Use a Novation Agreement Template in Australia

In business, change is normal. You might switch suppliers, restructure a group of companies, sell part of your operations, or bring a new party into an important contract.

When that happens, you often don’t want to start from scratch with an entirely new agreement. You want the commercial arrangement to continue - but with a different party taking over.

That’s where a novation agreement comes in. If you’re looking for a novation agreement template, you’re probably after a practical, efficient way to document this kind of change properly (and reduce the risk of disputes later).

In this guide, we’ll walk you through what novation is, when to use a novation agreement template, the key clauses to include, and the common mistakes we see small businesses make when “templating” something that actually needs careful tailoring.

What Is A Novation Agreement (And When Do You Need One)?

A novation agreement is a legal document that replaces one party to an existing contract with a new party - with the consent of everyone involved.

In plain English: the contractual relationship continues, but one party “steps out” and another party “steps in” (usually on the terms set out in the novation).

Most novations are used when you want:

A new contracting party (for example, you’re transferring a contract from your company to a related company); and
The same contract terms to continue (with some changes if needed); and
A clean handover of rights and obligations (so everyone knows who is responsible from what date).

Common Business Scenarios Where Novation Comes Up

Here are some real-world situations where Australian businesses commonly use a novation agreement template (or a tailored novation agreement):

Business sale or asset sale: you want customer contracts, supplier arrangements, or service agreements to move across to the buyer.
Company restructure: you’re moving agreements between entities in a group (for example, shifting contracts from a trading company to a new operating entity).
Switching contracting parties in a project: one contractor exits and another takes over, with the client’s agreement.
Finance and security arrangements: the party providing goods or services changes due to a restructure, assignment, or refinancing.

Novation vs Assignment: They’re Not The Same

This is where a lot of businesses get stuck. Novation and assignment are often confused, but they do very different jobs.

Assignment usually transfers rights (for example, the right to receive payment), but doesn’t automatically transfer obligations unless the other party also agrees (or a separate arrangement is documented).
Novation replaces a party entirely, so the new party takes on both rights and obligations (and the old party is typically released from future obligations, if drafted that way).

If you’re not sure which one you need, it’s worth pausing before you download a novation agreement template and fill it in. Using the wrong mechanism can leave you responsible for obligations you assumed had been transferred.

Why Businesses Use A Novation Agreement Template (And The Limits Of Templates)

A good novation agreement template can save time and help you structure the key terms consistently. For many small businesses, it’s a practical starting point - especially where the underlying contract is straightforward and the commercial intent is clear.

But templates have limits. A novation is only effective if it aligns with:

the original contract terms (some contracts restrict novation or require specific consent steps)
the actual commercial deal you’re doing (who is responsible for what, and when)
your risk profile (for example, warranties, indemnities, and transition obligations)

When A Novation Template Is Usually Appropriate

A novation agreement template may be suitable when:

the original contract is short and doesn’t prohibit novation
all parties are cooperative and signing at the same time
you have a clear “handover date” and there are no tricky disputes or unpaid amounts
the new party is substantially similar in capability and financial position (for example, a related entity restructure)

When You Should Be Cautious With A Template

You’ll want legal advice (or a lawyer-drafted novation) where:

the contract is high value or long term
there are ongoing deliverables, warranties, service levels, or liabilities that could arise later
there are unpaid invoices, disputes, defects, or performance issues
the other party is insisting on extra protections, guarantees, or changes to the original deal
the contract includes privacy, data handling, IP, or regulatory obligations

As a general rule, the more “business critical” the contract is, the more careful you should be about relying on a generic novation agreement template.

How To Use A Novation Agreement Template: Step-By-Step

If you’re going to use a novation agreement template, you’ll get the best outcome when you treat it as a structured checklist - not just a form to fill in quickly.

