TL;DR: Novation replaces an existing contract with a new one, transferring obligations to another party.
Understanding Novation
Novation occurs when all parties involved agree to substitute a contract, replacing an old obligation with a new one.
Key Characteristics:
- Transfers Obligations Shifts contractual responsibilities to a new party.
- Requires Mutual Consent All involved parties must agree.
- Common in Business Transactions Often used in mergers, acquisitions, or loan transfers.
Example:
- Changing Service Providers If a business switches leasing companies, a novation agreement may transfer contract obligations.
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