pixabay

Who Should Sign a Novation Agreement?

A novation must be signed by all parties involved–the transferee, transferor and counterparty. The transferor transfers the obligations to the transferee in an agreement with the counterparty. One might consider signing a novation agreement in the following scenarios:

• Unable to repay debt: If party A borrows money from party B, but is unable to repay the debt and has a third party, C, come in an offer to repay the debt, all parties can consider novation. Here party A would transfer all debt obligations to party C and walk away. Party B will receive the debt from Party C instead of Party A. In case of default, Party B will not be able to hold party A responsible.
• Takeover transactions: In business transactions or corporate takeover, novation can be used to replace parties as per new takeover roles.
• Sale of business: Novation during sale of a business is often used to replace or transfer business obligations between parties.
• Financial Markets: Novation allows derivatives market to use bilateral transactions through an intermediary.

If you are looking to draw up a novation agreement, here is an example of a novation agreement .

Get Help with a Novation Agreement

Do you have any questions about novation agreements and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from contract lawyers who specialize in contracts.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Novation Agreement Lawyers

Jason has been providing legal insight and business expertise since 2001. He is admitted to both the Virginia Bar and the Texas State Bar, and also proud of his membership to the Fellowship of Ministers and Churches. Having served many people, companies and organizations with legal and business needs, his peers and clients know him to be a high-performing and skilled attorney who genuinely cares about his clients. In addition to being a trusted legal advisor, he is a keen business advisor for executive leadership and senior leadership teams on corporate legal and regulatory matters. His personal mission is to take a genuine interest in his clients, and serve as a primary resource to them.

Skilled in the details of complex corporate transactions, I have 15 years experience working with entrepreneurs and businesses to plan and grow for the future. Clients trust me because of the practical guided advice I provide. No deal is too small or complex for me to handle.

Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.

David is an experienced attorney specializing in estate planning, contracts, local government, commercial law, and trademarks. In addition to his 9 years as an attorney, he also brings additional financial services experience as a registered investment advisor, stockbroker, and life insurance agent. David is known for his attention to detail, strong communication skills, and dedication to achieving favorable outcomes for his clients.

Maria Akopyan is a dedicated family law attorney with a focus on marital agreements (prenuptial, postnuptial, and cohabitation agreements) as well as uncontested and default divorces. As the founder and principal attorney at Sapphire Legal Solutions, APC, Maria is committed to providing compassionate, efficient legal guidance through some of life’s most challenging transitions. Whether you’re navigating an amicable divorce or seeking a marital agreement, Maria offers personalized legal solutions that are uniquely tailored to your needs. With her extensive knowledge of family law, she works tirelessly to protect your rights, advocate for your best interests, and guide you empathetically toward a positive resolution. Maria understands the emotional complexities involved in family law matters. She strives to make the legal process as smooth and supportive as possible, ensuring that your family's well-being is safeguarded every step of the way. Trust Maria to be your reliable advocate, helping you find the best legal path forward for you and your loved ones. Let’s work together to resolve your legal matters with care, clarity, and confidence.

With 20 years of law practice experience, Julius is an accomplished and experienced attorney. Julius provides counsel to individuals, businesses, churches and other nonprofits, ministry leaders, and entertainment and creative artists on matters involving drafting, reviewing, and negotiating contracts; corporate formation and governance; real estate transactions; information technology; employment and human resources concerns, and last wills and testaments. A graduate of Emory University and the University of Georgia School of Law, Julius has notably served as counsel to the Georgia General Assembly (Georgia House of Representatives and Georgia State Senate) and the City of Atlanta / Hartsfield-Jackson Atlanta International Airport. Julius is also a licensed Realtor® and a native Atlantan.

Experienced telecommunications, software and SaaS contracts attorney with past litigation experience available to review, negotiate and analyze contracts for business of all sizes.

Find the best lawyer for your project

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Business lawyers by top cities

• Austin Business Lawyers
• Boston Business Lawyers
• Chicago Business Lawyers
• Dallas Business Lawyers
• Denver Business Lawyers
• Houston Business Lawyers
• Los Angeles Business Lawyers
• New York Business Lawyers
• Phoenix Business Lawyers
• San Diego Business Lawyers
• Tampa Business Lawyers

Novation Agreement lawyers by city

• Austin Novation Agreement Lawyers
• Boston Novation Agreement Lawyers
• Chicago Novation Agreement Lawyers
• Dallas Novation Agreement Lawyers
• Denver Novation Agreement Lawyers
• Houston Novation Agreement Lawyers
• Los Angeles Novation Agreement Lawyers
• New York Novation Agreement Lawyers
• Phoenix Novation Agreement Lawyers
• San Diego Novation Agreement Lawyers
• Tampa Novation Agreement Lawyers

ContractsCounsel User

Draft New Novation Contract for Real Estate

Location: florida, turnaround: less than a week, service: drafting, doc type: novation agreement, number of bids: 2, bid range: $750 - $1,500, novation agreement for dba, location: new york, number of bids: 5, bid range: $189 - $1,500, want to speak to someone.

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

Assignment and Novation

What are assignment and novation clauses.

The two main legal tools for the transfer of the rights and/or obligations under a contract to another party are: assignment, for the transfer of benefits; and novation, for the transfer of rights/benefits and obligations. Each has unique features that must be taken into account when deciding which is the preferred option.

Assignment and novation clauses

Assignment, novation and other dealings boilerplate clauses, non-assignment clauses, withholding consent to an assignment.

The two main legal tools for the transfer of the rights and/or obligations under a contract to another party are:

• assignment, for the transfer of benefits; and
• novation, for the transfer of rights/benefits and obligations

Each has unique features that must be taken into account when deciding which is the preferred option.

Assignment clauses

A contracting party at common law has a general right to assign its rights without any consent or approval from the other party (unless by its very nature the right is personal). An assignment clause may be included in an agreement to exclude or limit this common law right. In order for the assignment of rights by one party to not be exercised unilaterally without the knowledge of the other party, it is common for contracts to include a provision that a party can only assign its rights under the contract with the consent of the other party.

