assignment vs novation australia

Transferring contracts: assignment and novation explained

Whether it's due to internal restructuring or meeting commercial requirements like a business sale, many companies encounter the need to transfer contracts from one entity to another. However, it's important to note that this process is not as simple as replacing one party's name with another. In most cases, contracts can be legally transferred through one of two methods: assignment or novation.

Assignment:

An assignment of a contract involves transferring the rights (but not the obligations) of the outgoing party to the incoming party. Typically, an assignment doesn't require the consent or agreement of the other party involved in the contract (the continuing party), unless specifically stated in the terms of the relevant contract.

To effect an assignment, a deed is often executed by both the outgoing party and the incoming party. If the consent of the continuing party is necessary, it is usually convenient to include this consent in the deed and have the continuing party execute it as well.

An assignment does not relieve the outgoing party of its ongoing obligations to the continuing party under the contract. In order to protect the outgoing party against future breaches of contract by the incoming party, it is common for the assignment deed to include provisions where the incoming party:

promises to the outgoing party that it will fulfil the outgoing party's contractual obligations after the assignment date; and
provides indemnification to the outgoing party against any claims made by the continuing party for any failures by the incoming party to fulfil those obligations after the assignment.

Even if the consent of the continuing party is not required, for the assignment to have legal effect written notice of the assignment must be given to the continuing party. This written notice ensures that all parties involved are informed about the transfer.

Another method to transfer contracts is through novation. In legal terms, novation refers to the substitution of a new contract for an existing one, maintaining the same terms as the original contract, but between the continuing party and the incoming party instead of between the continuing party and the outgoing party. Unlike assignment, a novation transfers both the rights and obligations under the relevant contract from the outgoing party to the incoming party.

In practice, novation is commonly achieved by substituting the outgoing party with the incoming party. This means that, from the effective date of the novation, the incoming party assumes all the rights and obligations previously held by the outgoing party, and the continuing party releases the outgoing party from any further obligations under the contract.

It is important to note that the agreement of the continuing party is always required for a novation to be legally effective. While novation offers certain advantages over an assignment, such as a better legal liability position for the outgoing party, it can be more challenging to accomplish due to the necessity of securing the continuing party's agreement.

Similar to assignment, novation typically involves executing a deed of novation, which states the agreement of all parties to substitute the outgoing party with the incoming party.

Other methods:

In addition to novation and assignment, there are indirect methods available for transferring rights and obligations under a contract. For example, where a party to a contract is a company, it may be possible to transfer the company's rights and obligations under a contract by the shareholders of that company transferring their shares in the company to a third party. By doing so, the company remains a party to the contract, eliminating the need for assignment or novation. Instead, a new shareholder obtains control of the company and indirectly obtains the benefit of the rights, and the burden of the obligations, of the company under the contract.

Choosing the right transfer method

When faced with the need to transfer a contract, whether through assignment, novation, or an indirect method, it is important to consider several factors to determine the best option for your specific situation, including:

The terms of the contract itself – examine the terms to identify any provisions that prohibit, allow, or impose conditions on the transfer of the contract. Understanding these contractual provisions will help determine the available options and any limitations associated with each method.
Consider your ultimate goal in transferring the contract - evaluate which party should bear the responsibility for liability arising under the contract, both before and after the transfer. This assessment will help clarify which method of transfer aligns better with your desired outcomes.
The commercial position of the parties - consider the commercial positions of the outgoing party, the continuing party, and the incoming party. Assess factors such as the willingness of the continuing party to provide consent for the transfer. Understanding the potential challenges or cooperation you may encounter from the relevant parties will assist in selecting the most viable transfer method.

By carefully evaluating these factors, you can make an informed decision on the most suitable transfer method for your specific circumstances.

For more information and to navigate the transfer process smoothly, please contact any member of the Sierra Legal team, whose contact details can be found here ( Link ).

Differences between Novation and Assignment

Assignment and Novation are two concepts within contract law which concern the transferring of one party’s rights and obligations under a contract to an interested third party.

Whilst assignment and novation achieve a similar purpose, there are some very distinct differences that parties to a contract should be aware about when deciding which way to proceed.

The key difference is who bears the rights and obligations under the contract. That is:

Under novation, all of the rights and obligations of one party is transferred to a third party by way of a replacement contract. The original contract is terminated and unenforceable.
Under assignment, usually only some of the rights of one party are transferred to a third party. The original contract is not terminated and remains enforceable.

We have explored each of these concepts in greater depth below.

What is Novation?

Novation is where a contract between two parties is terminated to make way for a new contract between one of those parties and a ‘replacement’ third party. This can only occur with the mutual consent of all three parties. The terms of the new contract will in most cases remain the exact same as the original contract, with the only change being the third party is named in the new contract instead of the original contracted party. Effectively, the rights and obligations of the original contracted party are replaced by the rights and obligations of the third party under the new contract.

Novation Example

A enters into an agreement with B for B to supply it with goods. A few years into the agreement, B decides to sell its business to C. If all parties involved agree, B can novate its rights and obligations under the supply agreement to C. A new contract is drawn up with the exact same terms and conditions as the original contract, apart from the names of the contracted parties now being A and C.

Due to novation, A’s rights and obligations under the contract stay the exact same whereas C will take over B’s rights and obligations, namely the obligation to supply goods to A.

What is Assignment?

Assignment is where some (typically not all) rights or obligations under a contract are transferred from one party (“ Assignor ”) to a third party (“ Assignee ”). Whilst some rights and obligations under the contract can be transferred, the burdens and obligations of the Assignor under the contract cannot be fully transferred and the Assignor’s name will often remain on the contract. The Assignor will stay ‘on the hook’ unless it is released from liability by the other party to the contract or indemnified by the Assignee – this can be achieved by way of a side deed. The Assignee does not become a party to the contract, however, the Assignee is able to enforce rights and benefits under the contract that have been transferred to it.

Assignment can generally only occur if permitted by the contract and with the mutual consent of all three parties. In some circumstances, however, an assigning party does not always have to seek the consent of the other party to the contract before it assigns its rights and obligations under the contract to a third party. It is crucial to read the terms of your contract in order to understand the circumstances in which assignment is permitted (if at all).

Assignment Example

Party A and Party B enter into a construction contract. Party B decides to transfer the right to receive payment under the contract to one of its subsidiaries, being Party C. By way of assignment, Party B is still a party to the contract and retains its obligations and its other rights under the contract, however Party A now has the obligation to send payment to Party C instead of to Party B. Party C may also enforce this right to receive payment against Party A.

In this circumstance, Party B’s obligations stay the exact same, however their right to payment is transferred to Party C. Party A’s obligations will also remain the exact same apart from making sure payment goes to Party C.

Be sure to undertake due diligence checks

Before you agree to another party novating or assigning a contract, you should refer to the terms of the contract and also conduct your due diligence regarding the proposed new party. Be sure to check information such as:

The financial status of the new party
Under assignment, can the assignor still complete contractual requirements without getting paid
Is the new party able to perform the same obligations as the original party
Does the new party hold licenses required to perform its obligations
Is the new party able to meet insurance requirements under the contract

We can help!

If you need advice in relation to your rights and obligations under a contract, or if you require assistance assigning or novating a contract, Keystone Lawyers are able to assist you in making sure you reduce your exposure risk whilst complying with your contractual obligations.

Assignment and Novation

What are assignment and novation clauses.

The two main legal tools for the transfer of the rights and/or obligations under a contract to another party are: assignment, for the transfer of benefits; and novation, for the transfer of rights/benefits and obligations. Each has unique features that must be taken into account when deciding which is the preferred option.

Assignment and novation clauses

Assignment, novation and other dealings boilerplate clauses, non-assignment clauses, withholding consent to an assignment.

The two main legal tools for the transfer of the rights and/or obligations under a contract to another party are:

assignment, for the transfer of benefits; and
novation, for the transfer of rights/benefits and obligations

Each has unique features that must be taken into account when deciding which is the preferred option.

