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GLOSSARY

Novation definition

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What does Novation mean?

Novation is the method by which the parties to an existing contract 'transfer' the rights and obligations of that contract to a third party. Novation is not strictly a transfer of rights and obligations but a discharge of the rights and obligations between contracting parties and a recreation of them with a third party (replacing an original contracting party) and one (or more) of the contracting parties to the original contract. A novation requires consideration and consent.

A novation can be distinguished from an assignment which transfers the benefits of a party to another party without extinguishing the original contract which remains in force (with or without any agreed amendments).

Commercial

Novation is the method by which the parties to an existing contract 'transfer' the rights and obligations of that contract to a third party. Novation is not strictly a transfer of rights and obligations but a discharge of the rights and obligations between contracting parties and a recreation of them with a third party (replacing an original contracting party) and one (or more) of the contracting parties to the

Novation - Legal Definition

View the related checklists about Novation

Preparing a building contract for signature—checklist

Preparing a building contract for signature—checklist This Checklist can be used when preparing a building contract for signature. It is designed to help avoid errors when preparing or checking construction documents before they are signed by the parties and completed. • Consistency with other documents From the outset, liaise with the member of the professional team responsible for preparing contract documents such as Preliminaries and Employer’s Requirements to ensure that these are consistent with the schedule of amendments and accurately reflect the intentions of the parties. For more on drafting a building contract, see: Drafting a building contract/schedule of amendments—checklist. • Details of the parties Include full details for all contracting parties—the full company name and address, plus the registered company number (if any) as company names may change in future. Confirm the details are correct at Companies House (if applicable). • Contract Particulars Review the Contract Particulars (where a JCT contract is being used), or Contract Data (where an NEC contract is used), or other relevant contract details section...

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Drafting and negotiating a novation—checklist

Drafting and negotiating a novation—checklist This Checklist sets out the key issues and provisions to consider when drafting and negotiating the novation of a contract to a third party. For a precedent novation, see Precedents: • Novation agreement—long form • Novation agreement—short form • Deed of novation—long form • Deed of novation—short form • Short form letter of novation For information on novation generally, see: • Practice Note: Novation—why and how to novate a contract • Third parties, subcontracting and transfers—overview For guidance on novation in the specific context of the construction industry, see: Novation in construction projects—overview. Note that for contracts novated on or after 31 December 2018, the Business Contract Terms (Assignment of Receivables) Regulations 2018, SI 2018/1254 may render ineffective any restrictions on the assignment of receivables. For more information, see the drafting notes and optional clauses in Precedent: Assignment clause, News Analysis: Updated draft regulations on business contract terms and News Analysis: Back for good—new Business Contract Terms (Assignment of Receivables Regulations) 2018. The regulations as...

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Buyer’s contract negotiation guide—buyer’s initial checklist for contract negotiation

Buyer’s contract negotiation guide—buyer’s initial checklist for contract negotiation This Checklist is intended to help a buyer’s solicitor carry out an initial review of the first draft of a contract for the purchase of commercial property issued by the seller by identifying headline points to check. Sometimes the seller’s solicitor will have drafted the contract without a full appreciation of all the issues that will need to be dealt with and so it is important for the buyer to be alive to anything missing at the outset and flag any likely issues or contract requirements as early as possible (even if only as a placeholder within the contract pending instructions or further information). Identification of seller and buyer The heads of terms may not define the parties accurately: • Companies House—assuming the seller is a company, the buyer’s solicitor should check at Companies House that the correct party and company number is mentioned in the heads of terms and that it matches the details shown in the title...

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Power purchase agreement (PPA)—Checklist

Power purchase agreement (PPA)—Checklist Power purchase agreements (PPAs) and consequently the checklist issues that arise will vary depending on a number of factors, including the type of energy generating technology utilised and, particularly, whether or not feedstock or fuel is required for operation of the completed facility. Whether the PPA, a short-term trading arrangement or a longer-term arrangement needed to underpin financing will also have a significant impact. This Checklist assumes a ‘conventional’ PPA where the counterparty is a licensed supplier. There are other variants, including corporate PPAs where the counterparty is an end-use customer, possibly connected to the generating facility by a direct wire. For more information about corporate PPAs, see Practice Note: Corporate Power Purchase Agreements—an introduction to structuring power purchase arrangements between large energy users and remotely located generators. What is/check the duration of the agreement? Where a PPA is required to underpin the external financing of a new generating facility, the term of PPA should coincide, so far as practicable, with the terms of any loans...