After assignment, the assignee is entitled to the benefit of the contract and to bring proceedings (either alone or by joining the assignor depending in whether the assignment is legal or equitable) against the other contracting party to enforce its rights. The assignee does not become a party to the contract with the promisor. As the burden or obligations of the contract cannot be assigned, the assignor remains liable post assignment to perform any part of the contract that has not yet been performed.

Novation clauses

By executing a novation, a party can transfer both its rights/benefits and obligations. At common law, the obligations under a contract can only be novated with the consent of all original contracting parties, as well as the new contracting parties. This is because the novation extinguishes the old contract by creating a new contract.

A novation clause will usually provide that a party cannot novate a contract without the prior written consent of existing parties. Including a novation clause in an agreement is designed to prevent oral consent to a novation, or consent being inferred from a continuing party’s conduct. However, a court will look to the substance of what has occurred, and such a clause is not effective in all situations.

It is possible for a novation clause to prospectively authorise a novation to be made by another party unilaterally to a party chosen by the novating party. The courts will give effect to a novation made in this manner provided it is authorised by the proper construction of the original contract.

Option 1 – Assignment, novation and other dealings – consent required

A party must not assign or novate this [deed/agreement] or otherwise deal with the benefit of it or a right under it, or purport to do so, without the prior written consent of each other party [which consent is not to be unreasonably withheld/which consent may be withheld at the absolute discretion of the party from whom consent is sought].

Option 2 – Assignment, novation and other dealings – specifies circumstances in which consent can reasonably be withheld

(a)   [ Insert name of Party A ] may not assign or novate this [deed/agreement] or otherwise deal with the benefit of it or a right under it, or purport to do so, without the prior written consent of [ insert name of Party B ], which consent is not to be unreasonably withheld . 

(b) [ Insert name of Party A ] acknowledges that it will be reasonable for [ insert name of Party B ] to withhold its consent under this clause if:

(i)      [ Insert name of Party B ] is not satisfied with the ability of the proposed assignee to perform [ insert name of Party A ]’s obligations under this [deed/agreement];

(ii)      [ Insert name of Party B ] is not satisfied with the proposed assignee’s financial standing or reputation;

(iii)     the proposed assignee is a competitor of [ insert name of Party B ]; or

(iv)       [ Insert name of Party B ] is in dispute with the proposed assignee .

Click  here  for information on how to use this boilerplate clause.

A non-assignment clause prevents a party or parties from assigning the benefit of the contract. Non-assignment clauses are generally effective if they have been clearly drafted.

Contracts commonly provide for assignment with the consent of the other party. Such provisions usually provide that consent must not be unreasonably withheld and, where there is no such proviso, one may be implied. Accordingly, if it is intended that a party may withhold its consent to an assignment for any reason whatsoever (including on unreasonable grounds) clear contractual language should be used.

A purported assignment that contravenes such contractual restriction may constitute a breach of contract and result in an ineffective assignment.

The ‘reasonableness’ of withholding consent to an assignment is assessed by an objective standard and given a broad and common sense meaning.

The relevant factors in assessing reasonableness will differ in each case and heavily depend on the particular circumstances, including the nature and object of the specific contract and the purpose of the non-assignment clause.  Relevant factors may include any defaults in obligations under the contract and the solvency and identity of the assignee.

A party’s actions in withholding consent will generally be considered unreasonable if the grounds relied upon to support the withholding are:

• extraneous or disassociated from the subject matter of the contract;
• materially inconsistent with any provision(s) of the contract; or
• based on collateral or improper considerations.

It is advisable, where withholding consent to an assignment, to clearly set out the reasons for withholding consent in a letter to the other party.

Search for:

Jump straight to:

Please enter a search term

What sectors are you interested in?

We can use your selection to show you more of the content that you’re interested in.

Sign-up and we’ll remember your preferences

Sign-up to follow topics, sectors, people and also have the option to receive a weekly update of lastest news across your areas of interest.

Got an account already? Sign in

Want to speak to an advisor from your closest office?

Out-law / your daily need-to-know.

Out-Law Analysis 10 min. read

Construction law terms: assignment and novation

14 Jul 2023, 12:44 pm

The terms ‘assignment’ and ‘novation’ are sometimes used interchangeably in relation to construction projects, but they are, in fact, very different.

While both involve bringing in a new party to the contractual arrangements, they have very distinct practical consequences. This guide examines the difference between both terms explains important differences, looks at how these differences have been illustrated in recent case law and offers some practical takeaways.

It is important to note that the ‘assignment’ of one party’s interest in a contract to another party is only partial, because the process only transfers the benefit of the first party’s interest. Assignment does not also transfer the first party’s obligations under that contract to the second party.

For example, the employer (Party A) under a building contract might assign the benefit of a collateral warranty granted to it by the contractor (Party B) or a subcontractor, to the purchaser of the development (Party C). That assignment does not transfer the burden of any of the employer’s obligations – they remain the same.

Another example showing how an assignment can only transfer the benefit of a contract, not the burden, under a building contract would be:

• the developer’s rights to have the works constructed or to sue the building contractor if the works are defective, are benefits – so can be assigned;
• the developer’s obligation to pay the contract price is a burden – so cannot be assigned.

The assignment of the benefit of a contract to Party C does not replace the parties to the original contract. However, after the assignment, Party C is entitled to the benefit of the contract and to enforce its rights against Party B. Party A cannot do so – as they have assigned those benefits onto Party C. However, because the burden has not transferred, Party A will remain liable to Party B for the performance of all obligations under the contract.

Read more in our construction law terms series

• Construction law terms: general and liquidated damages
• Construction law terms: design development and design change
• Construction law terms: termination at common law and under contract
• Construction law terms: claims under contract vs breach of contract claims
• Construction law terms: contractual notices and condition precedent notices
• Construction law terms: set off, abatement and counterclaims

The ordinary position is that an assignment will transfer the benefit of accrued and also of future rights. It is possible to agree something different – for example the transfer of future rights only – but clear and express words are required.

It is essential for parties that are considering assigning the benefit of a contract to check the terms of the contract first. This is because many contracts exclude or qualify the right to assignment, such as by limiting the number of times it can be assigned. By way of example, clause 7.1 of the standard form JCT Design and Build Contract 2016 states: “neither the Employer nor the Contractor shall without the consent of the other assign this Contract or any rights thereunder”.