Assignment clauses

A contracting party at common law has a general right to assign its rights without any consent or approval from the other party (unless by its very nature the right is personal). An assignment clause may be included in an agreement to exclude or limit this common law right. In order for the assignment of rights by one party to not be exercised unilaterally without the knowledge of the other party, it is common for contracts to include a provision that a party can only assign its rights under the contract with the consent of the other party.

After assignment, the assignee is entitled to the benefit of the contract and to bring proceedings (either alone or by joining the assignor depending in whether the assignment is legal or equitable) against the other contracting party to enforce its rights. The assignee does not become a party to the contract with the promisor. As the burden or obligations of the contract cannot be assigned, the assignor remains liable post assignment to perform any part of the contract that has not yet been performed.

Novation clauses

By executing a novation, a party can transfer both its rights/benefits and obligations. At common law, the obligations under a contract can only be novated with the consent of all original contracting parties, as well as the new contracting parties. This is because the novation extinguishes the old contract by creating a new contract.

A novation clause will usually provide that a party cannot novate a contract without the prior written consent of existing parties. Including a novation clause in an agreement is designed to prevent oral consent to a novation, or consent being inferred from a continuing party’s conduct. However, a court will look to the substance of what has occurred, and such a clause is not effective in all situations.

It is possible for a novation clause to prospectively authorise a novation to be made by another party unilaterally to a party chosen by the novating party. The courts will give effect to a novation made in this manner provided it is authorised by the proper construction of the original contract.

Option 1 – Assignment, novation and other dealings – consent required

A party must not assign or novate this [deed/agreement] or otherwise deal with the benefit of it or a right under it, or purport to do so, without the prior written consent of each other party [which consent is not to be unreasonably withheld/which consent may be withheld at the absolute discretion of the party from whom consent is sought].

Option 2 – Assignment, novation and other dealings – specifies circumstances in which consent can reasonably be withheld

(a) [ Insert name of Party A ] may not assign or novate this [deed/agreement] or otherwise deal with the benefit of it or a right under it, or purport to do so, without the prior written consent of [ insert name of Party B ], which consent is not to be unreasonably withheld .

(b) [ Insert name of Party A ] acknowledges that it will be reasonable for [ insert name of Party B ] to withhold its consent under this clause if:

(i) [ Insert name of Party B ] is not satisfied with the ability of the proposed assignee to perform [ insert name of Party A ]’s obligations under this [deed/agreement];

(ii) [ Insert name of Party B ] is not satisfied with the proposed assignee’s financial standing or reputation;

(iii) the proposed assignee is a competitor of [ insert name of Party B ]; or

(iv) [ Insert name of Party B ] is in dispute with the proposed assignee .

Click here for information on how to use this boilerplate clause.

A non-assignment clause prevents a party or parties from assigning the benefit of the contract. Non-assignment clauses are generally effective if they have been clearly drafted.

Contracts commonly provide for assignment with the consent of the other party. Such provisions usually provide that consent must not be unreasonably withheld and, where there is no such proviso, one may be implied. Accordingly, if it is intended that a party may withhold its consent to an assignment for any reason whatsoever (including on unreasonable grounds) clear contractual language should be used.

A purported assignment that contravenes such contractual restriction may constitute a breach of contract and result in an ineffective assignment.

The ‘reasonableness’ of withholding consent to an assignment is assessed by an objective standard and given a broad and common sense meaning.

The relevant factors in assessing reasonableness will differ in each case and heavily depend on the particular circumstances, including the nature and object of the specific contract and the purpose of the non-assignment clause. Relevant factors may include any defaults in obligations under the contract and the solvency and identity of the assignee.

A party’s actions in withholding consent will generally be considered unreasonable if the grounds relied upon to support the withholding are:

extraneous or disassociated from the subject matter of the contract;
materially inconsistent with any provision(s) of the contract; or
based on collateral or improper considerations.

It is advisable, where withholding consent to an assignment, to clearly set out the reasons for withholding consent in a letter to the other party.

Articles > Startups

The Difference Between Assignment Deeds and Novation Deeds

August 25, 2021 Philip Evangelou

Assignment deeds and novation are used in different ways to create contractual changes which help achieve certain objectives. Novation deeds are legal documents used to transfer contractual rights and obligations to other parties, who are usually not party to the contract.

What is The Difference Between Assignment and Novation

The main difference is that under assignment, you keep performing your contractual rights and obligations, but delegate part of them to a third party. You still maintain responsibility for the liability of those rights and obligations.

In contrast, novation deeds transfer the entirety of your contractual rights and obligations to another party. Once the obligations are transferred from the original company to the third party, it is the third party who bears the responsibility of performing services and the right to receive compensation for those services.

Different levels of consent are required based on whether it is a deed of novation or assignment. For a novation deed all parties must consent, including the other party to the original contract. Consent must also be given by the third party who will be taking over your contractual rights and obligations.

Assignment deeds on the other hand may not require consent of all parties. To determine which parties must consent depends on the circumstances and requires inspection of the relevant deed or contract.

When Can I Use a Deed of Novation?

It is most common to use a deed of novation when a business is being sold.

This is because when a business is being sold, the business will have continuing contractual rights and obligations with other businesses such as suppliers or manufacturers. For example if you are selling a clothing business, you may have an existing supply agreement with your supplier.

In this case, it would be in the best interests of all parties to transfer the rights and obligations under the contract to the new owners of the business. Here, the previous owners are free of their obligations under the contract, while the new owners have an effective supply chain in place and the suppliers are able to continue business as usual.

What Exactly is a Deed?

Assignments and novations are most commonly in the form of a deed.

Deeds are legal documents whereby parties who sign the contract must have witnesses present, who also sign the contract. For the purpose of needing a witness present, assignments and novations usually require a physical meeting so the contract can be signed and effective at law.

On the other hand, ordinary contracts don’t require witnesses and can be perfected virtually or by telephone.

About Philip Evangelou

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Assignment vs Novation: Everything You Need to Know

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. 4 min read updated on February 01, 2023

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. The party transferring their rights and duties is the assignor; the party receiving them is the assignee. Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of the original counterparty.

The transfer of a benefit or interest from one party to another is referred to as an assignment. While the benefits can be transferred, the obligation or burden behind the contract cannot be. A contract assignment occurs when a party assigns their contractual rights to a third party. The benefit that the issuing party would have received from the contract is now assigned to the third party. The party appointing their rights is referred to as the assignor, while the party obtaining the rights is the assignee.

The assignor continues to carry the burden and can be held liable by the assignee for failing to fulfill their duties under the contract. Purchasing an indemnity clause from the assignee may help protect the assignor from a future liability. Unlike notation, assignment contracts do not annul the initial agreement and do not establish a new agreement. The original or initial contract continues to be enforced.

Assignment contracts generally do not require the authorization from all parties in the agreement. Based on the terms, the assignor will most likely only need to notify the nonassigning party.

In regards to a contract being assignable, if an agreement seems silent or unclear, courts have decided that the contract is typically assignable. However, this does not apply to personal service contracts where consent is mandatory. The Supreme Court of Canada , or SCC, has determined that a personal service contract must be created for the original parties based on the special characteristics, skills, or confidences that are uniquely displayed between them. Many times, the courts need to intervene to determine whether an agreement is indeed a personal service contract.

Overall, assignment is more convenient for the assignor than novation. The assignor is not required to ask for approval from a third party in order to assign their interest in an agreement to the assignee. The assignor should be aware of the potential liability risk if the assignee doesn't perform their duties as stated in the assigned contract.

Novation has the potential to limit future liabilities to an assignor, but it also is usually more burdensome for the parties involved. Additionally, it's not always achievable if a third party refuses to give consent.

It's essential for the two parties in an agreement to appraise their relationship before transitioning to novation. An assignment is preferential for parties that would like to continue performing their obligations, but also transition some of their rights to another party.

