12+ Novation Agreement Templates
When it comes to matters made for the corporate, a business contract is like a car that only has a seat for two. The two companies involved are the passengers and the endgame or goal of the contract is their destination. Now, there comes a time when one of the passengers wants out of this car, but they still have not arrived at the destination yet. Well, the other passenger cannot just simply kick them out of the car while it’s moving, can they?
In observing proper business partnership manners, the other passenger must park the car, let the outgoing passenger alight safely, and ensure that another passenger will be let in. This careful transition of passengers mirrors the legal process where a company is replaced or substituted by another in an official contract. This substitution is known as novation, and the legal document that validates it is called a novation agreement. You may also see agreement samples.
Elements of a Good Novation Agreement
A novation agreement relinquishes the responsibility and entitlement of one party to another. It serves as a legal piece of proof that the leaving party, the staying party, and the incoming party all agrees with all the substitution going on. Essentially, a novation contract is made to bridge the transition from the old contract of the old parties to the new contract of the new parties. It involves three entities and a main legal provision, and they are the following:
1. Outgoing Party: Originally, there was a certain contract that involved two parties. When one of the parties involved wants to be discharged from the burden of the original contract and pass it on to someone else, this party will be known as the outgoing party in the novation agreement. In some other legal languages, the outgoing party is also known as the transferor or debtor.
2. Continuing Party: The continuing party is one of the original entities involved in the first contract. While the outgoing party leaves and transfers the responsibilities to another party, the continuing party remains. This party is also known as the creditor.
3. Incoming Party: This is the party that will carry the benefits and burden passed on by the outgoing party. The incoming party has the responsibility to perform the contractual obligations under a new contract through a novation agreement.
4. Words of Novation: This pertains to the legal clause which explicitly states what responsibilities and duties are discharged by the outgoing party and are transferred to the incoming party. It also states any contract change that can cause a shift in the dynamics between the incoming party and the continuing party.
12+ Novation Agreement Templates
Novation Agreement Template
Sample Novation Agreement Template
Novation Agreement Template
Contract Discharge by Novation Sample
Contractor-Council Novation Agreement
Deed of Novation Example
Deed of Novation for Loans Sample
Basic Novation Agreement Template
Government Novation Agreement
Minister-Contractor Novation Agreement Sample
Novation Agreement for a Project
Novation and Agreement Sample
State Novation Agreement Sample
Steps to Make a Great Novation Agreement
1. Accomplish prerequisites of the agreement: Before writing the novation agreement, set a meeting first with all the parties involved. They can all agree on a business term sheet that outlines the transfer of responsibilities and all the provisions that should be involved. This business sheet will be your guide in drafting up the content of the novation agreement.
2. Set the names in the preamble: This part introduces all the parties involved and what particular role they will be fulfilling in the contract. The full name of their company should be stated along with their designation that can be any of the following: “OUTGOING PARTY,” “INCOMING PARTY,” or “CONTINUING PARTY.” Take note that their designation should also be written in all capital letters as they are mentioned throughout the contract.
3. Write the words of novation: Your words of novation are the main part of the agreement, and it has two parts, which are:
- Release: This is the clause where the outgoing party and the continuing party are discharged, or “released,” from the old contract including all claims and responsibilities. For this part, you have to state clearly about the scope and timing of the act of novation and that the old contract will no longer take effect after the novation agreement becomes valid.
- Warranty: While the release involves the outgoing party and the continuing party, the warranty clause establishes the connection between the incoming party and the continuing party. It should state the continuing party will resume its original responsibilities and duties stated in the old contract but with the incoming party this time.
4. Add in the general provisions: These are the boilerplate provisions of your choice that you can add to fortify or solidify your novation agreement. Two of the most common general provisions that are added are the jurisdiction clause, which specifies the state of law that your novation agreement will fall under, and the confidentiality provision, which limits the disclosure of information regarding the agreement to only within the parties involved.
5. Don’t forget to put the signature blocks at the end of your document. The signature blocks are where the executive heads of all parties get to sign to certify the validity of the novation agreement. Print their names in bold typeface and then place their position and company below.
Tips for a Great Novation Agreement
- Keep your language simple: A legal document does not need to be intimidating and incomprehensible by filling in a lot of “lawyer talk.” It has been deeply encouraged right now that writers of legal papers should use plain language. Make the intent of your contract easily accessible and discernible by keeping your vocabulary simple.
- Consider including an indemnity clause: An indemnity clause is a risk-mitigating provision that requires a party in a contract or agreement to compensate financially when they commit a breach or incurred a significant loss in the business. Including this provision will make the parties involved adhere strictly to the agreement.
Types of Novation Agreements
The type of novation agreement is determined according to the way it is executed. Most commonly, there are three types, which are the following:
- Regular Novation: A regular novation does not involve a third party or an incoming party. Instead, the two parties, supposed to be the outgoing party and the continuing party, will create a new contract and the regular novation will discharge them from the old contract and into the new one, with new terms and agreements.
- Expromissio Novation: This type of novation is most often brought up in contracts regarding loans. Through this type of novation, a certain debtor can make another entity shoulder its loan it incurred from a creditor. The new entity that will be shouldering the loan will then be known as the expromisson while the old debtor will be discharged from any monetary obligation of the loan.
- Novation Through Delegation: This is also another type of novation that involves loan payments. While in the expromission novation the debtor is replaced, in the delegation novation it is the creditor that is replaced by another company. This means that the debtor will be paying its due to a new company that will replace the old creditor.
Novation Agreement Template Sizes
Novation agreements, like other legal agreements, follow the standard sizes of business documents, which are the US legal size (8.5 inches by 14 inches), the US letter size (8.5 inches by 11 inches), and the A4 size (8.27 inches by 11.69 inches). When it comes to length, a novation agreement should only span for about two pages long.
Novation Agreement FAQs
What is the difference between a contract assignment and a novation agreement?
Novation transfers all your rights, benefits, and the burden stated in the contract to another party. It is complete, legally-binding, and requires a new contract to be drafted involving the new parties. On the other hand, an assignment is pretty much the same process that transfers your responsibility to the other party, however, the burden of the original contract will still be held by you as it will still be held in place. It is partial and not binding.
What is a clearinghouse?
When a certain company cannot find another entity to transfer its rights through novation, a clearinghouse comes in to act as a temporary receiver of the assets and responsibilities until a rightful entity comes up. A clearinghouse is a business agency responsible for this kind of scenarios and acts as an intermediary between a company and its potential receiver.
Various reasons exist to push a company to relinquish its rights and responsibilities to another entity. In the corporate industry where power play dictates business partnerships and affiliations, a novation agreement gets drafted more often than not. Take note, though, that a novation contract may enable the transfer of the deed and responsibilities of an original contractor to a new entity, or add more responsibilities to the incoming party, but it will still maintain the spirit of the original contract.