In practice, however, this clause is very often amended, so parties must make sure to check the terms, and any schedule of amendments, carefully. 

One common amendment adds wording that the consent of the other party to assignment “shall not be unreasonably withheld or delayed”. While there is surprisingly little case law on what this means in practice, there is some authority to suggest that it means, at least, that the party required to provide consent must act honestly and in good faith, and must not withhold consent arbitrarily, capriciously or unreasonably.

Lastly, assignment can be statutory – sometimes referred to as ‘legal assignment’ – or equitable.  Statutory assignment must comply with the requirements of s.136 of the 1925 Law of Property Act, which includes a requirement to notify the other party to the contract (Party B) of the assignment in writing. If the assignment does not comply with the formalities in the Act, it will be an equitable assignment. 

The most pertinent difference between an equitable and statutory assignment is that the party (Party C) to whom the benefit is assigned cannot enforce in its own name and must join Party A in any action. This prevents Party B from being sued by Party C in circumstances where Party B has had no notice of the earlier assignment. 

If you want to transfer the burden of a contract as well as the benefit under it, you have to novate. In effect this creates a new contract between the two new parties and releases one of the parties from the contractual chain. The key requirement of novation is that it needs consent of all three parties involved. If Parties A and B have a contract between them, but Party A wishes to substitute Party C in its place then Parties A, B and C must all consent to this. 

Because the consent of all parties is required it will typically be documented in a tripartite agreement, signed by the novating party, the party to whom the contract is being novated and the third party. The agreement will in practice commonly be executed as a deed, otherwise some form of consideration must be provided by the party to whom the contract is being novated. 

If the parties do all consent to novation, the effect is that the original contract between Party A and B is extinguished and is replaced by a new one between Party B and C, which duplicates the rights and obligations of those under the original contract. Novation does not cancel past rights and obligations under the original contract, although the parties can agree to novate these as well.

In the context of a construction project, novation commonly occurs in design and build projects where the employer may engage consultants in the pre-construction design process. The building contract between the employer and contractor will often provide for the novation of these design consultants to the contractor. 

More generally, novation frequently occurs as a result of a company group restructuring or sale. On large infrastructure projects you might also see the novation of contracts to a special purpose vehicle (SPV) company that is set up specifically for the project. 

Key differences between assignment and novation

Case law involving assignment and novation

A good starting point is the Commercial Court case of The Argo Fund Ltd v Essar Steel Ltd, in which the judge summarised the four main differences between assignment and novation.

• A novation requires the consent of all three parties involved. By contrast, Party A can assign without the consent of either Party B or Party C – unless the contract states otherwise.
• A novation involves the termination of one contract and the creation of a new one in its place. In the case of an assignment Party A’s existing contractual rights are transferred to Party B, but the contract remains the same and Party A remains a party to it so far as its obligations are concerned.
• A novation involves the transfer of both benefits and obligations to the new party, whereas an assignment concerns only the transfer of benefits.
• Novation involves the termination of a contract and the creation of a new one so consideration is required, unless a party uses a deed which is generally enforceable without consideration. By contrast, assignment can be completed without the need for consideration.

Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd

There are a number of cases where it has not been entirely clear whether a contract has been assigned or novated. A recent example is the 2020 ruling in the dispute between Energy Works (Hull) Ltd and MW High Tech Projects UK Ltd. The employer, Energy Works, engaged MW High Tech (MW) as a contractor. MW engaged Outotec as subcontractor.

The project did not go as planned and Energy Works terminated the main contract, which provided that, on termination, MW must assign its subcontracts to Energy Works. MW did so, but there was confusion over whether it retained the benefit of any accrued or future rights under the Outotec subcontract. 

MW’s primary case was that the assignment of the subcontract only assigned future rights, not accrued rights. It argued, therefore, that it could claim for these past breaches. Its alternative case was that if accrued and future rights were transferred, then properly construed the assignment also transferred accrued and future liabilities and therefore took effect as a novation. 

On the primary case, the judge found that the natural meaning of the words “ assign the sub-contract ” was to assign the benefit of all rights under that contract, both accrued and future. She explained that it is possible to retain accrued rights, which could form the basis of a claim, and assign future rights only, however clear words are needed and were absent here.

On the alternative case the judge disagreed that the transfer took effect as a novation. The parties called the transfer an assignment which, whilst not conclusive, was consistent with the wider factual background that suggested there was no intention for the subcontract to terminate and be replaced with a new one – as would occur with a novation.

The practical effect of this assignment was that MW had transferred away its right to pursue Outotec for damages, including any argument that its delay was what caused the termination. However, in a ‘double whammy’, MW remained liable to pay Outotec for works done under the subcontract and for any further works Outotec performed after the assignment.

At the same time, MW could not claim payment in respect of those works until the final account’s reckoning – which would not be until 90 days after eventual completion. MW remained liable to Energy Works for liquidated damages, replacement contractor costs and any defects. 

Practical implications

Assignment and novation are different ways of transferring an interest under a contract, but with very different practical effects; the terms should not be used interchangeably. Parties should be especially careful in relation to post-termination assignment or novation terms.

They should also be clear what they are trying to do from the outset and consider how it has to be documented – by notice of assignment or deed of novation. Parties should check the terms of their contract. Is there a prohibition or other restriction on assignment? They must ensure they comply with them. For a legal assignment, parties must follow the requirements of s.136 of the 1925 Law of Property Act. This includes a requirement to notify contract counterparties. 

If a party is assigning a contract, or is to be obliged to do so post termination, they should consider carefully whether they want to assign accrued and future rights. If they wish to do something different – for example by retaining accrued rights so they have a route to claim against a subcontractor – then clear words are needed.

Co-written by Callum Miller of Pinsent Masons.

Editor's note 03/04/24:  This article was updated to properly reflect the outcome of the Energy Works v MW High Tech case. We regret the error.

