Novation Agreement – Construction (B127)

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What is this contract for?

This agreement is designed use where a contractor transfers all its rights and obligations under its contract with a client to a new contractor who steps in and becomes the contractor dealing directly with the client.  It is a very short agreement.  It can be used, for example, where the employer in the building contract was to replace an existing contract with a new one.

What are the main issues?

The client or employer is a party to the novation agreement and not only accepts the new contractor in place of the outgoing one, but also releases the retiring contractor from any liability.

The outgoing contractor clearly needs to be sure that is paid up to date as, once the novation takes place, not have any further claim against the employer, so our contract specifies the amount paid up to the date of the agreement..

As there is no obvious consideration, a novation agreement should be signed as a deed

What detailed terms does the contract contain?

The main points cover:

  • New contractor’s position
  • Employer’s acceptance of novation
  • Outgoing contractor’s fees

For more information on each of these sections, see our Explanatory Notes below which you will also receive when you download the document from our website.

For information on signing documents see our Contract Signing page

When I download the document, can I change it and/or use it more than once?

Yes, all ContractStore’s templates are in MS Word and you can use the contract on more than one project. For more information, watch the video on this page of our website or see our FAQs

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ContractStore supplies templates and is not a law firm.  But experienced lawyers write all our templates, so we can arrange legal assistance for customers who need special terms in one of our documents or a bespoke template. . For more information see our Legal Services page.  For more information see our Legal Services page.

Contract Author – Giles Dixon

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Explanatory Notes

A Novation Agreement is one by which the parties to a contract agree that one of them should be replaced by another party who will in every respect assume the rights and obligations of the outgoing party as though he had always been a party to the Contract. The outgoing party is released from any liability under the Contract.

Novation makes for a much cleaner break than a simple assignment, especially for the assignor, since once the contract has been novated, he has no further liability under the Contract.  The new party, on the other hand, could be held liable for some breach of contract which occurred before he became a party to the Contract but which is only discovered later.

Novation Agreements are usually short, simple documents.  Normally they are executed as a deed in England.  Our example is of a contract being novated by a contractor to a new contractor.

This Novation Agreement recites the circumstances leading up the decision to novate in the Introduction.  Since the reasons for novation can be quite complicated, the introduction can sometimes play a useful explanatory role in a novation agreement.

The body of this Agreement has only three clauses.  In the first, the new contractor (the assignee) agrees to become a party to the contract and to be bound by all its terms.

In the second clause, the employer releases the outgoing contractor (assignor) and accepts the new contractor.

Clause 3 is really there for record purposes, to show payments made to the outgoing contractor at the date of the agreement – although it may be more convenient to specify some earlier date.  It may also be useful to specify any amount which is owing to the employer by the contractor at the novation date and specify if the outgoing or incoming contractor will be responsible for paying it.

Although novation agreements are in themselves quite simple, the situation surrounding novation is not always simple: it may involve insolvency of a party, a corporate restructuring or some other circumstances.  Care is needed in drafting to ensure that any particularities of the situation (especially if they affect the “clean break” principle) are properly catered for.

(Novation is also quite common in the construction industry when an employer appoints a team of professional consultants to prepare drawings & specifications and then appoints a contractor on a “design & build” contract.  The employer sometimes then novates the professional appointments to the contractor, who becomes employer of the consultants in the employer’s place.)