ContractsCounsel Logo

Novation Contract

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 10,509 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Types of Contracts Novation Contract

Jump to Section

Novation contracts involve the replacement of one of the parties in any agreement using the consent of people involved between two parties in the United States. This legal agreement helps convert an old obligation into a new one with several important changes. Let’s take the example of a supplier here who finds another business customer instead of the earlier one.

Key Elements of a Novation Contract

The novation contract effectively replaces one party with another. It also ensures that the original party is released from its respective duties and obligations under the contract. Its elements include:

  • Identifying the Parties: The novation contract should identify the original party (the outgoing party), the new party (the incoming party), and the third party that often remains unchanged.
  • Describing the Contract: The novation contract should always include details about the original contract and a brief description of the contractual obligations. Other examples include the date and the names of the parties involved.
  • Getting Consent of All Parties: The contract must include a confirmation that all respective parties involved in the original contract consent to the particular novation. It further ensures that everyone is aware of and also agrees to the substitution of the new party.
  • Releasing of Original Party: The novation contract must include a statement indicating that the original party is released from its obligations. This applies according to the effective date of the novation agreement.
  • Assuming Obligations by the New Party: The new party must confirm that it agrees to assume all the original party's rights and obligations under the novation contract.
  • Getting Signatures: Signatures indicate the respective agreement and consent of all parties to the ovation in the novation contract.

Note: You can also check out this sample novation contract for your reference.

Types of Novation Contracts

There are usually three types of novation contracts considered anywhere in the United States. These include:

  • Standard Novation Contract: This contract involves a novation, which usually occurs when two parties agree that new terms must be added to their respective contracts. This often results in a new one being created over time.
  • Expromissio Novation Contract: This type of novation contract involves three parties: a transferor, an associated counterparty, and a transferee. All three parties must agree to the new terms of the novation and make a new contract.
  • Delegation Novation Contract: One of the parties in this type of contract passes their respective responsibilities to a new party. It ultimately binds that party legally to the terms of the contract.
Meet some lawyers on our platform

Damien B.

10 projects on CC
CC verified
View Profile

Ryenne S.

598 projects on CC
CC verified
View Profile

Sara S.

118 projects on CC
CC verified
View Profile

Bryan B.

257 projects on CC
CC verified
View Profile

Uses of a Novation Contract

Because a novation replaces a contract, it can be used in any kind of business or market where such types of contracts are used.

Particulars Uses
Working Financial Markets Novation contracts are generally used in credit default swaps, options, or futures. It involves situations where contracts are transferred to a specific derivatives market clearinghouse. This also involves a bilateral transaction that gets completed through the clearinghouse. The latter often functions as an intermediary in this situation.
Helping with Real Estate Novation contracts are a part of several real estate transactions, making them a valuable tool in the particular industry. Novation allows buyers and sellers to change the contract if they enter into it. This usually happens when issues arise during due diligence, inspection, or even closing. Both commercial and residential rental contracts can be changed with a novation contract. This applies if tenants or renters experience certain changes that affect their ability to make payments or other needs.
Government Contracting Federal, state and even local governments find it cheaper and beneficial for the nation’s economy to contract specific tasks. They can delegate these tasks with a novation contract rather than create an official workforce. These contracts are important components for private or public companies. Most of these companies win a bid to do work for governments. A novation is not usually considered to be a unilateral contract mechanism. All concerned parties may need to come together until a consensus is reached in the same novation contract so that they can negotiate their terms.
Banking Banks use novation contracts to transfer several loans or other debts to different lenders. This process usually involves canceling the earlier contract and creating a new one with the exact terms and conditions that benefit all parties.

Who Should Sign a Novation Contract

A novation contract must be signed by all parties involved as we have discussed earlier in this guide. The transferor usually transfers the specific obligations to the transferee in the same agreement with the associated counterparty. Hence, people might consider signing a novation contract in the following scenarios:

  • Being Unable to Repay Debt: If one of the parties borrows money from another party but is unable to repay the debt and has a third party offering to repay the debt, all these groups can consider a novation contract. Here, the first party would transfer all debt obligations to the third party and walk away. Meanwhile, the second party will receive the debt from the third party instead of the first one. In case of default, the second party will not be able to hold the first party responsible.
  • Engaging in Takeover Transactions: Novation contracts can be used to replace parties as per new takeover roles in business transactions or corporate takeover processes.
  • Transferring Sale of Business: Novation contracts during the sale of a particular business are often used to replace or transfer several business obligations between parties.
  • Working in Financial Markets: A novation contract allows a particular derivatives market to use bilateral transactions through an intermediary.

Key Terms for Novation Contracts

  • Novation: A substitution of the earlier contract in place of the earlier one with relevant changes in terms and conditions.
  • Incoming Party: The group that takes over the rights and obligations of another party.
  • Outgoing Party: The group that is to be released from all the rights and obligations of a particular contract.
  • Governing Law: This is an important contractual provision that determines which specific law shall apply in the event of certain disputes.
  • Consideration: A legal term in the United States that is used to describe the benefit received by each party of a particular contract.
  • Confidentiality Clause: A provision in a contract that outlines the parties' agreement to keep certain information confidential and not disclose it to third parties.