A novation occurs when a party would like to transfer both the benefits and the burden within a contract to another party. Similar to assignment, the benefits are transferred, but unlike assignment, the burden is also transferred. When a novation is completed, the original contract is deleted and is replaced with a new one. In this new contract, a third party is now responsible for the obligations and rights. Generally, novation does not cancel any past obligations or rights under the initial contract, although it is possible to novate these as well.

Novation needs to be approved by both parties of the original contract and the new joining third party. Some amount of consideration must also be provided in the new contract in order for it to be novated, unless the novation is cited in a deed that is signed by all parties to the contract. In this situation, consideration is referring to something of value that is being gained through the contract.

Novation occurs when the purchaser to the original agreement is attempting to replace the seller of an original contract. Once novated, the original seller is released from any obligation under the initial contract. The SCC has established a three-point test to implement novation. The asserting party must prove:

The purchaser accepts complete liability
The creditor to the original contract accepts the purchaser as the official debtor, and not simply as a guarantor or agent of the seller
The creditor to the original contract accepts the new contract as the replacement for the old one

Also, the SSC insisted that if a new agreement doesn't exist, the court would not find novation unless the precedence was unusually compelling.

If you need help determining if assignment vs. novation is best for you, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Deed of Assignment or Deed of Novation: Key Differences and Legal Implications of Novation and Assignment Contracts

Novation and assignment stand out as pivotal processes for the transfer of contractual rights and obligations. These legal concepts allow a party to the contract to adapt to changing circumstances, ensuring that business arrangements remain relevant and effective. This article explores the nuances of novation and assignment, shedding light on their distinct legal implications, procedures, and practical applications. Whether you’re a business owner navigating the transfer of service contracts, or an individual looking to understand your rights and responsibilities in a contractual relationship, or a key stakeholder in a construction contract, this guide will equip you with the essential knowledge to navigate these complex legal processes.

What is a Deed of Novation?
What is a Deed of Assignment?

Key Differences Between Novation and Assignment Deeds

Need a deed of novation or assignment key factors to consider, selecting the right assignment clause for your contract – helping you make the right choice, what is a deed of novation.

Novation is a legal process that allows a new party to a contract to take the place of an original party in a contract, thereby transferring both the responsibilities and benefits under the contract to a third party. In common law, transferring contractual obligations through novation requires the agreement of all original parties involved in the contract, as well as the new party. This is because novation effectively terminates the original contract and establishes a new one.

A novation clause typically specifies that a contract cannot be novated without the written consent of the current parties. The inclusion of such a clause aims to preclude the possibility of novation based on verbal consent or inferred from the actions of a continuing party. Nevertheless, courts will assess the actual events that transpired, and a novation clause may not always be enforceable. It’s possible for a novation clause to allow for future novation by one party acting alone to a party of their choosing. Courts will enforce a novation carried out in this manner if it is sanctioned by the correct interpretation of the original contract.

Novation is frequently encountered in business and contract law, offering a means for parties to transfer their contractual rights and duties to another, which can be useful if the original party cannot meet their obligations or wishes to transfer their contract rights. For novation to occur, there must be unanimous consent for the substitution of the new party for the original one, necessitating a three-way agreement among the original party, the new party, and the remaining contract party. Moreover, the novation agreement must be documented in writing and signed by all involved parties. Understanding novation is essential in the realms of contracts and business dealings, as it provides a way for parties to delegate their contractual rights and responsibilities while freeing themselves from the original agreement.

What is a Deed of Assignment?

A deed of assignment is a legal document that facilitates the transfer of a specific right or benefit from one party (the assignor) to another (the assignee). This process allows the assignee to step into the assignor’s position, taking over both the rights and obligations under the original contract. In construction, this might occur when a main contractor assigns rights under a subcontract to the employer, allowing the employer to enforce specific subcontractor duties directly if the contractor fails.

Key aspects of an assignment include:

Continuation of the Original Contract: The initial agreement remains valid and enforceable, despite the transfer of rights or benefits.
Assumption of Rights and Obligations: The assignee assumes the role of the assignor, adopting all associated rights and responsibilities as outlined in the original contract.
Requirement for Written Form: The assignment must be documented in writing, signed by the assignor, and officially communicated to the obligor (the party obligated under the contract).
Subject to Terms and Law: The ability to assign rights or benefits is governed by the specific terms of the contract and relevant legal statutes.

At common law, parties generally have the right to assign their contractual rights without needing consent from the other party involved in the contract. However, this does not apply if the rights are inherently personal or if the contract includes an assignment clause that restricts or modifies this general right. Many contracts contain a provision requiring the consent of the other party for an assignment to occur, ensuring that rights are not transferred without the other party’s knowledge.

Once an assignment of rights is made, the assignee gains the right to benefit from the contract and can initiate legal proceedings to enforce these rights. This enforcement can be done either independently or alongside the assignor, depending on whether the assignment is legal or equitable. It’s important to note that while rights under the contract can be assigned, the contractual obligations or burdens cannot be transferred in this manner. Therefore, the assignor remains liable for any obligations under the contract that are not yet fulfilled at the time of the assignment.

Choosing Between Assignment and Novation in a Construction Contract

Choosing between a deed of novation and an assignment agreement depends on the specific circumstances and objectives of the parties involved in a contract. Both options serve to transfer rights and obligations but in fundamentally different ways, each with its own legal implications, risks, and benefits. Understanding these differences and considering various factors can help in making an informed decision that aligns with your goals.

The choice between assignment and novation in a construction project scenario, where, for instance, an employer wishes to engage a subcontractor directly due to loss of confidence in the main contractor, hinges on several factors. These are:

Nature of the Contract: The type of contract you’re dealing with (e.g., service, sales) can influence which option is more suitable. For instance, novation might be preferred for service contracts where obligations are personal and specific to the original parties.
Parties Involved: Consent is a key factor. Novation requires the agreement of all original and new parties, making it a viable option only when such consent is attainable. Assignment might be more feasible if obtaining consent from all parties poses a challenge.
Complexity of the Transaction: For transactions involving multiple parties and obligations, novation could be more appropriate as it ensures a clean transfer of all rights and obligations. Assignment might leave the original party with ongoing responsibilities.
Time and Cost: Consider the practical aspects, such as the time and financial cost associated with each option. Novation typically involves more complex legal processes and might be more time-consuming and costly than an assignment.

If the intention is merely to transfer the rights of the subcontractor’s work to the employer without altering the subcontractor’s obligations under a contract, an assignment might suffice. However, if the goal is to completely transfer the main contractor’s contractual role and obligations to the employer or another entity, novation would be necessary, ensuring that all parties consent to this new arrangement and the original contractor is released from their obligations.

The legal interpretations and court decisions highlight the importance of the document’s substance over its label. Even if a document is titled a “Deed of Assignment,” it could function as a novation if it transfers obligations and responsibilities and involves the consent of all parties. The key is to clearly understand and define the objective behind changing the contractual relationships and to use a deed — assignment or novation — that best achieves the desired legal and practical outcomes, ensuring the continuity and successful completion of the construction project.

Understanding the distinction between assignment deeds and novation deeds is crucial for anyone involved in contractual agreements. Novation offers a clean slate by transferring both rights and obligations to a new party, requiring the consent of all involved. Assignment, conversely, allows for the transfer of contractual benefits without altering the original contract’s obligations. Each method serves different strategic purposes, from simplifying transitions to preserving original contractual duties. The choice between novation and assignment hinges on specific legal, financial, and practical considerations unique to each situation. At PBL Law Group, we specialise in providing comprehensive legal advice and support in contract law. Our team is dedicated to helping clients understand their options and make informed decisions that align with their legal and business objectives. Let’s discuss!

Authored By Raea Khan

Director Lawyer, PBL Law Group

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Deed of Novation vs. Assignment: Key Differences and Applications

Home > Construction Contracts > Deed of Novation vs. Assignment: Key Differences and Applications

April 4, 2023

When it comes to transferring rights and obligations under a contract, novation and assignment are two common methods. While they may seem similar, they have distinct legal implications that can greatly affect the parties involved. This article aims to provide a clear understanding of novation and assignment, their key differences, and practical applications in various business scenarios.

