Contract Glossary
Novation
Definition
Novation replaces one contract (or one party) with a completely new one. The old contract dies. The new one takes its place. Unlike assignment, which transfers rights while keeping the original contract alive, novation wipes the slate clean.
In Practice
You're selling your consulting business. You have a $10,000/month contract with a key client. Through novation, the buyer steps into your contract — but it's actually a brand-new agreement between the buyer and the client, with the same terms. You're completely released from all obligations. The client agreed to it, the buyer agreed to it, and you're out. If you'd just assigned the contract, you might still be liable if the buyer failed to perform.
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Frequently asked questions about novation
Assignment transfers rights while the original contract stays alive — you might still be liable. Novation kills the original contract and creates a new one — you're completely released. Novation requires all three parties to agree (original party, new party, and the counterparty). Assignment typically only needs two.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.