Final Thoughts on Novation Contracts

When all parties agree in a novation contract, one party in a two-party agreement gives up all the associated rights and obligations. Most of these clauses are outlined in a contract with a third party. It means the original contract was canceled as a result of the changes. A novation contract usually differs from an assignment. Here, one party gives up all rights outlined in the specific contract but remains responsible for fulfilling its terms. However, the original contract often remains in place. This entire process or system may seem confusing for parties getting involved in a novation contract for the first time. That is why it is recommended to approach a lawyer who has expertise in such contracts.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, Click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Novation Contract Lawyers

Christopher R. on ContractsCounsel
View Christopher
5.0 (1)
Member Since:
December 7, 2021
Lawrence S. on ContractsCounsel
View Lawrence
5.0 (15)
Member Since:
July 20, 2020

Lawrence S.

Attorney/Mediator/Arbitrator
Free Consultation
Miami/Coral Gables, FL
43 Yrs Experience
Licensed in FL
University of Miami

Lawrence A. “Larry” Saichek is an AV rated attorney and a CPA focusing on business and real estate transactions, corporate law and alternative dispute resolution. With a background including five years of public accounting and six years as “in house” counsel to a national real estate investment company, Larry brings a unique perspective to his clients – as attorney, accountant and businessman. Many clients think of Larry as their outside “in house” counsel and a valued member of their team. Larry is also a Florida Supreme Court Certified Mediator and a qualified arbitrator with over 25 years of ADR experience.

Stacey D. on ContractsCounsel
View Stacey
5.0 (32)
Member Since:
July 16, 2020

Stacey D.

Attorney
Free Consultation
Grand Rapids, MI
14 Yrs Experience
Licensed in FL, MI
Stetson University College of Law

I enjoy helping businesses of all sizes succeed, from start-ups to existing small and medium sized businesses. I regularly advise corporate clients on a variety of legal issues including formation, day to day governance, reviewing and drafting business contracts and other agreements, business acquisitions and sales, as well as commercial and residential real estate issues, including sales, purchases and leases. As an attorney licensed in both Michigan and Florida, I also advise clients on real estate issues affecting businesses and individuals owning real property in either state, whether commercial, residential or vacation/investment property. I also regularly assist nonprofit organizations in obtaining and maintaining tax exempt status, and provide general legal counsel on all matters affecting public charities, private foundations and other nonprofit organizations.

Lourdes H. on ContractsCounsel
View Lourdes
Member Since:
July 15, 2020

Lourdes H.

Attorney
Free Consultation
Miami, FL
20 Yrs Experience
Licensed in FL, NJ
University of Miami, J.D.

With 19 years of experience in the area of estate planning, trademarks, copyrights and contracts, I am currently licensed in Florida and NJ. My expertise includes: counseling clients on intellectual property availability, use and registration; oversee all procedural details of registration and responses with the USPTO/US Copyright Office; negotiate, draft and review corporate contracts and licensing; counsel clients on personal protection, planning and drafting comprehensive estate plans.

Melissa T. on ContractsCounsel
View Melissa
Member Since:
July 15, 2020

Melissa T.

Attorney and Law Firm Owner/President
Free Consultation
Maitland, FL
22 Yrs Experience
Licensed in FL
University of Florida Levin College of Law

Melissa Taylor, the President and founding partner of Maurer Taylor Law, specializes in business contract review and drafting and is a second-generation attorney with private firm, in-house counsel, governmental, entrepreneurial, and solo practitioner experience. Melissa has a strong legal background, a dedication to customer service, is friendly, warm and communicative, and is particularly skilled at explaining complex legal matters in a way that's easy to understand. Melissa personally handles all client matters from start to finish to ensure client satisfaction.

Aaron M. on ContractsCounsel
View Aaron
Member Since:
July 16, 2020

Aaron M.

Shareholder
Free Consultation
New York, NY
14 Yrs Experience
Licensed in NJ, NY
Fordham University School of Law

Aaron focuses his practice on entrepreneurs and emerging growth companies, providing general counsel services for companies from formation through exit. Aaron frequently advises clients in connection with routine and unique legal, business, and strategic decisions, including corporate, business and technology transactions, angel and venture financings, mergers and acquisitions, protection of intellectual property, and information privacy and data security.

Find the best lawyer for your project

Browse Lawyers Now

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Contracts lawyers by top cities
See All Contracts Lawyers
Novation Contract lawyers by city
See All Novation Contract Lawyers
related contracts
See More Contracts
other helpful articles

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

View Trustpilot Review

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Want to speak to someone?

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

Request a call

Find lawyers and attorneys by city