Contract Novation

Contract Novation

When one contract is replaced with another, this is known as contract novation. Novation occurs when all parties to the original contract agree to replace it with a new contract. This could be for any number of reasons, but usually happens because the original contract is no longer fit for purpose or one of the parties wants to exit the agreement.

There are three types of novation:

1. Novation by substitution: This is where one party to the original contract is replaced by another party. The remaining parties to the contract must agree to this change.

2. Novation by addition: This is where a new party is added to the original contract. Again, all existing parties to the contract must agree to this change.

3. Novation by merger: This is where the original contract is replaced with a new contract that includes all of the same parties.