Thursday, April 12, 2012

Deed of Novation

The essence of novation agreement is that it requires the consent of other parties. It cannot be made without obtaining the consent of the other party. Assignment can be made without obtaining the consent of other party. The novation agreement is valid, and it develops through case laws and interpretation of the laws. The initial principal of the law is that party to contract must fulfill their obligations.

Notation is an exception to this rule. It replaces the original contract. However, it does not change the original term and conditions.

What are the reasons for making novation?
Usually the novation is occurred when:
• One party ( transferor) wants to transfer his rights and obligation to thirds party; and
• Other party agrees to it.
• The novation avoids the cancellation of contract.

Does it only transfer the benefits or obligations?
No, it transfers the both rights and obligations to third party. While, assignment only transfers the benefits to the transferee.

Does novation change the original terms and conditions of the contract?
No, it does not changes the original terms and conditions of the contract. But it ensures the continuity of the contract and avoids the renegotiation's. Novation cannot be back dated. It must incorporate the date when the novation becomes effective.

Is there any difference between novation and assignment?
Yes, there is a clear line of demarcation between novation and assignment. Assignment is made between two parties while it is made between three parties. Assignment does not replace the original contract, but it replaces the original contract. Assignment does not require the consent of other party while t cannot be made without the consent of other party.

Can a license be novated?
No, it cannot be novated. License is personal to licensee. It is advisable to enter into new license with new party rather novating it.

Can a novation be considered as deed?
Deed is made when there is no consideration. Usually, the element of consideration is involved in novation agreement. Therefore it is not considered as deed. It is a process which transfers rights as well as obligation from one party to the third party.

Is novation a legally binding contract?
Yes, it is a new contract and it must fulfill the all essential for making the contract. It involves the consideration and requires the consent of the other party. Once it is signed, it becomes legal and valid contract. It has the same values as the original contract. it cannot be used to only transfer the benefits.

Net Lawman provides the following types of novation agreements. such as:
Novation agreement: transfer of service contract
Novation agreement: transfer debt to new debtor
Novation agreement: transfer debt to new creditor
Novation agreement: of construction contract

There are main common features of the novation agreements:
• Suitable when either party is resident outside the UK;
• Ensures a legal transfer as it is drawn as an agreement between all parties;
• Comprehensive provisions provide ideas for you to mould.

Novation agreement is useful tool which allows the transferor to transfer his rights and obligation to third party rather than terminating it. It requires the consent of other party and a part of agreement cannot be novated. It novates the whole contract .The third party must have a legal capacity to enter into contract.

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