nō-vā′shun, n. the replacement of a new commitment by the existing one: innovation. A planning and construction contractor in the construction industry transfers a construction contract to a new assistant contractor. Novation is necessary. In contract law and business law, novation is the act of one or the other: replacing a performance obligation with a new obligation; or replace a party to an agreement with a new party. Unlike an assignment, which is valid as long as the debtor is terminated, a novation is valid only with the consent of all parties to the original contract: the debtor must agree to the replacement of the original debtor by the new debtor. A contract transferred through the novation process transfers all duties and obligations from the original debtor to the new debtor. For example, if there is a contract in which Dan gives a TV to Alex and another contract in which Alex gives a TV to Becky, then it is possible to change both contracts and replace them with a single contract in which Dan agrees to give a TV to Becky. Unlike assignment, novation requires the consent of all parties. The new contract still needs to be considered, but it is usually assumed to be the performance of the previous contract. Another classic example is when Company A enters into a contract with Company B and a novation is included to ensure that if Company B sells, merges or transfers the core of its business to another company, the new company assumes the obligations and responsibilities that Company B has with Company A under the contract.
Thus, with respect to the Contract, a buyer, party to the merger or an acquirer of Company B is following in the footsteps of Company B with respect to its obligations to Company A. Alternatively, in the event of such a change under the Original Agreement, a „Novation Agreement“ may be signed. Although the difference between allocation and novation is relatively small, it is essential. If you give in when you need novate, you may be able to be liable for your original contract if the other party is not obliged to perform its obligations. In this case, you must use an agreement to modify the contract. Novation is a complex process because all parties involved (the initial parties and the incoming party) must sign the novation agreement. Novation can also occur in the real estate sector, where a tenant passes on the rental period of a property to a third party. A lease is an implied or written agreement that sets out the terms under which a landlord agrees to lease a property for the use of a tenant. .