• Construction Advisory & Disputes
• Construction Claims
• Construction Contracts
• Construction Disputes
• Infrastructure
• Litigation and arbitration
• Real Estate
• United Kingdom

Neal Morris

Latest News

Planned water law reform ‘risks delaying environmental action’, uk ruling clarifies ‘fixed establishment’ in vat group cases, stem initiatives key to tackle gender pay gap in manufacturing, dutch dpa fines us-based facial recognition company for gdpr breach, cottam solar project consent reinforces uk renewables drive, don't miss a thing.

Sign-up to receive the latest news, analysis and events direct to your e-mail inbox

You might also like

Out-Law News

CSDDD clears late hurdle but with watered down terms

Fewer businesses will be subject to EU laws prescribing tighter scrutiny of supply chains than was originally envisaged after late amendments to the proposed new Corporate Sustainability Due Diligence Directive (CSDDD) were endorsed by law makers.

Broad scope for building liability orders highlighted by ruling

A new ruling shows how construction contractors facing claims for defective building works in England or Wales might seek a ‘building liability order’ (BLO) against other defendants to reduce their financial exposure, an expert in building safety and construction dispute resolution has said.

Home Office cracking down on illegal working in the UK

Alex Wright tells HRNews about preparing for right to work compliance visits by the Home Office

UK government plans to revamp holiday pay calculation for part-year workers

Out-Law Analysis

Pensions disputes: managing member expectations paramount

UK subsidy control post-Brexit: access to effective judicial remedies

'Steps of court' settlement was not negligent, court rules

'Vast majority' of companies not seeking to avoid tax

'World first' industrial decarbonisation strategy developed in the UK

3D printing: UK product safety issues

5G potential for business highlighted in UK funding programme

Sectors and what we do

Sectors we work in.

• Financial Services
• Technology, Science & Industry
• Your assets
• Your company
• Your finance
• Your legal team and resource
• Your people
• Your risks and regulatory environment

Your privacy matters to us

We use cookies that are essential for our site to work. To improve our site, we would like to use additional cookies to help us understand how visitors use it, measure traffic to our site from social media platforms and to personalise your experience. Some of the cookies that we use are provided by third parties. To accept all cookies click ‘accept all’. To reject all optional cookies click ‘reject all’. To choose which optional cookies to allow click ‘cookie settings’. This tool uses a cookie to remember your choices. Please visit our cookie policy for more information.

Trending Courses

Course Categories

Certification Programs

• Free Courses

Corporate Finance Resources

• Free Practice Tests
• On Demand Webinars

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Aaron Crowe

Reviewed by :

Dheeraj Vaidya

Novation Meaning

Novation, in contract law, refers to the agreement between current parties to replace one party or obligation with another alternative. The main purpose of this law is to substitute one party with another so that the rights and obligations of the contract now reside between the new parties.

Novation law includes several kinds of replacements. Here, mutual consent serves as the essence of this process. It enables transferring the benefits and liabilities of one person to another. Also, the parties agree to dissolve the existing agreement and replace it with another one. However, the novation process is incomplete without its essentials. 

Table of contents

Novation agreement explained, frequently asked questions (faqs), recommended articles.

• Novation, in legal terms, refers to substituting a person, term, or set of obligations with another. It enables the replacement with the mutual consent of all. 
• In financial markets, it refers to trading the securities to a third party on the buyer's behalf. It has major applications in banking, real estate, and contractual projects. 
• The major types of Novation include standard, expromissio, and delegation. 
• The essentials of this law include mutual consent between all, the validity of the new contract, and no breaching of the old contract. 

Novation agreement has two different meanings in different contexts. While in contract law, it refers to replacing an existing party or obligation with another. However, in financial markets , it refers to an agreement where the clearing house acts as a medium to trade securities for the buyers.  

In contract law, a deed of novation is an  agreement  where all the parties agree to substitute either of them with a third person. However, they need to fulfill the essentials of the contract. First, all parties must have mutual consent for this replacement. In addition, no party should breach the original contract. Also, the new contract should be valid and enforceable. Finally, the old parties need to compensate (indemnify) for losses during the novation process. 

As the novation happens, the old contract gets discharged, and no parties are required to bind this contract. Thus, the replacing party's rights and liabilities get transferred to the new party. So, the old party will not be accountable (liable) for any losses arising after novation. 

History  

The concept of the deed of novation dates back to Roman law, derived from the word "Novati," meaning substitution. Later, in Bracton, the emergence of assignment enabled the substitution of a new debtor and creditor.

For example, the creditor will instruct the debtor to pay their family or friends. Thus, there was a delegation of responsibilities to another person. Later, in the 19th century, Federal and Scottish laws adopted it. 

Let us look at the types of novation law to comprehend the concept better:

#1 - Standard

It happens when the parties agree to new terms and create a new contract. Here, the parties renovate the existing conditions and novate a new agreement. They are free to do so, which is called the standard novation. 

#2 - Expromissio

Expromissio (Roman word) means inviting a new person into the agreement. A new person enters the contract, thereby releasing the old party. Here, mutual consent of all the parties is a must. Otherwise, there can be a breach of the contract. 

#3 - Delegation

A delegation is the transfer of responsibilities from one person to another. As a result, the rights and obligations of the exiting party get transferred to the third party.

For example, if Alex were liable to pay $200 to Sam after delegated novation, Sam would exit, and Mitchell will replace him in the contract. Thus, Alex will now pay $200 to Mitchell.

Examples 

Although it has several uses, the main influence of novation is in the financial, real estate , and banking sector. For better understanding, let us look at some real-time examples of the doctrine of novation:

Suppose Sam and Jessy have legally bound a contract. According to the agreement, Sam will purchase a house from Jessy on December 5, 2022. However, due to uncertainty, Jessy will not be available to execute the contract. Thus, she, along with Sam, goes for novation. As per the doctrine of novation, Jessy will delegate all her rights and liabilities to Musk (her husband). So, Musk took over Jessy's position instead of Jessy, resulting in a new contract. Thus, Sam needs to pay Musk as he has replaced Jessy. 

On November 5, 2022, the court resolved the  two-year issue  between the maritime companies Trafigura Maritime Logistics Pte Ltd and Clearlake Shipping Pte Ltd. According to the judge, the novation between Clearlake Chartering and Clearlake Shipping discharged the former from its liability. As a result, Clearlake Chartering is no longer liable to pay Trafigura because it had delegated its obligations to Clearlake Shipping. 