Understanding Novation and Assignment

Novation and assignment are two legal concepts used to transfer rights and obligations from one party to another. The follow are some key points to keep in mind:

Assignment refers to transferring rights and obligations to a third party, but the original party remains bound to the original contract.
Novation refers to substituting a new party in place of the original party, releasing the original party from its obligations under the original contract.
Novation requires the consent of all parties involved, whereas assignment can be carried out without the consent of the other party.
Novation is often used when a business or individual wants to transfer all of their obligations to another party, while assignment is used when a party wants to transfer only some of their obligations.
Novation can be more complex and time-consuming than assignment because it requires all parties to agree to the substitution of a new party.
Both novation and assignment have their benefits and drawbacks, and it’s important to understand the implications of each before making a decision.
In general, novation is more appropriate when there is a fundamental change in the parties or obligations involved in a contract, while assignment is more appropriate for smaller transfers of rights or obligations.

Novation in Construction Contracts

Novation is a legal concept that often arises in business and contract law. Here are some key basics to understand:

Definition: Novation is a process whereby a new party replaces an original party in a contract. This involves a complete substitution of one party for another and the release of the original party from their obligations under the original contract.
Benefits: Novation allows for the transfer of rights and obligations to a new party, which can be beneficial in situations where the original party is unable to fulfil their obligations or wishes to transfer their interests.
Key Features: In order for novation to take place, all parties must agree to the substitution of the new party for the original party. This requires a tripartite agreement between the original party, the new party, and the counterparty to the original contract. Additionally, the novation agreement must be in writing and signed by all parties.

Overall, novation is an important legal concept to understand in the context of contracts and business transactions, as it provides a mechanism for parties to transfer their rights and obligations to others while releasing themselves from the original contract.

Featured Content: What is a Deed of Novation?

Assignment in Construction Contracts

An assignment is a transfer of a right or benefit from one party to another. In other words, it involves the transfer of one party’s contractual rights or obligations to another. The key features of an assignment include:

The original contract remains in force
The assignee steps into the shoes of the assignor, assuming all rights and obligations
The assignment must be in writing, signed by the assignor, and communicated to the obligor
Assignability is subject to contract terms and applicable law

Related Content: What is a Deed of Assignment?

Key Differences Between Novation and Assignment

When considering a transfer of rights and obligations under a contract, businesses and individuals often have to choose between novation and assignment. While both methods achieve a similar outcome, they have distinct differences in their legal implications and requirements.

One key difference between novation and assignment is the transfer of contractual obligations. In a novation, the original contract is extinguished and replaced with a new one, where the incoming party assumes all rights and obligations under the original contract. In contrast, assignment only transfers the rights of the original party to the incoming party, leaving the original party responsible for fulfilling their contractual obligations.

Another difference is the requirement for consent from all parties involved. In novation, the consent of all parties – the original parties and the incoming party – is necessary for the transfer to be valid. In contrast, assignment only requires the consent of the original party and does not require the incoming party’s consent.

Additionally, novation typically involves more formalities than assignment, as a new contract must be drafted and executed, while assignment can often be done through a simple agreement. However, novation offers greater legal protection for the incoming party, as they are assuming all rights and obligations under the original contract.

Understanding these key differences is crucial when deciding which method to use. In the next sections, we will delve deeper into the legal implications and practical applications of novation and assignment.

Rights and Obligations

In a novation, the existing contract is extinguished and replaced by a new one, with the consent of all parties involved. In an assignment, the original contract remains in force, but the assignor transfers some or all of their contractual rights and obligations to the assignee.

Here are some key points to keep in mind regarding rights and obligations in novation vs. assignment:

Novation involves the transfer of both rights and obligations from one party to another.
In an assignment, the assignor transfers only their rights, not their obligations.
In a novation, the original party is released from all obligations under the original contract.
In an assignment, the assignor remains liable for the obligations they have transferred, unless the assignee has assumed them.
It is important to note that in a novation, the new party must agree to assume all of the obligations of the original party under the contract.

Contract Termination

In terms of contract termination , novation and assignment have different implications:

Original Contract Status : In a novation, the original contract is terminated and replaced with a new one, whereas in an assignment, the original contract remains in force and a new contract is formed between the assignee and the obligee.
New Contracts: In novation, a new contract is formed between the obligor and the new obligee. In contrast, in assignment, there is no new contract, only a transfer of rights and obligations to the assignee.

It is important to carefully consider the implications of each method of contract termination before deciding which one to use in a particular situation. Legal advice may be necessary to ensure that the chosen method is appropriate for the specific circumstances.

Consent Requirements

In a novation agreement, all parties must agree to the transfer of obligations and rights to a third party. In an assignment agreement, only the assignor and assignee need to agree to the transfer of rights and obligations.

Here are some key points to consider regarding consent requirements in novation vs. assignment:

Novation requires the consent of all parties involved, including the original parties and the new party taking over the obligations and rights.
Assignment only requires the consent of the assignor and assignee.
In a novation, all parties must sign a tripartite agreement, whereas, in an assignment, a bilateral agreement between the assignor and assignee is sufficient.
If the original contract includes a clause prohibiting assignment, the parties must obtain the consent of the non-assigning party or have the clause removed before proceeding with the assignment or novation.

Consent is a critical component of both novation and assignment agreements. Failure to obtain proper consent can result in legal disputes and may render the agreement unenforceable.

Related Content: Essential Legal Requirements for Deed of Assignment

Practical Applications of Novation and Assignment

Novation and assignment have numerous practical applications across various industries, including construction, real estate, and business transactions. Here are some examples:

Novation in Business Transactions

Novation is commonly used in business transactions to transfer contractual obligations from one party to another, particularly in the following scenarios:

Supplier restructuring: In a business that relies heavily on its suppliers, a novation agreement can be used to transfer contacts to new suppliers in the event of a supplier’s bankruptcy or insolvency.
Mergers and acquisitions: Novation can be used to transfer contracts between companies during a merger or acquisition. This allows the new entity to assume contractual obligations and avoid legal disputes.

Assignment in Business Transactions

Assignment is also used in various business transactions, particularly in the following scenarios:

Licensing agreements: In intellectual property licensing, the owner of the intellectual property can assign their rights to another party. This allows the licensee to use the intellectual property while the owner retains ownership.
Intellectual property: In some cases, an individual or company may assign their intellectual property rights to another party. This can include patents, trademarks, and copyrights.

Overall, both novation and assignment provide flexible options for parties to transfer rights and obligations under a contract. The choice of which to use will depend on the specific circumstances of the contract and the parties involved.

Choosing Between Novation and Assignment

Choosing between novation and assignment can be a crucial decision when dealing with contracts and business transactions. To determine which method is appropriate, one must consider the specific circumstances and goals of the parties involved. Both novation and assignment have their advantages and disadvantages, so it is important to weigh these factors before making a decision. Factors to consider include legal implications, risks, and benefits. Additionally, obtaining legal advice from a qualified attorney can provide valuable insight and guidance when deciding between novation and assignment.

Factors to Consider

When choosing between novation and assignment, it’s important to consider the following factors:

The nature of the contract: Is it a service contract, a sales contract, or something else? Depending on the type of contract, one may be more appropriate than the other.
The parties involved: Are all parties willing to consent to a novation, or would an assignment be more appropriate if consent cannot be obtained?
The complexity of the transaction: Is the transaction straightforward, or does it involve multiple parties and obligations? Novation may be more appropriate for complex transactions where it’s important to transfer all rights and obligations.
Time and cost: Novation may be more time-consuming and costly than assignment, so it’s important to consider the practical implications of each option.

Ultimately, the decision of whether to use novation or assignment will depend on the specific circumstances of the transaction and the preferences of the parties involved.

