Novation Agreement From A to Z
If you decided to leave your ongoing business venture due to restructuring, better organization, or any other reason, that doesn’t mean you and your partners have to terminate the existing agreement. A novation agreement is a legal document that can help you solve the matter without leaving your business partners in the lurch.
If this term sounds unfamiliar to you but sparkles your interest, we can help! We’ll guide you through the essentials of a novation agreement and teach you how to write any agreement without a hitch!
Novation Agreements Explained
A novation agreement represents a modification of an existing contract. The parties create it in case one of them wants to terminate their participation in the contract. The leaving party transfers all their contractual responsibilities to a new signer that will take their place.
To make a novation agreement, the parties must check whether the original contract contains any disclosures banning such changes. If there are no clauses that prohibit including a new member or entity in the agreement, the existing signers can create a novation agreement and make changes to the original contract.
Novations are common in:
- Corporate takeovers
- Building and design projects
- Mergers and acquisition transactions
- Financial trading
- Sales of businesses
What Should a Novation Agreement Include?
When creating this contract, it’s crucial to attach the original agreement to the new version, along with all supporting documents. This is the only way to ensure the terms and conditions of the new contract will be the same as in the old version of the agreement. Failing to do so may result in an unenforceable document.
Besides the copy of the primary contract, the novation agreement should contain:
- Definitions—explanations of specific legal terms included in the contract
- Novation details—the responsibilities of the new signer and existing parties following new circumstances
- Indemnification clause—a disclosure that obligates one party to take responsibility for loss or damage caused by the other signer
- Governing laws—applicable acts or laws that regulate this issue (if they exist)
- Notice details—specific notice requirements and the physical address to which the new signer will receive notices
Are Novations and Assignments the Same?
Even though people usually confuse the two terms, novation and assignment can’t be considered synonyms. Unlike an assignment, which enables the primary party to transfer only benefits to a new signer, a novation allows transferring liabilities as well.
Assignments assure that all responsibilities stated in the primary contract remain with the original signer.
Is It Necessary To Get a Novation Agreement Notarized?
The document doesn’t have to be notarized. It becomes legally binding once it’s signed by:
- Transferor (the party that transfers its rights to a new signer)
- Transferee (the new party)
- All other signing parties
This is another difference between a novation and an assignment. While assignments don’t require the signature of a new party, novations can’t be completed without it.
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What Contract Templates Does DoNotPay Offer?
Here’s a table listing all available contract templates DoNotPay offers:
|Real estate contracts|
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