Novation vs Assignment

Although novation is an alternative to the assignment, they both have differences. The former allows all the parties to substitute any of them with another person. The terms, benefits, and obligations can also get transferred. In contrast, the latter only transfers the benefits to the other person. There is no transfer of liabilities and obligations to other people. The major difference is that a person can get replaced in the former, but in the latter, it is impossible. However, both transfer benefits to a new party. 

Majorly commercial real estate deals use this alteration law. However, residential estates also use it. For example, the landlord might transfer the lease to a new party. Or, the owner can delegate the loan obligations to another person. Besides, the property contractor can delegate the work to another person in the client's presence. 

This law's predominant effect is that it extends the life of the original contract. For example, if the parties feel the contract expires soon, they can novate and extend the duration of it. However, once novated, the parties cannot execute the previous contract. 

The following are the elements that make a novated contract valid: - Consent of all parties - No breaching of the original contract by any party - Enforcement and validity of a new contract - Discharge of the previous contract. 

The third party who has received the benefits and obligations of the old party is liable. However, the existing parties are liable if the agreement novates only terms. 

This has been a guide to Novation and its meaning. Here, we explain it in detail with its comparison with the assignment, examples, types, and history. You can learn more about finance from the following articles –

• Business Law
• Corporate Bylaws

Novation Or Assignment, That Is The Question

Contributor.

In the context of asset acquisition, and assuming that the target's contracts are assets being transferred to the purchaser, the transfer of contracts typically requires the parties to the transaction to go through either the novation process or assignment of the contract from the seller to the purchaser.

Novation is a trilateral agreement between the original parties to a contract and the purchaser seeking to replace the seller to the contract. Novation transfers not only the rights and benefits under the original contract to the purchaser, but also the obligations, thus releasing the seller from all obligations under the original contract. All parties to the original agreement need to consent to the new agreement.

Novation has been referred to as the "Hail Mary" defence for parties seeking to avoid contractual liability, however, the standard of establishing novation is quite high. The Supreme Court of Canada (the SCC ) has established a three-factor test for establishing novation. The party asserting novation must prove:

• the purchaser assumes complete liability;
• the creditor (one of the existing party to the original contract) must accept the purchaser as principal debtor and not merely as an agent or guarantor of the seller; and
• the creditor (one of the existing party to the original contract) must accept the new contract in full satisfaction of, and as substitution for, the old contract. [1]

The SCC also stated that in the absence of an express new agreement, a court should not find novation unless the circumstances are especially compelling. [2]

Assignment and assumption, on the other hand, transfer the contractual rights and benefits held by the assignor/seller to the assignee/purchaser, but not the assignor/seller's obligations under the contract. The burden under the original contract remains with the assignor/seller, thus the assignor/seller can be held liable if the assignee/purchaser fails to perform under the contract. The assignor/seller can protect itself from potential liability by obtaining an indemnity from the assignee/purchaser.

Unlike novation, an assignment does not extinguish the original agreement and does not create a new and separate agreement. The original contract remains in force. Also, unlike novation, depending on the terms of the subject contract, an assignment of the contract may not require the consent of all parties to the agreement. Depending on the terms of the agreement, the assignor/seller usually only needs to provide a notice to the non-assigning party.

If the contract is silent as to its assignability, then the courts have held that the contract is generally assignable, except for personal services contract, where consent must be obtained. [3] The SCC has held that personal services contracts are contracts based on confidences, skills or special personal characteristics such as to implicitly limit the agreement to the original parties, [4] and the determination of whether a contract is personal services contract is often made by the courts.

Assignment and assumption may be more convenient for the seller than novation given that the seller may not need to ask for consent from a third party to assign its interest in an agreement to the purchaser, however, the seller needs to be aware of the potential liabilities if the purchaser fails to perform under the assigned contract. Although novation can protect the seller from such future liabilities, it is a more cumbersome process for all parties involved, and may not be feasible if the third party refuses to provide consent. Therefore, it is essential for parties to assess their relationship with the third party before proceeding with novation.

[1] National Trust Co. v Mead et al. [1990] 2 SCR 410 (SCC).

[3] Canadian Encyclopedic Digest, 4 th ed , ( Thomson Reuters Canada, 2016) at Title 35, Contracts, XIII 1(d)(i).

[4] Rodaro v. Royal Bank of Canada , 2002 CanLII 41834 (ONCA).

About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world nortonrosefulbright.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Corporate/Commercial Law

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

• More Blog Popular
• Who's Who Legal
• Instruct Counsel
• My newsfeed
• Save & file
• View original
• Follow Please login to follow content.

add to folder:

• My saved (default)

Register now for your free, tailored, daily legal newsfeed service.

Find out more about Lexology or get in touch by visiting our About page.

Assignment, novation and construction contracts - What is your objective?

Consider a not too hypothetical situation where the parties to a construction project (employer, contractor and sub-contractor) enter into a Deed of Assignment intending that the employer, having lost confidence in the contractor, would directly engage the sub-contractor to complete the sub-contract works. But what if no assignment has taken place? What are the terms of the contract under which the sub-contractor carries out the works for the employer?

Potential risks with assignment

In construction projects, main contractors often assign the benefit of their key sub-contracts to the employer in the event of contractor default and consequent termination of the main contract. The employer can then enforce the rights in the sub-contract against the sub-contractor, including rectification of the works and the performance of particular obligations.

However, there are potential risks associated with assignment in these situations as the Technology and Construction Court’s decision in Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd demonstrated. We discussed this decision in Assigning a sub-contract on termination: which rights is the contractor giving up? In this case, the nature of the assignment meant that the main contractor could not pursue claims made by the employer against its sub-contractor under the sub-contract. This limited the main contractor’s ability to ‘pass on’ any liability it had under the main contract to the sub-contractor.

But what if the Deed of Assignment does not take effect as an assignment?

Assignment v novation

Both assignment and novation are forms of transferring an interest under a contract from one party to another. However, they are very different and in their effect. An assignment transfers the benefit of a contract from one party to another, but only the benefit, not the burden. In contrast, a novation will transfer both the benefit and the burden of a contract from one party to another. A novation creates a new contractual relationship - a ‘new’ contract is entered into.