In conclusion, understanding the differences between novation and assignment is essential when entering into a contract. While both transfer rights and obligations to a new party, they do so in different ways and with different implications. Novation requires the consent of all parties involved, while assignment does not necessarily require the consent of the obligor. When choosing between novation and assignment, consider factors such as the complexity of the transaction, the level of risk involved, and the relationships between parties.

As a construction lawyer with experience in residential building disputes, I have seen the importance of proper contract management firsthand. Don’t hesitate to contact me for a legal consultation and to learn more about how I can assist you with your construction contract needs.

In the bustling world of construction, particularly in New South Wales (NSW), the role of an owner-builder is becoming increasingly popular. This unique position allows individuals to take the reins on their construction projects, adding a personal touch and potentially cutting costs. However, the key to a successful build is not just about managing budgets and timelines but mastering the art of communication with contractors and suppliers. In this article, we delve into effective communication strategies tailored specifically for NSW owner-builders, ensuring your project runs smoothly from start to finish.

Embarking on an owner-builder project in New South Wales is a unique adventure that combines creativity, control, and the thrill of constructing your own home. This guide is designed to arm you with the essential tools and knowledge to create a comprehensive project timeline that not only adheres to local regulations but also ensures your construction journey is as smooth and efficient as possible. Whether you’re laying down the initial plans or gearing up for the build, understanding how to effectively schedule your project is crucial.

In the bustling world of home construction in New South Wales (NSW), Australia, more and more individuals are stepping into the shoes of owner-builders. This choice empowers them with direct oversight over their building projects, offering potential savings and a highly personalised approach. However, this role also comes with its fair share of challenges, particularly when it comes to project management. Given the complex web of regulations and the demanding nature of construction tasks, leveraging the best project management software is not just a convenience—it’s a necessity. This article delves into how these tools can streamline the process, ensuring projects not only meet but exceed expectations.

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Assignment and Novation Guideline

In this Guideline you will find information about:

the difference between assignment and novation
when a contractor requests an assignment or novation

State consent to assignment or novation

additional resources.

For the complete list of guides, see the Procurement Guidelines .

Assignment and novation

Every now and then a contractor may request that the contract be ‘assigned’ or ‘novated’. This might happen where the supplier is undergoing some kind of corporate restructure.

The general position, established in most templates, is that the State is not obliged to agree to an assignment or novation and is not even required to act “reasonably” in considering any such request. However, each contract should be reviewed to determine the State’s rights in that regard.

Difference between assignment and novation

At common law, a party to a contract may only assign its “rights” not its “obligations”. Accordingly, a contractor may assign the right to perform the services and to receive payment but cannot assign the obligation that it owes to the State to provide the services. As such, on assignment the original contractor remains liable to the State for performance of the contractual obligations by the assignee.

Novation on the other hand effectively constitutes a new agreement between the State and the incoming contractor as if the incoming contractor was the original contracting party from day one of the contract. The original (outgoing) contractor is effectively released from all past and future obligations under the contract. It is for this reason that outgoing contractors much prefer novation to assignment, as they are absolutely released from the contract. An assignment leaves a residual liability on the outgoing contractor’s accounts.

Contractor requests an assignment or novation

One of the first tasks to undertake on being approached by a contractor requesting an assignment or novation is to understand what process has occurred/is being proposed to introduce the new party to the contract. Is it an asset sale, a sale transfer or something else?

The reason for this is to allow the State to review the contract and determine what rights it has in dealing with the proposed arrangements.

The State can choose to novate or assign. However, each contract should be reviewed to determine the State’s rights in that regard.

Agreement to assign or novate should never be automatic. Your agency should carry out due diligence on the proposed assignee/new party just as it would during the tender process.

The following list of questions are provided as examples of the type of questions to ask the contractor. The questions will need to be tailored to each contract and not all may be relevant in every situation. However, they should help to gather information that is needed to make a decision to decide whether to consent to a novation. Sample questions to ask when considering whether to novate:

What is the contractor’s strategy and timeframe for managing the proposed novation?
What difference in corporate structure will there be between the outgoing and incoming contractors?
Will the novation have any effect on the performance of the services under contract?
Will there be different directors and senior managers (for example, Chief Executive Officer, Chief Finance Officer and Chief Operating Officer) following the novation?
Will there be any changes to other key personnel?
Will the incoming contractor have the necessary finances to fulfil the obligations of the contract in the short, medium and long term?
Will the incoming contractor have the appropriate insurance policies in place?
Is the contractor party to any other contracts or arrangements that may be affected by the proposed changes, for example, subcontractors?
Will the incoming contractor be employing the same employees as the outgoing contractors, and if not, how will the incoming contractor manage the resulting loss of expertise and experience?
Will all the outgoing contractor’s assets be transferred to the incoming contractor?
How will the contractor manage any intellectual property that is relevant to the services provided?
How will the contractor manage the transfer of any relevant records?

The assignor/outgoing party should generally be advised of this process and that it will be required to meet all costs associated with of this exercise. Equally the assignor/outgoing party should be advised that it would be required to meet all other costs and expenses incurred by the State in connection with the assignment/novation, for example, legal costs.

The State should not agree to use any assignment/novation document prepared by the assignor/outgoing party/incoming party, as these will not have been prepared with the State’s interests in mind.

The State may also be entitled to impose conditions on the assignment/novation, for example, requirement for a bank guarantee, director’s guarantees, etc. The State should also be 100 per cent satisfied that there is no existing breach of the contract by the assignor/outgoing party.

Another issue to consider is timing. The State is often approached “after the fact”, particularly with novations. For example, the takeover has already taken place and the State is being asked to “rubber stamp” the assignment/novation. It should never do so. An assignment or a novation without the State’s prior consent is, in most instances, a breach of contract, and the first response by the State in this situation should be to advise the contractor of that fact and that the State is considering its position. In such cases the “breach” may give the State bargaining power, in respect to the assignment/novation, but also the contract generally. This may put the State in a position to demand variations to the contract as a condition of its consent to novation, which otherwise it would not be in a position to require.

Additional resources

Assignment and novation templates are available here . However, each case needs to be considered on its merits and appropriate amendments made to reflect the particulars of the assignment/novation. Requests to assign or novate require careful and detailed consideration – State Solicitor’s Office advice should be sought on each of these circumstances.

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Assignment & novation clauses in commercial contracts

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3.1 Assignment

An assignment clause usually allows a transfer of rights, benefits and obligations under a contract from one party to another.

A party will usually wish to ensure that it continues to deal with the party it originally contracts with. There may even be an option of terminating the contract in the event of an attempt at substituting the other party or in the event of a change of control in the other entity.

It is often desirable to have a process to have the final right of approval of any change in the other party.

In contractual relationships, where one of the parties has the "upper hand" over the other 5 assignment clauses can often operate unilaterally preventing the lessee from assigning.

Some documents may expressly permit the chosen party to assign its interest at will and without the necessity of requiring the weaker party's approval 6 (eg winery in a grape purchase contract).

A change of control clause should also be considered. Such a clause governs the situation where there is a change in the ownership or control of a party to the contract.

It should define the events constituting a change of control. It will provide that any change of control (that falls within such definition) will:

Trigger a certain set of events such as termination; or
May be deemed to be an assignment. Such a deeming provision will then trigger the same information and approval processes necessary in an assignment situation.

3.2 Novation

Novation is a method of releasing a party from the contract and introducing a new one in his or her place.

Novation differs from assignment in that novation requires the consent of all the parties to the existing contract.

The new contract may be between the parties to the existing contract only or new parties may be substituted.

The consideration for the new contract is the mutual discharge by the parties of the obligations under the old contract.

3.3 Extract of assignment clause from standard deed

6.7 Assignment

[Alternative 1 – General Assignment Clause]

Rights arising out of or under this deed are not assignable by one party without the prior written consent of the other party.
A party must not unreasonably withhold its consent./ A party may withhold consent in its absolute discretion.
A breach of clause 6.7(a) by one party entitles the other party to terminate this deed.
Clause 6.7(c) does not affect the construction of any other part of this deed.

