Novation
The substitution of a new contract or party for an existing one, extinguishing the original obligation.
Unlike assignment (which transfers rights while keeping the original contract), novation replaces the entire agreement or substitutes a new party entirely. All original parties must consent to a novation.
Novation is commonly used when a business is sold and the buyer wants to take over existing contracts, or when a new party assumes the obligations of an original party.
Example
When Company A is acquired by Company B, a novation agreement transfers all of Company A's client contracts to Company B, releasing Company A from further obligations.
Related Terms
Need a contract with novation clauses?
Create professional agreements with AI-powered customization.
Get Started Free