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Discover our 273 Practice Notes on Novation

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Short form of consultant’s appointment

Short form of consultant’s appointment This Agreement is made on the [insert date] day of [insert month and year] Parties 1 [Insert Employer name] (Company Registration No. [insert number] whose registered office is at [insert office]) (the 'Employer' which term shall include all permitted assignees or other transferees under this Agreement); and 2 [Insert Consultant name] (Company Registration No. [insert number] whose registered office is at [insert office]) (the 'Consultant') Whereas (A) The Employer has entered into or proposes to enter into a contract with [insert name of contractor] of [insert contractor's address] for the [design and] construction of a [insert brief description of the project] (the ‘Project’) at [insert location of site] (the 'Building Contract'). (B) The Employer wishes to appoint the Consultant to perform the services set out in Schedule 1 (the 'Services') in accordance with the Agreement It is hereby agreed as follows 1 Definitions and Interpretation 1.1 In this Agreement the following expressions shall have the following meanings: [Beneficiaries • any and all...

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Guarantee and indemnity—seller obligations—private M&A—asset purchase

Guarantee and indemnity—seller obligations—private M&A—asset purchase This Deed is made on [insert day and month] 20[insert year] Parties 1 [insert name of guarantor entity] [of OR a company incorporated in [England and Wales] under number [insert registered number] whose registered office is at] [insert address] (the Guarantor); and 2 [insert name of the buyer] [of OR a company incorporated in [England and Wales] under number [insert registered number] whose registered office is at] [insert address] (the Buyer). BACKGROUND: (A) The Buyer has agreed to purchase the Business as a going concern pursuant to the terms of the APA. (B) The Guarantor has agreed to guarantee the performance by the Seller of its obligations and liabilities under the APA and provide the Buyer with an indemnity in respect of such obligations of the Seller. The parties agree: 1 Definitions and interpretation 1.1 In this Deed, unless otherwise provided: APA • means the asset purchase agreement between the Buyer and the Seller made on or...

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Dive into our 124 Precedents related to Novation

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How might the European Commission proposal for new conflict of law rules for assigned claims impact the secondary loan market?

How might the European Commission proposal for new conflict of law rules for assigned claims impact the secondary loan market? Summary This Q&A refers to the European Commission’s proposal for a Regulation on the law applicable to the third-party effects of assignments (the Proposal) published on 12th March 2018, which could have an impact on the market for trading participations in syndicated and bilateral loans. Both of the Loan Market Association (LMA) and the City of London Law Society made representations asking for the Proposal to be shelved or at least amended to accommodate current market practice in the secondary loan market. Their representations are available on their respective websites. It is fair to say that in its original form the Proposal would have disrupted the secondary loan market by making due diligence on the part of a buyer much more complicated for the reasons given below. The UK indicated on 9 July 2018, shortly after publication of this Q&A, that it would not opt in...

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Pursuant to an agreement for lease, a landlord is constructing a building for the tenant and has provided collateral warranties to it from the professional team. The landlord is now intending to mortgage the freehold simultaneously with completion of the lease at practical completion. Does the landlord need to procure new collateral warranties in favour of the bank as presumably the tenant wouldn’t permit assignment of those in its favour? Also, there is a novation agreement attached to the consultant’s letter of appointment (allowing for novation to the contractor)—how will this sit with the lender?

Pursuant to an agreement for lease, a landlord is constructing a building for the tenant and has provided collateral warranties to it from the professional team. The landlord is now intending to mortgage the freehold simultaneously with completion of the lease at practical completion. Does the landlord need to procure new collateral warranties in favour of the bank as presumably the tenant wouldn’t permit assignment of those in its favour? Also, there is a novation agreement attached to the consultant’s letter of appointment (allowing for novation to the contractor)—how will this sit with the lender? This Q&A considers the likely approach that a lender will take in respect of collateral warranties and novation, in the context of a landlord constructing a building to be leased to a tenant, where the landlord wishes to obtain a mortgage over the freehold. As a result of the doctrine of privity of contract, collateral warranties are often necessary in construction projects in order to protect third parties with an interest...

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Defective cladding, collateral warranties and prescription (Leonardo Hotel Management (UK) Ltd v Galliford Try)

Construction analysis: This case considered the law of prescription—specifically when the prescriptive period ought to begin in a case of latent defects. A tenant of a hotel property in Aberdeen was notified of defective cladding on their building after investigations made in the wake of the Grenfell Tower fire. The court examined when the pursuer could reasonably have known that they had suffered loss, and how collateral warranties granted by defenders in favour of the pursuer might have had the effect of inducing the pursuer to refrain from recognising their loss or seeking to remedy it. The court held: in order to be aware of the defects, Leonardo would need to know (actually or constructively) the objective facts of their loss. The objective facts, were that (i) Leonardo was entering a lease in which they had repairing responsibilities; (ii) the property was defective. Only (i) applied; the collateral warranties granted by the defenders contained statements inducing Leonardo to believe that the property was free of defects. Leonardo was entitled...

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Speed up all aspects of your legal work with tools that help you to work faster and smarter. Win cases, close deals and grow your business–all whilst saving time and reducing risk.

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