What Is a Novation?
A novation is the substitution of a new contract or a new party for an existing one, with the consent of everyone involved, so that the original obligation is extinguished and replaced. Unlike a simple assignment, a novation releases the original party from further liability — the old contract is gone, and the new one takes its place.
The Requirements
- A valid existing obligation to be replaced
- Agreement of all parties — including the party being released and the one taking over
- A new valid contract that substitutes for the old
- The extinguishment of the original obligation
Novation vs. Assignment
This distinction is critical. In an assignment, one party transfers its rights to another but generally remains liable if the new party fails to perform. In a novation, the original party is fully released and replaced. For that reason, a party stepping out of a contract should insist on a written novation — not just an assignment — to be sure it is no longer on the hook.
Related Terms
- Assignment — Transfers rights but usually keeps the original party liable
- Ratification — Approving an act, distinct from replacing a contract
- Voidable Contract — Another way a contract's force can change
Barnes Walker
Barnes Walker's attorneys draft and negotiate novations, assignments, and assumption agreements in Florida business and real estate matters. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC