What’s the Difference Between Assignment and Novation?

Introduction

There are similarities between an assignment and novation as they perform resembling actions in contract. However, there is a difference and we will identify that for you in this article.

Want more?

Sign up for our newsletter and be the first to find hand-picked articles on topics that we believe are crucial to successfully scale your unique small business.

By clicking on 'Sign up to our newsletter' you are agreeing to the Lawpath Terms & Conditions

What is an assignment?

An assignment in contract is transferring an interest or benefit from one party to another. Likewise, there is no transfer of the burden (obligations) under the contract. Read more about What is an Assignment?

An example is where a holding company needs to perform a particular obligation and ask for the payment to a subsidiary company. The diagram below shows how this works.

What is a novation?

If you are looking to transfer the obligations of a contract as well as the benefits under it, you are talking about novation. It is similar to assignment because it transfers the benefits under a contract but also transfers the burden of a contract. Read more about What is Novation?

An example may be when two parties have a contract however one of the parties is involved in a takeover or sale of business. Therefore to prevent the contract lapsing there is a novation to substitute the new party in place of the departing party. The diagram below shows how this works.

Basic Differences

AssignmentNovation
Only intangible rights are being transferredBoth rights & obligations are being transferred
Original contract remains unchangedOriginal contract is terminated
Not necessary to form new contractNew contract or deed must be made
No need to obtain consent from the other parties to the original contractConsent must be obtained from all parties to the original contract

Conclusion

As you have discovered that both an assignment or novation are similar in their executions but have different outcomes. Therefore, it is important to understand those differences. Moreover, assignment is a partial transfer (in respect to the rights of a contract) to a third party. A novation is a complete transfer of that contract (rights & burden) to another party. In both instances of transferring rights or obligations to a third party, consult a contract lawyer.

Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Find the perfect lawyer to help your business today!

Get a fixed-fee quote from Australia's largest lawyer marketplace.

Register for our free live webinar today!

Understanding ASIC Compliance: Essential Knowledge for Australian Startups

12:00pm AEDT
Wednesday 28th February 2024

By clicking on 'Register for webinar' you are agreeing to the Lawpath Terms & Conditions

You may also like

An ombudsman can help you if you have a complaint about a business or government agency. Read on to learn about the processes involved in having your issue heard.
An addendum to a contract is a great way of altering the effects of an existing contract without destroying the original agreement.
A summary judgment is a judgment issued against one party without a trial taking place. Find out here when a summary judgment may be issued.

Thank you!

Your registration is confirmed. Keep an eye on your inbox for an email with details on how to watch the webinar.