Step 1: Review The Original Contract For Novation Restrictions

Before drafting anything, check whether the original contract:

allows novation at all
requires written consent from the other party (or all parties)
requires consent to be in a specific form (for example, “signed by directors”)
has notice requirements (for example, you must give 14 days’ notice)

If the contract is silent, novation may still be possible - but you’ll need clear consent from all parties in the novation agreement itself.

Step 2: Identify The Parties Clearly (And Use The Correct Legal Names)

Most novations involve three parties:

Continuing party: the party that stays in the contract (often a customer/client)
Outgoing party: the party being replaced (often the existing supplier/service provider)
Incoming party: the new party taking over the contract

Make sure you use the correct legal entity names (including ACN/ABN where relevant). A common template mistake is using a trading name instead of the actual legal entity.

If you’re not sure whether your structure should be a sole trader, partnership, or company, that question matters here because it changes who can legally be a “party” to the contract.

Step 3: Describe The Original Contract Precisely

A novation agreement template should include a section that identifies the original contract, typically by:

the contract date
the original parties
the contract title (if it has one)
any variations or amendments made since signing

This sounds simple, but it’s important. If you identify the wrong agreement (or miss a later variation), you can end up with a novation that doesn’t actually cover what you think it covers.

Step 4: Set The Novation Date (The “Effective Date”)

The effective date is when the incoming party takes over responsibility.

Your novation agreement template should clearly state:

the effective date and time (if relevant)
whether obligations transfer for work performed before that date
who is responsible for invoices issued before and after the effective date

This is one of the most common areas where disputes pop up - especially where there’s ongoing work, staged milestones, or monthly billing cycles.

Step 5: Confirm What Transfers (Rights, Obligations, And Liabilities)

The key legal purpose of novation is transferring both rights and obligations.

A well-drafted novation agreement template usually covers:

the continuing party agrees to accept the incoming party in place of the outgoing party
the outgoing party is released from future obligations (if that’s the deal)
the incoming party agrees to perform the contract going forward

You should also think carefully about liabilities:

Is the outgoing party released from liabilities that relate to events before the effective date?
Does the incoming party take on liabilities for earlier work (often not ideal unless priced in)?
Are there warranties that continue beyond the effective date (for example, warranty periods for services)?

Step 6: Add Any Transitional Terms (If You Need Them)

Templates often assume an “instant clean handover”, but many businesses need a transition period.

Depending on your situation, you may need clauses covering:

handover of documents, records, and operational information
access to systems, software, or premises
customer communications (who tells the customer, and what they can say)
treatment of confidential information

If the agreement involves personal information or customer data, your broader compliance settings matter too - including having the right Privacy Policy in place for how information is collected, stored, and used.

Step 7: Execute Correctly (Signatures Matter)

Finally, make sure the novation agreement is signed correctly by all parties.

Execution issues are a surprisingly common reason novations fail - particularly where a company signs incorrectly or the wrong person signs “for” the business.

For example, if your contract requires execution under section 127 of the Corporations Act, or your original contract specifies a particular method of signing, you’ll want to follow those requirements. If someone is signing on behalf of a business owner or director, it may also be worth confirming how “on behalf of” signing works in practice (including the use of p.p. signatures in appropriate cases).

What Clauses Should A Novation Agreement Template Include?

While novation agreements vary, a strong novation agreement template for Australian businesses will usually include the following sections.

Parties And Background

This sets out who the parties are and why the novation is happening. It’s not just “filler” - it helps prevent arguments later about what everyone intended.

Definitions And Interpretation

This is especially useful if the original contract has defined terms that you’ll refer to in the novation.

Novation Mechanics

This is the heart of the document: it confirms the substitution of the incoming party and the consent of all parties.

Release (And Any Carve-Outs)

Many novations include a release of the outgoing party from future obligations.

However, you may need carve-outs - for example, if the outgoing party remains responsible for any pre-effective-date breach.

Warranties And Indemnities (If Appropriate)

Sometimes the continuing party wants comfort that the incoming party can perform the contract.

