When to Use a Novation Agreement?

A novation agreement should be used to transfer each contract. A design and build contractor in the construction industry transfers a construction contract to a new, substitute contractor. A novation is necessary.

When should you novate a contract?

Novation occurs when A and B are party to an agreement and B 'transfers' its obligations and rights under the agreement to C, such that C can be said to 'step into the shoes' of B, with a resulting contractual relationship coming into effect between A and C.

In what circumstances might two parties agree to a novation?

Usually, novation happens when a new party assumes an obligation to pay that an original party had incurred. The debts transfer to someone else, releasing the original debtor from the obligation.