1-2 hoursMedium

How to Novate a Contract

Novate a contract by obtaining agreement from all three parties (the original two plus the incoming party) to extinguish the old contract and create a new one on the same terms with the new party replacing the outgoing party.

Last updated: February 2025

Step-by-Step Guide

1

Confirm all parties consent to the novation

Unlike assignment, novation requires the agreement of all three parties: the remaining party, the outgoing party, and the incoming party.

Tips
  • •Get written consent from all parties before drafting.
2

Draft the novation agreement

The agreement should identify the original contract, confirm the outgoing party is released from all obligations, and state the incoming party assumes all rights and obligations.

Tips
  • •Specify the effective date and confirm which version of the contract is being novated.
3

Address any outstanding liabilities

Clarify whether the outgoing party remains liable for obligations that accrued before the novation date.

Tips
  • •Include an indemnity from the incoming party if appropriate.
4

Execute the novation deed or agreement

Have all three parties sign the novation agreement. If the original contract was a deed, the novation should also be executed as a deed.

Tips
  • •Consider whether the novation needs to be executed as a deed to avoid consideration issues.

Legal Requirements

Under English common law, novation extinguishes the original contract and creates a new one. It requires the consent of all parties. Unlike assignment, novation transfers both rights and obligations. Fresh consideration is required unless the novation is executed as a deed.

Common Mistakes

Attempting novation without the consent of all three parties
Confusing novation with assignment, which only transfers rights not obligations
Failing to address liabilities that arose before the novation date

Template / Example

Novation Agreement: [Outgoing Party] transfers all rights and obligations under the Agreement dated [Date] to [Incoming Party]. [Remaining Party] consents to this transfer. [Outgoing Party] is released from all future obligations. The Agreement continues in full force with [Incoming Party] in place of [Outgoing Party].

When to Get a Solicitor

Recommended for most novations, especially where the contract is high-value, involves ongoing obligations, or where there are complex pre-novation liabilities to address.

FAQ

What is the difference between novation and assignment?

Novation replaces a party entirely, transferring both rights and obligations with all parties' consent. Assignment only transfers rights (benefits), not obligations, and typically does not require the other party's consent unless the contract says otherwise.

Can I novate a contract without the other party's consent?

No. Novation always requires the consent of all parties, including the remaining party. Without consent, you may only be able to assign the benefit of the contract.

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This is guidance, not legal advice. Consult a solicitor for complex matters.

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