In short
A deed of novation transfers an entire contract — rights and obligations — from one party to another, with the consent of the remaining counterparty, and releases the outgoing party from further liability under it. A deed of accession adds a new party to an existing agreement (such as a shareholders agreement or joint venture deed) without replacing anyone. Both differ meaningfully from an assignment, which transfers rights but leaves the assignor liable for its own unperformed obligations.
Why novation differs from assignment, and why the distinction has real consequences
An assignment transfers the assignor's rights under a contract (such as the right to receive payment) to a third party, but it generally cannot transfer obligations without the counterparty's consent, and even where obligations are purportedly assigned, the assignor typically remains liable to the counterparty for their performance unless expressly released. A novation is structurally different: it extinguishes the original contract and replaces it with a new one on materially the same terms between the incoming party and the counterparty, which requires the counterparty's consent because a new contractual relationship is being created. The practical consequence is that only a novation genuinely releases the outgoing party from future liability under the contract — which is exactly why a novation deed, not an assignment deed, is the correct document whenever the outgoing party wants a clean exit rather than a transfer of upside with lingering downside exposure.
We see this distinction get blurred most often in business sale transactions, where a seller assumes that 'assigning' its supplier and customer contracts to the buyer on completion is enough — it isn't, without the counterparty's consent to a novation, and a seller who hasn't actually novated key contracts can remain contractually liable for the buyer's post-completion performance under them.
Structuring a novation deed
A novation deed is a tripartite document — outgoing party, incoming party, and the continuing counterparty — and needs each party's express agreement, since the counterparty's consent is what makes the novation effective rather than a mere assignment attempt. The deed typically confirms: the effective date of novation, that the incoming party assumes all rights and obligations under the original contract from that date, that the outgoing party is released from obligations arising after that date (but usually remains liable for pre-novation breaches or liabilities, which need to be dealt with expressly), and any warranties the outgoing party gives the incoming party about the state of the contract being novated (no existing breach, no undisclosed variations).
When accession is the right document instead
A deed of accession is used where an existing multi-party agreement — most commonly a shareholders agreement, joint venture agreement, or unitholders agreement — needs a new party added without disturbing the rest of the agreement or releasing anyone already party to it. The accession deed has the new party agree to be bound by the existing agreement's terms as if they were an original signatory, and is typically required as a condition of any new shareholder or unitholder being admitted under a properly drafted governance agreement. We draft accession deeds to be short and mechanical by design — the substantive terms live in the agreement being acceded to, and the deed's only job is to bind the new party to them cleanly.
Consent and completion mechanics
Because novation requires the counterparty's genuine consent, we build the consent-seeking process into the transaction timetable early rather than treating it as a late completion formality — some counterparties (particularly landlords, financiers, and government contract counterparties) have their own approval processes and may require financial or other information about the incoming party before agreeing, which can take weeks rather than days. Where a counterparty refuses to consent to novation, the parties need a fallback position agreed in advance — commonly a sub-contracting or agency arrangement between outgoing and incoming parties that achieves a similar economic outcome without a formal novation, though this doesn't achieve the outgoing party's release from liability that a novation provides.
Novation in a business sale context
In an asset sale, key customer, supplier and lease contracts generally need individual novation (or assignment with consent, depending on the contract's own terms) because an asset sale doesn't automatically transfer contracts the way a share sale does — the selling entity remains the contracting party unless each contract is separately dealt with. We identify which contracts require novation during due diligence, build the consent process into the completion timetable, and where a contract can't be novated by completion, document an interim arrangement (such as a transitional services or sub-contracting deed) so the business can keep operating while consent is finalised.
What the fixed fee covers
- Drafting of the novation or accession deed appropriate to your transaction
- Identification of which contracts require novation versus assignment during a business sale
- Consent process management with the continuing counterparty
- Release and liability allocation for pre-novation breaches or obligations
- Interim arrangement documentation where a counterparty's consent is delayed
Mistakes we see
- Using an assignment deed when a genuine release from liability was actually intended
- Assuming contracts transfer automatically in an asset sale without individual novation
- Starting the counterparty consent process late in the transaction timetable
- No express treatment of pre-novation liabilities, leaving them ambiguous between outgoing and incoming parties
- Treating an accession deed as unnecessary when a new party joins a shareholders or unitholders agreement
Who this is for
- Sellers in an asset sale who need customer, supplier or lease contracts moved to the buyer
- Businesses restructuring so that contracts sit in a new operating entity
- Incoming shareholders or unitholders joining an existing agreement
- Parties exiting a contract who need a genuine release rather than a partial assignment
Frequently asked questions
- What's the actual difference between novation and assignment?
- Assignment transfers rights (like the right to be paid) but generally leaves the assignor still liable for its own unperformed obligations under the contract. Novation extinguishes the original contract and creates a new one between the incoming party and the counterparty, genuinely releasing the outgoing party going forward. If a clean exit is the goal, novation — not assignment — is the correct document.
- Does novation require the other party's consent?
- Yes, always. Because novation creates a new contractual relationship with the continuing counterparty, their express consent is essential — this is different from some assignments of pure payment rights, which in limited circumstances don't require consent.
- What happens if a counterparty refuses to consent to novation?
- The parties generally need a fallback arrangement, such as a sub-contracting or agency deed between the outgoing and incoming parties, which can replicate the economic outcome but won't release the outgoing party from liability under the original contract the way a novation would.
- Do all contracts transfer automatically when we sell business assets?
- No. In an asset sale, contracts generally need to be individually novated or assigned with consent — they don't transfer automatically the way they effectively do in a share sale, where the contracting entity itself changes ownership rather than the contract changing parties.
- What is a deed of accession used for?
- It's used to add a new party to an existing multi-party agreement — commonly a shareholders or unitholders agreement — binding them to the existing terms without needing to redraft or re-execute the whole agreement, and without releasing any existing party.
- Is the outgoing party still liable for things that happened before novation?
- Generally yes, unless the novation deed expressly deals with pre-novation liabilities and breaches. We address this explicitly in the drafting rather than leaving it to be inferred, since it's a common source of dispute after a novation completes.
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