Novation and variation contracts

The consent of all three parties - the transferee, the transferor and the other contracting party - is required to give effect to a novation.

A novation may be contrasted with an assignment (which will only involve two parties, the assignee and the assignor). In English law, whilst the benefit of a contact may be assignable without the consent of the other party to the original contract, the burden may not. Hence the need for novation agreements.

Novation agreements are commonly used after a corporate transaction to regularise the contractual position of an entity that has purchased an ongoing business.

We supply two different novation agreements.

The standard document should be used where you need to transfer the contractual rights and obligations from a date after the coming into force of the contract being novated. In other words, some or all of the historic liabilities under the contract will remain with the transferor.

The "ab initio" document should be used where you need to transfer all of the rights and obligations and historic liabilities under the contract. In other words, the transferee will step into the shoes of the transferor and be treated was if he was an original party to the novated contract in the place of the transferor.

A number of difficult legal issues arise in relation to the use of novation agreements, particularly those transferring historic liabilities, and you should take legal advice from your solicitors if you are uncertain of the effects of a novation.