Consensual replacement of a contract's party or obligation with a new one.
Transfers the contractual obligations of one party to a third party in a contract.
All parties involved in this type of contract must consent to the changes.
When a third party enters the agreement, it takes the place of the departing party.
Three parties are involved
Lease - When one tenant signs a lease over to another person, this new tenant is responsible for paying lease charges and is liable for property damage. But with the consent of the Lessor.
Construction industry - A contractor transfers a job to another contractor. But with the consent of the client.
Difference between Novation and Assignment
Protect the sellers from future liabilities.
Requires consent of a third party.
Conflict of interest.
Examples in Indian Railways
EBR -IF funded works through IRFC
Standard novation agreement issued by the Railways with the consent of Ministry of Law and Justice.
Tender documents are suitably modified to incorporate the provisions of standard Novation agreement.