Deeds of Novation and Assignment
Our specialist construction solicitors can provide you with expert knowledge on deeds of novation in order to ensure the rights and obligations are either correctly assigned or novated.
More about Deeds of Novation and Assignment
Novation and assignment are ways for someone to transfer their interest in a contract to someone else. Whilst the difference between assignment and novation is relatively small, it is an essential one. Assigning when you should novate could leave you in a position of being liable for your original contract when the other party is not liable to perform their obligations.
An assignment transfers the benefit of a contract from one party to another, but only the benefit, not the burden. In contract, a novation will transfer both the benefit and the burden of a contract from one party to another. A novation creates a new contractual relationship altogether.
Another key difference with novation is that the consent of all parties concerned must be obtained, which is why novation is almost always effected through a tripartite agreement. In the case of an assignment, it is not always necessary to obtain consent, however, this is subject to what the specific terms of the contract state. Certain notice requirements will need to be complied with in the case of an assignment however.
When deciding whether to assign or novate, parties should consider (a) whether there is in fact a burden to novate, (b) whether the novatee will be willing to take on the burden and (c) whether all parties will consent to the novation and indeed enter into the agreement. If there is no burden under the contract to transfer, then an assignment is likely to be the most appropriate way to transfer the interests.
Although a document may well be labelled as an assignment, it may have the characteristics of and take effect as novation. Parties need to be cautious here and consider what they want to achieve when assessing whether to assign rights or novate them along with obligations.
Our legal team possesses extensive knowledge and expertise in providing top-notch commercial legal services and support to clients in the construction industry. Contact us now to connect with our solicitors.
Another key difference with novation is that the consent of all parties concerned must be obtained, which is why novation is almost always effected through a tripartite agreement. In the case of an assignment, it is not always necessary to obtain consent, however, this is subject to what the specific terms of the contract state. Certain notice requirements will need to be complied with in the case of an assignment however.
When deciding whether to assign or novate, parties should consider (a) whether there is in fact a burden to novate, (b) whether the novatee will be willing to take on the burden and (c) whether all parties will consent to the novation and indeed enter into the agreement. If there is no burden under the contract to transfer, then an assignment is likely to be the most appropriate way to transfer the interests.
Although a document may well be labelled as an assignment, it may have the characteristics of and take effect as novation. Parties need to be cautious here and consider what they want to achieve when assessing whether to assign rights or novate them along with obligations.
Our legal team possesses extensive knowledge and expertise in providing top-notch commercial legal services and support to clients in the construction industry. Contact us now to connect with our solicitors.
Additional Information
Why assign? Why should I not always novate?
It may seem attractive to novate an interest in a construction contract from one party to another (because it transfers both the benefit and the burden of the contract). However, in practice, there are many reasons why parties opt to assign only the benefit of a construction document, which include the fact that a novation requires a tripartite agreement which can lead to delays in negotiation and completion of the novation agreement, or the fact that consent may need to be obtained prior to ovation.
It also may be the case that the assignee does not want to take on the burden of the construction contract because, for example, the assignee will not want the risk of the other party claiming unpaid fees from them instead of the assignor. Ultimately, it will depend on the situation why an assignment/novation is required in the first place and our expert construction solicitors can provide further guidance on which will fit your requirements.
Novations are commonly used in a design and build project, where certain consultants or other third parties have been engaged by the employer in advance of a contractor becoming involved on a formalised basis.
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