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Contracts typically play a large part in the day-to-day operations of a business. But, in some cases, you might need to transfer contractual rights and obligations to someone else.
In this case, you need a Deed of Novation. This is a legal document that effectively transfers the rights and obligations in a contract from one party to another (usually a third party to that contract).
What Is The Difference Between Assignment and Novation?
So, what’s the difference between an assignment and novation?
The answer is actually quite simple.
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 creates a new contract between the parties involved.
When Do I Need A Deed of Novation?
A Deed of Novation is most commonly used when businesses are being sold.
If someone is selling their business, they will probably have continuing agreements under that business. For example, if you sell clothing online, you might have a Manufacturers Agreement with your manufacturer.
When you sell your business to the buyer, you’ll want to move that contract entirely so that it is effectively transferred to the new buyers. This is where a Deed of Novation comes in.
With the consent of the manufacturer, a Deed of Novation can transfer your rights and obligations under that Manufacturers Agreement to the new buyer of your business. This way, you won’t have any lingering liabilities or concerns associated with that Manufacturers Agreement.
What Does A Deed Mean, Anyway?
Whether you need an assignment or a novation, both documents often come in the form of a deed.
What does that mean?
A deed is still a legal document. The only difference is the way in which it is executed.
In a deed, parties that sign the contract need to have witnesses that also sign the contract. As such, assignments and novations often require physical meetings in order to be signed and executed properly.
On the other hand, normal contractual agreements don’t require witnesses to sign (and they can be signed online through e-signature platforms).
So, it’s important to be aware that, if you’re signing a deed, there are specific requirements you have to meet before it becomes legally binding.
Need Help?
If you need help with a Deed of Novation, a Deed of Assignment, or still don’t know the difference; we’re here to help!
Don’t hesitate to get in touch with us at 100 730 617 or at team@sprintlaw.com.au.
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