Another key difference with novation is that the consent of all parties concerned must be obtained, which is why novation is almost always effected through a tripartite agreement. In the case of an assignment, it is not always necessary to obtain consent, subject to what the specific terms of the contract provide.

When deciding whether to assign or novate, parties should consider (i) whether there is in fact a burden to novate, (ii) whether the novatee will be willing to take on the burden, (iii) whether all parties will consent to the novation and indeed enter into the agreement. If there is no burden under the contract to transfer, then an assignment is likely to be the most appropriate way to transfer the interests.

Is the Deed for an assignment or a novation?

Although a document may be labelled a Deed of Assignment, if it has references to the transfer of ‘ responsibilities and obligations ’ and is a tripartite agreement these are characteristic of a novation as opposed to an assignment.

A key issue in such circumstances is to ascertain whether making use of the words ‘ assigning ’ and ‘ assignment ’ actually affects the characteristics of the document.

There has been some consideration of this characterisation issue by the courts. In the case of Burdana v Leeds Teaching Hospitals NHS Trust [2017] EWCA Civ 1980, by majority the Court of Appeal decided that on the facts of the case, although the Deed of Assignment in question referred to an ‘ assignment ’ of the benefit and burden, on proper analysis there was indeed a novation.

Furthermore, in the case of Langston Group Corporation v Cardiff City FC [2008] EWHC 535, Briggs J made it evident that even though the variation agreement in question did not use the word ‘ novation ’ and did not describe itself as such, the circumstances and effect of the agreement was indeed a novation and a new contract had been created.

It may be the case that even if a document does not describe itself as a novation, yet has the key characteristics of one, then as a matter of interpretation the courts would accept that the document takes effect as a novation.

Key characteristics of a novation

If entering into a document that purports to be a Deed of Assignment, tread carefully as it may well take effect as a novation, particularly if the following characteristics are present:

• It is a tripartite agreement;
• All the parties give their consent;
• The novator has been released from its obligations;
• There has been an acceptance of the terms of the novation on the part of the novatee and the substituted party; and
• There is a vesting of remedies.

What is your objective?

Although a document may well be labelled as an assignment, it may have the characteristics of and take effect as novation. Parties need to be cautious and consider what they want to achieve when assessing whether to assign rights or to novate them along with obligations.

Filed under

• United Kingdom
• Construction
• Charles Russell Speechlys
• Technology and Construction Court

Popular articles from this firm

Budgeting for change: what should landed estates be doing before the budget *, oasis and the often overlooked benefit of dynamic pricing *, q&a: what evidence can establish boundaries *, supreme court gives guidance on errors in statutory notices concerning property *, million dollar footballer with no assets *.

If you would like to learn how Lexology can drive your content marketing strategy forward, please email [email protected] .

Related practical resources PRO

• How-to guide How-to guide: The legal framework for resolving disputes in England and Wales (UK)
• Checklist Checklist: Considerations prior to issuing court proceedings (UK)
• How-to guide How-to guide: How to draft an employment contract (USA)

Related research hubs

• Jeff McNeil To Miss Rest Of Regular Season Due To Wrist Fracture
• Braves Acquire Cavan Biggio From Giants
• Dodgers Place Gavin Stone On Injured List
• Jerry Dipoto Expected To Continue As Mariners Baseball Ops President In 2025
• Giants Extend Matt Chapman
• Drew Thorpe To Undergo Season-Ending Surgery To Remove Bone Spur
• Hoops Rumors
• Pro Football Rumors
• Pro Hockey Rumors

MLB Trade Rumors

Red Sox Designate Bobby Dalbec For Assignment

By Nick Deeds | September 8, 2024 at 9:15am CDT

The Red Sox announced this morning that they’ve selected the contract of right-hander Richard Fitts , whose promotion was reported last night . The club designated infielder Bobby Dalbec for assignment to make room for Fitts on the 40-man roster and optioned right-hander Chase Shugart to Triple-A in order to clear space on the active roster.

Dalbec, 29, was a fourth-round pick by the Red Sox in the 2016 draft who earned plenty of attention with a dominant debut during the shortened 2020 season. After being called up halfway through the 60-game campaign, he emerged as the club’s regular first baseman down the stretch and slashed a torrid .263/.359/.600 with an eye-popping eight home runs in just 92 trips to the plate. Though the Red Sox ultimately finished fifth in the AL East that year and no one expected Dalbec to continue slugging at a 63 homer pace in his first full season in 2021, there was nonetheless optimism regarding the then-25-year-old’s future.

While Dalbec didn’t hit at the same otherworldly level he did during his first taste of big league action, his first full big league campaign in 2021 was a productive one nonetheless. In 453 trips to the plate across 133 games, Dalbec hit a respectable .240/.298/.400 with 25 home runs, 21 doubles, and 5 triples as Boston’s primary first baseman. That strong power production helped to offset his massive 34.4% strikeout rate and make him an above average (106 wRC+) bat overall, but things took a turn for the worse for Dalbec when his power evaporated during the 2022 season. As his isolated slugging dropped nearly a hundred points year-over-year while his strikeout rate held fairly steady, his production cratered and he wound up slashing just .215/.283/.369 with a wRC+ 20% worse than league average in 117 games in 2022.

That wound up being Dalbec’s final opportunity as a regular with the Red Sox, as he spent the 2023 and 2024 seasons primarily in Triple-A as optionable infield depth. He hit quite well for Triple-A Worcester in both of those years, but his opportunities at the big league level were sparse and did not see him succeed. In a combined 146 trips to the major league plate over the past two years, Dalbec hit a ghastly .159/.234/.235 while striking out at a whopping 48.6% clip and slugging just two home runs. While Dalbec has increased his versatility these past two years, appearing at all four infield spots and right field in the major leagues, no amount of versatility was able to overcome that brutal production at the plate.

With Dalbec set to be out of options and potentially arbitration-eligible headed into the 2025 campaign, it’s hardly a surprise that the Red Sox have decided to cut bait on the once-promising infielder. Should he go unclaimed on waivers, the Red Sox will have the opportunity to outright him to the minor leagues for the remainder of the 2024 season, though Dalbec will have the opportunity to elect minor league free agency in search of a change of scenery at season’s end.