[Alternative 2 – Assignment clause that binds one party only]

Party 1 may assign its rights under this deed and each Collateral Security without the consent of Party 2.

[Alternative 3 – Assignment prohibited]

[/] The rights created by this deed are personal to the parties and must not be dealt with at law or in equity.

3.4 Extract of assignment clause from standard lease

6 Assignment and Subletting

6.1 No interest to be created without consent

Subject to clause 6.2, the Lessee is not to assign this Lease or create in favour of any person an interest in this Lease or the Premises, or allow any person to use or occupy the Premises, without the Lessor's consent.

6.2 Requirements for assignment of subletting

The Lessee may assign the Lease and the whole of the Premises or sublet a part or the whole of the Premises if:

at least 14 days before the date of the proposed change in the occupation of the Premises, the Lessee:
applies for the Lessor's consent; and
supplies to the Lessor evidence acceptable to the Lessor that the proposed assignee or sub-Lessee is experienced in and of good reputation in relation to conducting a business permitted by this Lease, and is financially able to conduct that business; and the Lessor consents to the assignment or sublease;
The Lessee delivers to the Lessor, before the date of the proposed change in occupation, a completed agreement (or deed), in a form prepared or approved by the Lessor's solicitors, by which:
the proposed assignee or sub-lessee agrees with the Lessor to be bound by this Lease as from the date that the assignment or sublease takes effect; and
any guarantor required under this clause gives to the Lessor a guarantee and indemnity in the terms of that clause in respect of the liability of the assignee or sub-lessee;
the Lessee has remedied any outstanding default on the Lessee's part or the Lessor has waived the default;
the Lessee pays to the Lessor on demand the Lessor's expenses, including legal costs,
incurred in making enquiries to satisfy itself concerning the matters specified in clause 6.2(a)(ii); and
in connection with the preparation, completion and stamping of the assignment or sublease and any other related documents, and the stamp duty on all those documents;
if requested by the Lessor, the Lessee arranges for the proposed assignee or sub-lessee to obtain from a bank or other person acceptable to the Lessor a guarantee of the obligations under this Lease to be assumed by the proposed assignee or sub-lessee;
in the case of an assignment, the Lessee has withdrawn any caveat lodged by it in respect of its interest in the Premises; and
nothing in this clause 6.2 affects an assignment to a company which has similar underlying ownership to the Lessee if the parties comply with clause 6.2(b).

6.3 Lessee remains liable

The Lessee remains fully liable under this Lease if the Lessee assigns this Lease or creates an interest in this Lease or the Premises in favour of any other person, whether or not the Lessee has complied with the requirements set out in clause 6.2.

6.4 Change in control

If the Lessee is a company, and there is a change in control of the Lessee (or if the Lessee is a subsidiary, any change in the control of its holding company):

the change in control is to be taken to be an assignment of the Lessee's interest in the Lease; and
if requested by the Lessor, the Lessee is to obtain from a bank or other person acceptable to the Lessor, a guarantee of the Lessee's obligations under this Lease on terms acceptable to the Lessor. The Lessee shall be deemed to have complied with this clause 6.4(b) by provision of a guarantee by the directors of the Lessee;

and in this clause 6.4:

"control" means control of the composition of the board of directors or control of more than 50% of the shares with the right to vote at general meetings; and
words defined in the Corporations Act have the meanings given to them by that Act.

6.5 Exclusion of statutory provisions

The provisions of sections 80 and 82 of the PLA do not apply to this Lease.

6.6 Costs and expenses

The Lessee is to pay to the Lessor on demand all fees and expenses payable by the Lessor to any agent or consultant engaged by the Lessor in connection with a proposed assignment or sub-letting.

4. Entire Agreement

The effect of an entire agreement clause is to prevent the parties relying upon any discussions, statements, understandings or other documents that are not expressly embodied or contained in the contract .

The effect of the clause is to make the contract a single 'stand alone' document containing the whole of the agreement of the parties.

Its purpose is to prevent the parties claiming subsequently that the contract does not accurately reflect the agreement reached or the understanding of the parties.

All successive drafts and versions of a contract (particularly the final one to be signed) should be checked to ensure that there are no terms not previously discussed or negotiated.

The effectiveness of entire agreement clauses will ultimately depend upon the parties' approach and conduct in the negotiation of the contract and its terms. In order to be totally confident in relying on the clause, compliance will usually be required with the applicable laws and requirements relating to:

Unconscionable conduct;
Misleading and deceptive conduct; and
False and misleading representations.

4.1 Extract of entire agreement clause from standard business sale agreement

This agreement supersedes all previous agreements in respect of its subject matter and embodies the entire agreement between the parties.
The Buyer acknowledges that no representations, warranties, promises, undertakings or agreements have been made by the Seller or any Related Corporation or any person acting, or purporting to act, on behalf of the Seller or a Related Corporation in connection with the sale of the Business or the Business Assets other than as expressly set out or referred to in this agreement [or a Related Agreement].
The Buyer acknowledges that it has not relied on any statement, representation, warranty, promise, undertaking or agreement (whether express or implied, oral or written) resulting from or implied by conduct made in the course of communications or negotiations in connection with the sale of the Business or the Business Assets, which is not set out in this agreement [or a Related Agreement].
[Seller addition] Nothing in this clause 22.12 will exclude any liability which the Vendor would otherwise have to the Purchaser in respect of false, misleading or fraudulent statements made by the Vendor prior to the date of this Agreement.

4.2 Extract of no reliance or inducement clause from AMPLA Joint Venture Agreement

Each party warrants and agrees that when entering into this agreement it relied exclusively on the following matters independently or any statements, inducements or representations made by or on behalf of any other party (including without limitation by the officers, employees or agents or any other person acting on behalf of a party):

its own inspections, investigations, skill and judgement;
the terms expressly contained in this agreement; and
opinions and advice obtained independently of any other party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Corporate/Commercial Law

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What Is a Deed of Novation and How Does It Affect My Business?

By Talia Admiraal Lawyer | Head of Social Ventures

Updated on November 15, 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

What is a Deed of Novation?

What does it include, deed vs assignment, how does it affect my business, signing a deed, key takeaways.

If you run a business, you may have heard about contracts being ‘novated’. If you need to change the details of your contract, you may need to use a deed of novation. This article will outline:

what a deed of novation is;
how they are used to transfer rights and obligations between parties;
what a deed of novation generally includes; and
other legal mechanisms that you may wish to consider.

A deed of novation t ransfer s one party’s rights and obligations contained within a contract to another third party.

While the terms of the original contract remain unchanged, the identity of one party is being substituted with a third party. The benefit of this for the other party is that their contract does not change. Instead, they are now simply dealing with a different entity.

W hen a contract is novated, the new party now assumes all the legal responsibility under the contract. You must understand what liabilities or obligations you will either be passing on or assuming, as this can have significant consequences for your business.

For example, if your business is changing its name from ‘Tea and Teapots Pty Ltd’ to ‘Teapots ‘R Us Pty Ltd’, you will not need to make any contractual amendments. This is because the actual legal entity is not changing.

However, if you are closing or selling your business, and wish to transfer your existing contracts and obligations to a third party, you will need a deed of novation to transfer these contracts.

A deed of novation is usually a straightforward document setting out the changes being made to the contract.

You would expect to see the following inclusions in a deed of novation:

novation or effective date – the date from which the novation applies to the parties;
release – a clause releasing the original party from all performance of the contract from the novation date;
representations – any representations or warranties made by either party; and
fees – any fees or payments to be made by either party.

Once you have determined that you need to transfer a contract from your business to another, you need to consider whether a deed is a correct approach.

An assignment is another useful tool when there is a change to the underlying contractual arrangements. Under an assignment, a party will transfer its contractual rights and benefits to another party. In addition, depending on the assignment clause within your contract, you may be able to assign your contractual rights to a third party without the original party needing to enter into the assignment.

Deciding which legal mechanism to use will depend on the type of transfer you are completing.

For example, if another party is taking over your contractual rights and benefits, and there is no need to make a new contract, this should be an assignment.

