Novation agreement

About this novation agreement

Use this novation agreement to transfer a debt obligation from one party to another (i.e. change who will repay the debt). Common uses are when a business is sold and the purchaser takes on the liabilities of the seller, or when restructuring debt (a third party buys the obligation to repay a loan and interest).

A common misconception is that a novation of a debt is a cancellation of old debt in exchange for issuance of new. Instead, novation just changes the parties to the original contract and doesn’t create a new contract. In most cases, novation is an easier option than cancelling and drawing new agreements.

This is a simple yet comprehensive agreement that can be used to novate any debt, usually with only minimal editing.

The consent of all three parties - the transferee, the transferor and the other contracting party - is required to implement any novation. Unless you specifically require the consent of the other contracting party (e.g. because your contract has a non-assignment clause), our deed of assignment may be an even simpler way of transferring your contract to someone else.

Why a deed of novation rather than a contract

Our novation agreement has been drawn as a deed rather than a contract. At law, a contract requires consideration (something in return for the novation). A deed does not require consideration, so it is a more flexible way of achieving the same end.

When to use this novation agreement

This document can be used to transfer any loan or debt to an individual or company provided that the creditor agrees to the transfer.

You should use this novation agreement (rather than a deed of assignment) if all parties to the contract will agree to the change and sign the deed. It’s usually easier just to get the transferring parties to sign a deed of assignment, but some contracts have non-assignment clauses that mean that novation is the only valid way of transferring the contract to someone else. If in doubt, use this agreement and obtain consent from all involved.

Changing who will receive the debt repayments

If you want to transfer the debt to another creditor (i.e. change who will receive the repayments), then Novation agreement: transfer debt to new creditor agreement will be more suitable.

Agreement features and contents

• Suitable when either party is resident outside Canada
• Ensures a legal transfer as it is drawn as an agreement between all parties
• Comprehensive provisions provide ideas for you to mould
• Suitable for all provinces of Canada

The deed of novation contains the following sections:

• Details of the parties
• Indemnity to protect both parties from loss, damage or legal liability once the contract is transferred
• The novation
• Existing claims: sets out how outstanding claims against the transferor will be dealt with
• Costs: identifies who will bear costs incurred to date
• Other usual legal provisions in plain English