46 Comments

6 hours ago

Well, if the Richard Fitts…..you know what to do.

If there’s a mosqueter on yer Peter whack it off

3 hours ago

Upon his promotion, Richard Fitts will be greeted by Richard Lovelady and Brooks Pounders to show him around.

Well of course now Bobby goes on to be Rob Deer.. 196 avg with 30-35 bombs and 195k but not for us….

4 hours ago

olm – Dalbec and Franchy will be the 2025 version of the Bash Brothers!

Add Michael Chavis and you have a real Murderer’s Row.

Peter O’Brien and Will Benson would like some of that action

2 hours ago

I’m gonna go wayyyy back… Ken Phelps!!!

Well,it’s finally happened

We all knew this day would come, nice kid but can’t hit a curveball. I imagine he’ll get claimed and move on. Good luck to him.

5 hours ago

I wanted to trade him after that 21 season, but no they let him linger and that helped no one.

55 mins ago

they were trying to trade him back then.

Good riddance. Was really no reason to keep him around after he choked (again) starting the season in a like 1 for 40 slump.

John – Just learned Wade Boggs has cancer. One of my childhood heroes, really hope he can beat it.

Fever, I had to look it up. There isn’t such a thing as a good cancer, I hate that term. But without knowing the extent and agressiveness of what Boggs has, at least it is one of the types and locations that is more treatable with fewer side effects.

GASox – That’s good to hear. At first I immediately thought of Jim Corsi, but then realized Jim had colon cancer not prostate.

Did you ever make it to the Toronto game? Tons of great seats available, especially for the day game. Of course the results sucked for both.

Thanks for info Fever. Turned on Sox game late and not heard yet the guys say anything.

On Boggs.. He was one of the Sox biggies who skipped winter Haven and played at higher level (then) winston salem A ball way back. would have been pure joy to see him rake at old chain-o-lakes park.

Welcome to the Show, kid!

And if you had traded him then, who would you have played at 1B? Chavez? Hindsight.

stymee – Cora thinks everyone can play first base, he doesn’t care about defense.

Swihart, Schwarber, Wong ….. just a few of the guys Cora has put at first base.

53 mins ago

well with Schwarber you had JD at DH they had to put him somewhere.

And another DD draft pick fans out. 4 years of drafting and what do we have one very good OFer and and dad-bod firstbaseman. Great.

But sure, we didnt need a total reboot. We had plenty of bullets to compete in 2020, 21, 22, 23. Lol

Tanner Houck?

Forgot Houck, a #3 Starter. You searched the whole list for 4 years, and all you got was that one extra name.

So, 3 starters (when healthy) and only 1 All-Star appearance in 9 years. Yeesh. But sure, plenty there to compete without a pause to rebuild. Just run the payroll to $500M a year.

Actually he’s the first name that came to mind. You also got Bello in the same time frame. Sorry it didn’t fit your narrative

Bello wasnt a draft pick.

Thats 5 guys youve listed, over a 4 year period. With a 162 game schedule and all the injuries, a quality championship team needs 10-15 high level players and another 10 good pieces that can be plugged in to help. 5 guys was never going to cut it.

Simply put, if youre going to trade away 31 prospects and never get any young replacement value in return. You’d better draft and sign international players like a God to replenish those losses. That clearly didnt happen,

Thus, the Red Sox are where they are at due to circumstances, not cheap owners or terrible management. Its really obvious when you take all the hyperbole out of the debate. They won a championship, but at a very expensive cost, that is still being paid today.

You’re a complete moron. I’m not wasting any more of my energy on you

41 mins ago

He’s the classic example of a 4A player

The end of an (arguably not very good) era

Figured that this would happen. Cannot see him not getting claimed. Perhaps a change of scenery and a new start will get his career back on track.

He one of those player too good for AAA, but not quite good enough for the show.

How much do you want to bet the Orioles claim him?

Bobby D. was, I feel, misused by the Sox. The kid had a college career as both a pitcher and a fielder at Arizona, I believe. with the poor production from the Sox pen you’d think they would give him a shot as a spot reliever. He may not be picked up during the last month of the season–I’m in hopes the A’s, Marlins, Rockies, White Sox give him a shot, Good luck.

Bobby D will look great in Sacramento next year!

Sadly, Dalbec wasn’t Daubach. Maybe change of scenery will help. We’ll see.

hayzee – Rafaela is benched again today, they are still not letting him play 2B like everyone expected. Is it because he refuses?

Eventually he may be a change of scenery candidate too, Sox staff just won’t get him to change his hitting approach and he should be given a chance to settle into one position.

Rafaela gets some big hits but he’s fading on offense. He does need a position. So many things are just a bit off with this roster plus the injuries. Hopefully, they sort it out in the offseason. Trading Sale was such a head scratcher I’m almost bald. Did they really think they needed a second baseman that much? Heck, some of the call ups have been pretty good and some have been absolutely awful. Can’t their scouts, coaches, managers, etc. tell the difference? More head scratching.

There’s some sentiment that he needs a change of scenery and that he’ll go elsewhere and make a mark, but I’m unconvinced. He’s a 29-year old who has no defensive value, has put up 0.1 fWAR in over 1,000 MLB PAs, and has a 36.3 K% in AAA.

He had a hot 2-3 weeks when he first reached the majors, but there’s nothing there in the big picture.

TJ – No defensive value? He plays a decent 3B and 1B.

You may be right, but I don’t think so. His defensive numbers are uniformly poor.

TJ5960 – Dalbec had 25 HRs for the Boston Red Sox in 2021, so that was some 2-3 weeks……lol. Dalbec hit well in the 2nd half of 2021, and has been horrible ever since. A bad team might give him a shot, but with a 40% strikeout rate since the beginning of 2022, I highly doubt he does any better somewhere else.

Supposedly Schwarber really helped Dalbec in 2021 and then he was gone.

Farhan will claim him.

The Wong Story Fitts.

Can’t seem to leave this place.