However, i n some circumstances, another party will be taking over your contractual risks, liabilities and obligations . Here, you should use a deed of novation and all parties need to consent to it.

Deciding which is right for you is entirely dependent on the particular circumstances regarding the changes to your contract. It is best to obtain clear legal advice on what approach you should take .

If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws. This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.

Entering into a deed of novation may be much simpler than terminating a contract and negotiating terms for a new contract. It simply requires transferring the risks, rights and obligations to a third party.

Entering into a deed of novation will affect your business by releasing you from your obligations under a contract and transferring those contractual rights to a new person or business. A deed of novation registers that new party’s acceptance of the original contract. The rights and obligations of the other party to the original contract do not change.

For example, if you are operating a business providing flower and chocolate products for delivery, and the chocolate arm of the business is taking up all your time and resources, you may wish to stop providing the flowers. However, you have a number of existing contracts in place with businesses to supply flowers. Here, rather than terminating these contracts, you can have another flower delivery company take over these contracts for you.

You must sign a deed in ‘wet ink’. This means that deeds cannot be electronically signed and must be signed by each party in pen and on paper. This signing must be accurately witnessed by someone who is not a party to the deed.

If you are selling your business or changing the way your business operates, you might wish to consider a deed of novation. A deed of novation is a simple and effective tool to assist you in transferring your rights and obligations to a third party. It is generally a straightforward and simple document setting out the changes to the details in the contract. If you need any assistance drafting a deed of novation, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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Assignment, novation or sub-participation of loans

Transfers of loan portfolios between lending institutions have always been commonplace in the financial market. A number of factors may come into play – some lenders may wish to lower their risks and proportion of bad debts in their balance sheets; some may undergo restructuring or divest their investment portfolios elsewhere, to name a few. The real estate market in particular has been affected by the announcement of the “three red lines” policy by the People’s Bank of China in 2020 which led to a surge of transfers, or attempted transfers, of non-performing loans. Other contributing factors include the continuous effects of the Sino-US trade war and the Covid-19 pandemic.

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Transferability of Loans

The legal analysis regarding the transferability of loans can be complex. The loan agreement should be examined with a view to identifying any restrictions on transferability of the loan between lenders, such as prior consent of the debtor and, in some cases, whether such consent may be withheld. Other general restrictions may apply given that most banks have internal confidentiality rules and data protection requirements, the latter of which may also be subject to governmental regulations. Certain jurisdictions may restrict the transfer of loans relating to specific types of receivables – mortgage or consumer loans being prime examples. It is imperative to conduct proper due diligence on the documentation and underlying assets in order to be satisfied with the transferability of the relevant loans. This may be complicated further if there are multiple projects, facility lines or debtors. It is indeed common to see a partial transfer of loans to an incoming lender or groups of lenders.

Methods of Transfer

The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation.

A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor’s rights, such as the right to receive payment of principal and interest on the loan. The assignor is still required to perform any obligations under the loan documentation. Therefore, there is no need to terminate the loan documentation and, unless the loan documentation stipulates otherwise, there is no need to obtain the debtor’s consent, but notice of the assignment must be served on the debtor. However, many debtors are in fact involved in the negotiation stage, where the parties would also take the opportunity to vary the terms of the facility and security arrangement.

Novation of a loan requires that the debtor, the existing lender (transferor) and the incoming lender (transferee) enter into new documentation which provides that the rights and obligations of the transferor will be novated to the transferee. The transferee replaces the transferor in the loan facility and the transferor is completely discharged from all of its rights and obligations. This method of transfer does require the prior consent of the relevant debtor.

Sub-participation is often used where a lender, whilst wishing to share the risks of certain loans, nonetheless prefers to maintain the status quo. There is no change to the loan documentation – the lender simply sells all or part of the loan portfolio to another lender or lenders. From the debtor’s perspective, nothing has changed and, in principle, there is no need to obtain the debtor’s consent or serve notice on the debtor. This method of transfer is sometimes preferred if the existing lender is keen to maintain a business relationship with the debtor, or where seeking consent from the debtor or notifying the debtor of any transfer is not feasible or desirable. In any case, there would be no change to the balance sheet treatment of the existing lender.

Offshore Security Arrangements

The transfer of a loan in a cross-border transaction often involves an offshore security package. A potential purchaser will need to conduct due diligence on the risks relating to such security. From a legal perspective, the security documents require close scrutiny to confirm their legality, validity and enforceability, including the nature and status of the assets involved. Apart from transferability generally, the documents would reveal whether any consent is required. A lender should seek full analysis on the risks relating to enforcement of security, which may well be complicated by the involvement of various jurisdictions for potential enforcement actions.

A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and, more importantly, whether there exists any prior or subsequent competing security interest over all or part of the same assets. For example, security interests may be registered in public records of the security provider maintained by the companies registry in Bermuda or the British Virgin Islands for the purpose of obtaining priority over competing interests under the applicable law. The internal register of charges of the security provider registered in the Cayman Islands, Bermuda or the British Virgin Islands should also be examined as part of the due diligence process. Particular care should be taken where the relevant assets require additional filings under the laws of the relevant jurisdictions, notable examples of such assets being real property, vessels and aircraft. Suites of documents held in escrow pending a potential default under the loan documentation should also be checked as they would be used by the lender or security agent to facilitate enforcement of security when the debtor defaults on the loan.

Due Diligence and Beyond

Legal due diligence on the loan documentation and security package is an integral part of the assessment undertaken by a lender of the risks of purchasing certain loan portfolios, regardless of whether the transfer is to be made by way of an assignment, novation or sub-participation. Whilst the choice of method of transfer is often a commercial decision, enforceability of security interests over underlying assets is the primary consideration in reviewing sufficiency of the security package in any proposed loan transfer.

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Alas Pilipinas debuts with dominating win vs Australia

PUBLISHED ON May 24, 2024

WITH little time to prepare, Alas Pilipinas, composed of undergraduate and professional volleyball players, triumphed in their maiden assignment in the AVC Challenge Cup, making the local audience prouder than ever.

On Thursday, in front of nearly 5,000 fans at the Rizal Memorial Coliseum in Manila, they defeated 59th-ranked Australia in four sets, 22-25, 25-19, 25-16, 25-21. The team was led by Jia de Guzman, Sisi Rondina and Angel Canino.

The national team dominated their opponent right away in the first match. But regardless of how they started, the Australian side went on a 7-1 run, stealing the opening set.

After losing the first set 22-25, the national team turned the game around, ensuring that their opponent would not gain momentum from their first-set victory.

The Australian squad attempted to alter the momentum in their favor. In the fourth and final set, they came within 18-21, giving Alas Pilipinas some nerve-racking moments.

Nonetheless, the Philippines, known for its resilience, demonstrated maturity and calm in difficult circumstances and ultimately won the game with finishing blows from Eya Laure and Fifi Sharma.

“It feels great, knowing especially that we didn’t have a lot of preparation coming here today,” said experienced team captain De Guzman, who contributed six points and nine excellent sets.

“As in, going to this game (against Australia), sabi namin na regardless of what happens, as long as we leave our best on the floor, okay kami sa kung ano man ang result. Thankfully, the win went our way.”

Canino, fresh from her UAAP Season 86 stint, led the scoring with 17 points on 15 attacks, one block, and an ace, earning her the Best Player of the Game award.

Despite being the national team’s highest scorer, the 21-year-old opposite hitter believed that collaboration was the most important factor in their first game victory.

“I don’t think I have a big reason. “The big reason talaga kaya nakuha namin ‘yung win na ‘to is teamwork,” Canino said.

“Kasi given the time na maikli lang ‘yung time, ‘yung preparation namin pero nagawa namin to which is led by coaches and ate Jia [de Guzman] talaga,” she said.

Chery Tiggo’s Laure scored the same amount with 14 attacks, one block and two aces, while her former UST colleague Rondina added 16 points, including the game-winning kill in set four.