Depending on your bargaining power and the context (like a business sale), you may see:

warranties about capacity and authority
indemnities if certain liabilities arise
confirmations that insurance is in place

If you’re already using other core documents in your business (like a Service Agreement), it’s important that the novation doesn’t accidentally create conflicting obligations.

Confidentiality

If the original contract includes confidentiality, the novation should preserve it. If not, and your commercial arrangement depends on keeping information confidential, you may need confidentiality terms added or supported by a separate NDA.

Disputes, Notices, And Governing Law

These “boilerplate” clauses still matter, particularly if parties are in different states or the contract has strict notice procedures.

Common Mistakes When Using A Novation Agreement Template

Templates can be helpful, but we regularly see small businesses run into avoidable problems because of a few common oversights.

1. Assuming Novation Happens Automatically

Novation requires consent. If one party doesn’t agree, you generally can’t force a novation using a template document.

If the original contract says you need written consent, an informal email chain may not meet the contract’s requirements - especially if your contract specifies a formal method of variation, notice, or execution.

3. Mixing Up Past Liabilities And Future Liabilities

Some businesses intend for the outgoing party to remain responsible for anything that happened before the novation date, while the incoming party takes over only going forward.

If your novation agreement template isn’t clear on this point, you can end up arguing later about who pays for defects, missed deadlines, or disputed invoices.

4. Using Incorrect Entity Names

Novation is a legal change of parties, so entity details need to be right. If you’re signing as a company, use the company’s legal name (and ACN) rather than just the brand name.

5. Forgetting The Bigger Contract Ecosystem

Many businesses have multiple linked documents - customer terms, supplier contracts, employment arrangements, IP licences, and internal governance documents.

A novation should “fit” into that system rather than creating contradictions.

For example, if the restructure changes who employs staff, you may also need updated Employment Contract documentation, not just a novation of customer-facing agreements.

Practical Tips For Using Novation In Business Sales And Restructures

Novation comes up a lot during business sales and internal restructures. These are high-stakes moments because contracts are valuable assets - and problems discovered later can affect price, goodwill, or ongoing operations.

If You’re Buying Or Selling A Business

If you’re selling a business (or purchasing one), you’ll often want key contracts (like supplier agreements and customer contracts) to move with the deal.

It’s common for a sale process to involve a combination of:

an asset sale agreement or business sale agreement
third-party consents
novation agreements for specific contracts
updated operational documents for the buyer

This is also where due diligence matters. If you discover the contract can’t be novated (or requires consent you can’t obtain), you may need to renegotiate the sale structure or include special conditions.

If You’re Restructuring Entities

For group restructures, novation often happens alongside updates to governance documents.

If your restructure involves setting up (or changing) a company’s internal rules, documents like a Company Constitution can become part of getting your “paperwork foundation” aligned with how the business actually operates.

If Contracts Involve Security Interests Or Leased Equipment

Some commercial arrangements involve security interests over personal property (like equipment, inventory, or vehicles). If you’re transferring a contract to a new entity, you may need to consider whether there are existing PPSR registrations involved (or whether new registrations are required).

As part of your broader risk checks, it can be useful to understand how the PPSR works in Australia and how it might affect assets and contract arrangements during a transition.

Key Takeaways

A novation agreement replaces one party to an existing contract with a new party, usually transferring both rights and obligations with everyone’s consent.
Using a novation agreement template can be a practical starting point, but you still need to check the original contract terms and make sure the document matches your commercial intent.
The effective date and liability allocation are critical - unclear drafting here is one of the biggest causes of disputes after a novation.
Most novation agreements involve three parties (continuing, outgoing, incoming), and execution needs to be done properly for the novation to be enforceable.
In business sales, restructures, and high-value contracts, novation often needs more than a template because of transition obligations, warranties, and regulatory risks.

If you’d like help preparing or reviewing a novation agreement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

How to Use a Novation Agreement Template in Australia