Funny how I got lambasted for saying Casas wasn’t everything when people treated him like a God when he was gone. Now that he’s here, our offense looks worse

I know it’s just a bad streak, but he alone hasn’t salvaged our offense

58 mins ago

I must admit I’ve been bad lately. I admit it. I used to be positive. But three years and nothing has changed.

I can be unreasonable. I can be angry. I can sometimes jump on opinions I don’t agree with hastily.

I’m sick of having three seasons of .500 baseball. I’m sick of this administration who is making stupid move after stupid move. I bought into it at first, but year 3, it’s the same thing over again.

I was the biggest Cora supporter and now I want him fired.

I apologize, I’m just an angry Sox fan. But I have no clue where this team is headed and it bothers me.

Leave a Reply Cancel reply

Please login to leave a reply.

Log in Register

• Feeds by Team
• Commenting Policy
• Privacy Policy

MLB Trade Rumors is not affiliated with Major League Baseball, MLB or MLB.com

Username or Email Address

Remember Me

NEW! Find where to watch all of your favorite sports!

Los Angeles Dodgers promote left-hander Ramirez from minors

• Field Level Media

The Los Angeles Dodgers selected the contract of left-hander Nick Ramirez on Sunday from Triple-A Oklahoma City and optioned rookie left-hander Justin Wrobleski to the affiliate, while rookie right-hander Michael Petersen was designated for assignment.

Ramirez, 35, had a 6.35 ERA in seven games for the Dodgers earlier this season. In 103 relief appearances over the past five seasons for four different clubs, he is 7-7 with a 4.20 ERA.

Wrobleski, 24, returned to the Dodgers on Friday and pitched two scoreless innings in relief Saturday against the Cleveland Guardians . He is 1-2 with a 6.40 ERA, 14 walks and 22 strikeouts in 32⅓ innings over seven appearances (six starts) after making his major league debut July 7.

Petersen, 30, last appeared for the Dodgers on Wednesday when he gave up three runs in one inning against the Los Angeles Angels . He made his major league debut June 18 and was 3-0 with a 6.43 ERA, eight walks and 11 strikeouts in 14 innings over 11 relief appearances.

• Election 2024
• Entertainment
• Newsletters
• Photography
• AP Buyline Personal Finance
• AP Buyline Shopping
• Press Releases
• Israel-Hamas War
• Russia-Ukraine War
• Global elections
• Asia Pacific
• Latin America
• Middle East
• Election results
• Google trends
• AP & Elections
• U.S. Open Tennis
• Paralympic Games
• College football
• Auto Racing
• Movie reviews
• Book reviews
• Financial Markets
• Business Highlights
• Financial wellness
• Artificial Intelligence
• Social Media

Domingo Germán, who pitched perfect game last year, designated for assignment by Pirates

Pittsburgh Pirates starting pitcher Domingo Germán follows through during the first inning of a baseball game against the Chicago Cubs on Wednesday, Sept. 4, 2024, in Chicago. (AP Photo/Charles Rex Arbogast)

• Copy Link copied

PITTSBURGH (AP) — Domingo Germán was designated for assignment by the Pittsburgh Pirates on Thursday in a move that could end the pitcher’s stint with the club.

Germán, who pitched a perfect game last year, was cut one day after allowing seven runs — six earned — and seven hits over three innings as the Pirates were no-hit by the Chicago Cubs. The 32-year-old right-hander was 0-1 with a 7.84 ERA in seven games for Pittsburgh this season, allowing 17 runs over 8 2/3 innings in his last three appearances.

He is 31-29 with an ERA of 4.54 in seven major league seasons.

Germán, who spent his first six major league seasons with the Yankees, was suspended for 81 games on Jan. 2, 2020, for violating the joint domestic violence, sexual assault and child abuse policy of Major League Baseball and the players’ association.

On May 16, 2023, Germán was ejected from a game against the Toronto Blue Jays for using an banned sticky substance and suspended for 10 games.

Germán went on to pitch the 24th perfect game in major league history on June 28 at Oakland. He was placed on the restricted list on Aug. 2 after agreeing to voluntarily submit to inpatient treatment for alcohol abuse.

Germán elected free agency after the season and agreed to a minor league contract with the Pirates in mid-March. He made his Pirates debut on Aug. 9.

Left-hander Joey Wentz took his roster spot after he was claimed off waivers from Detroit.

“Obviously, really excited to be here,” Wentz said. “The last couple days were kind of just wait and see what was going to happen. When I got the call that the Pirates claimed me, just super excited. I’ve played against them three or four times. Just really excited to be a part of the group now.”

AP MLB: https://apnews.com/hub/mlb

Dodgers select Nick Ramirez

LOS ANGELES – The Los Angeles Dodgers selected the contract of left-handed pitcher Nick Ramirez and optioned left-handed pitcher Justin Wrobleski. In order to make room for Ramirez on the 40-man roster, the Dodgers designated right-handed pitcher Michael Petersen for assignment.

Ramirez, 35, rejoins the Dodgers for his second stint with the club after being designated for assignment on July 30. With the big club, he was 0-0 with a 6.75 ERA in seven games. He made 25 appearances with Oklahoma City this season, going a combined 3-1 with a 4.65 ERA and 25 strikeouts in 31.0 innings. He was acquired from the New York Yankees on April 2 for cash considerations, and he is a combined 7-7 with a 4.20 ERA in 103 Major League appearances with Detroit (2019-20), San Diego (2021), New York-AL (2023) and Los Angeles (2024).

Wrobleski, 24, pitched two scoreless innings last night, allowing one hit and striking out two batters. The southpaw is 1-2 and a 6.40 ERA with the Dodgers in seven games, striking out 22 in 32.1 innings and producing a 1.42 WHIP. With Triple-A Oklahoma City this season, he has posted a 0-2 record with a 5.26 ERA (15 ER/25.2 IP) in five starts with 15 strikeouts. He began the season with Double-A Tulsa, starting 13 games and producing a 5-2 record with a 3.06 ERA (23 ER/67.2 IP) and 62 strikeouts against just 13 walks. The Hoffman Estates, Illinois native was originally drafted in the 11th round of the 2021 First-Year Player Draft by the Dodgers out of Oklahoma State University.