The Philippines is presently ranked second in Pool A standings, with a 1-0 win-loss record. At 7 tonight, they will face India, the top-seeded squad with a 2-0 record.

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IMAGES

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COMMENTS

Assignment vs. Novation: What is the Difference?
However, be aware that these differ. An assignment gives some rights to a third party, whereas a novation transfers both rights and obligations to a third party. Ensure that whichever method you choose, you document this in a written agreement. If you need further assistance with an assignment or novation, our experienced contract lawyers can ...
Legal briefing
Table 1: Differences between novation and assignment. ... See also CSG Ltd v Fuji Xerox Australia Pty Ltd [2011] NSWCA 335,134. 4 See Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, 491-492; and Vickery v Woods (1952) 85 CLR 33, 345. 5 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 26.
Transferring contracts: assignment and novation explained
In legal terms, novation refers to the substitution of a new contract for an existing one, maintaining the same terms as the original contract, but between the continuing party and the incoming party instead of between the continuing party and the outgoing party. Unlike assignment, a novation transfers both the rights and obligations under the ...
Differences between Novation and Assignment
Under novation, all of the rights and obligations of one party is transferred to a third party by way of a replacement contract. The original contract is terminated and unenforceable. Under assignment, usually only some of the rights of one party are transferred to a third party. The original contract is not terminated and remains enforceable.
Assignment and Novation
Option 1 - Assignment, novation and other dealings - consent required. A party must not assign or novate this [deed/agreement] or otherwise deal with the benefit of it or a right under it, or purport to do so, without the prior written consent of each other party [which consent is not to be unreasonably withheld/which consent may be withheld at the absolute discretion of the party from ...
Deed of Assignment vs Novation: A Comprehensive Guide
Learn the differences and uses of Deed of Assignment and Novation in this comprehensive guide. NSW 2009, Australia. 100 Harris St, Pyrmont. 02 8096 8576. 24/7 Customer Support. ... (NSW), Australia, more and more individuals are stepping into the shoes of owner-builders. This choice empowers them with direct oversight over their building ...
What's the Difference Between Assignment and Novation?
Therefore, it is important to understand those differences. Moreover, assignment is a partial transfer (in respect to the rights of a contract) to a third party. A novation is a complete transfer of that contract (rights & burden) to another party. In both instances of transferring rights or obligations to a third party, consult a contract lawyer.
Australia: Same same but different: assignment vs novation
Same same but different: assignment vs novation. Just kidding, they are not the same at all - just like One Direction isn't the same after Zaynleft. But we digress. One of these two gems lets you transfer rights (but hang on to obligations) and the other lets you walk away from the relationship without rights or obligations.
The Difference Between Assignment Deeds and Novation Deeds
The main difference is that under assignment, you keep performing your contractual rights and obligations, but delegate part of them to a third party. You still maintain responsibility for the liability of those rights and obligations. In contrast, novation deeds transfer the entirety of your contractual rights and obligations to another party.
Assignment Deeds And Novation Deeds: What's The Difference?
Under an assignment, you are only transferring some rights and obligations to another party. However, you'll still bear the liability of those rights and obligations. On the other hand, a Deed of Novation transfers all the rights and obligations under a contract entirely to another party. This effectively ends your contract and instead ...
Deed of Novation in NSW: A Comprehensive Guide
A deed of novation is a legal agreement that transfers contract rights and obligations to a new party, commonly used in situations where a third party is taking over an existing contract or when the terms need significant alteration. Novation creates a new contract between the original parties and the new party, while assignment only transfers ...
Assignment vs Novation: Everything You Need to Know
A novation occurs when a party would like to transfer both the benefits and the burden within a contract to another party. Similar to assignment, the benefits are transferred, but unlike assignment, the burden is also transferred. When a novation is completed, the original contract is deleted and is replaced with a new one.
Assignment or Novation: Key Differences and Legal Implications
Assignment. Transfer of rights or obligations. Transfers both the benefit and the burden of a contract to a third party. Transfers only the benefit of a contract, not the burden. Consent Required. Novation requires the consent of all parties (original parties and incoming party).
Novation vs. Assignment in NSW
Novation vs. Assignment: Key Differences and Applications for NSW homeowners. NSW 2009, Australia. 100 Harris St, Pyrmont. 02 8096 8576. 24/7 Customer Support. ... (NSW), Australia, more and more individuals are stepping into the shoes of owner-builders. This choice empowers them with direct oversight over their building projects, offering ...
Assignment and Novation Guideline
This procurement guideline assists State agencies buying goods, services, community services and works, with assignment and novation. In this Guideline you will find information about: the difference between assignment and novation. when a contractor requests an assignment or novation. State consent to assignment or novation. additional resources.
Australia
3.2 Novation. Novation is a method of releasing a party from the contract and introducing a new one in his or her place. Novation differs from assignment in that novation requires the consent of all the parties to the existing contract. The new contract may be between the parties to the existing contract only or new parties may be substituted.
What Is a Deed of Novation and How Does It Work?
A deed of novation is a simple and effective tool to assist you in transferring your rights and obligations to a third party. It is generally a straightforward and simple document setting out the changes to the details in the contract. If you need any assistance drafting a deed of novation, contact LegalVision's business lawyers on 1300 544 ...
PDF Legal briefing
A novation requires the consent of all the parties to the original contract as well as the consent of the new party.3 It is a tripartite agreement between the original parties and the new party. Consent of all the parties to enter into the agreement is therefore crucial.4 A novation usually takes the form of a deed.
Assignment and novation
Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well. In a novation the original contract is extinguished and is replaced by a new one in which a third party takes up rights and obligations which duplicate those of one of the original parties to the ...
PDF Assignment, novation and other dealings boilerplate clause
5 Carter JW, Contract Law in Australia, 6th ed, 2013, LexisNexis Butterworths at p357. (b) Assignment of the 'whole' contract. As a general principle, an assignment of the "whole contract" will not extend further than assignable contractual rights (ie it will not extend to the obligations or burden of the contract). (c) Declarations of trust.
Novation and assignment: current case law update
Novation and assignment: current case law update. PwC Australia. Australia January 28 2011. On 30 April 2010 PwC published a LegalTalk article providing commentary on the case of Goodridge v ...
Assignment, Novation Or Sub-participation Of Loans
The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation. A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor's rights, such as the right to ...
Assignment (law)
Assignment (law) Assignment [a] is a legal term used in the context of the laws of contract and of property. In both instances, assignment is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. [1] An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee.
Alas Pilipinas triumphant in first assignment in AVC ...
Alas Pilipinas was successful in its first assignment in the AVC Challenge Cup after defeating Australia in four sets, 22-25, 25-19, 25-16, 25-21, on Thursda...
Exploring Financial Services Law in Australia: Assignment 1
Refer to 'Time remaining' on the 'Assignment 1' page in KapLearn to ensure you submit your assignment by the specified due date and time. Learning outcomes (LO) mapping Marks LO1 Examine the main sources and regulatory structure of financial services law in Australia, including participants' legal and regulatory obligations 70 ...
Alas Pilipinas debuts with dominating win vs Australia
Alas Pilipinas debuts with dominating win vs Australia. WITH little time to prepare, Alas Pilipinas, composed of undergraduate and professional volleyball players, triumphed in their maiden assignment in the AVC Challenge Cup, making the local audience prouder than ever. On Thursday, in front of nearly 5,000 fans at the Rizal Memorial Coliseum ...
FNSINC411
How to Submit your Assessment: Upload your completed document into the "FNSINC411- Short Answer Questions" Online Assessment in your learner portal. You can drag and drop the file into the window or use the add file icon in the top left of the submission window and select the file your wish to upload by using the browse/choose file option.
1 Assignment 2
View BSB131 (2024 - 1) Assignment 2 - Car Data Australia 2023 - updated v2.docx from BSB 131 at Queensland University of Technology. Instructions Data for this Assessment can be found in the Excel. AI Homework Help. ... (2 marks) New vs Used We know that there have been changes in the types of cars people purchased over the last few years.