Search

How can we help?

Icon

Novation and Assignment: Sisters, Not Twins

There’s often, understandably, a bit of uncertainty about whether (and how) a party to a contract can “assign” (transfer) its rights, or pass on its obligations, under that contract, to another person.

In law, the general rule is that only the original parties to the contract can discharge or fulfil the obligations and enforce the rights created under it and nobody else gets a look in. This is called “privity of contract”.

Essentially, novation and assignment are both mechanisms to get around this restriction. However, while the end result is the same, there are some important differences between these two mechanisms.

Assignment

Under an assignment, one party (the assignor) keeps performing their obligations under the contract, but transfers some or all rights to a third party (the assignee). The parties to the contract remain the same so privity of contract is preserved.

Assignments can be legal or equitable. In order for an assignment to be a legal assignment, the assignment must be agreed in writing, signed by the assignor, and the other party to the contract must be given notice of the assignment. A legal assignment is usually preferable as this allows the assignee to enforce the rights in their own name directly.

If the assignment is an equitable assignment because it does not fit the criteria for a legal assignment (for example, the other party was not given notice of it), the assignee will need to get the assignor to enforce the assigned rights on its behalf.

Contracts often require the consent of the other party before any assignment can take place. Some contracts expressly prohibit assignment. However, even where there is such wording in the contract, there is nothing stopping you from asking the party to consent to the assignment anyway, though you should take care to record any agreement in writing.

The main point to remember is that you cannot assign obligations under a contract to another party – you can only assign your benefits or rights. Even if the assignee agrees that they will take on the obligations under the contract, it is still the assignor who remains responsible for performance of the obligations and liable if they are not. In practice, what often happens is that the assignee does take over the performance of the contractual obligations but simply agrees to indemnify the assignor for any failures in performance.

It is also important to note that some rights may not be legally capable of assignment.

In law, the general rule is that only the original parties to the contract can discharge or fulfil the obligations and enforce the rights created under it and nobody else gets a look in. This is called “privity of contract”.

Novation

When you novate a contract, the original contract effectively ceases to exist and is replaced with a new contract. The new contract contains exactly the same rights and obligations as the original contract, except that it substitutes one of the original parties (the outgoing party) with a third party (the incoming party).

As you are creating a new contract, technically you need to provide fresh consideration. Usually a simple novation agreement between all the parties will be enough, but, if there is any doubt, the parties may choose to execute the novation as a deed instead, which dispenses with the need for consideration.

The novation agreement (or deed) will specify what happens to the liabilities under the original contract. In a typical novation, the outgoing party would be released from all liabilities and the incoming party would inherit these. However, this is up to the parties to decide; they could even decide that the outgoing party will remain liable for all of the liabilities under the original contract.

Novating the contract will release the outgoing party from any future obligations which may arise. This is a crucial difference between novation and assignment.

Although the novation agreement itself can be simple, the process of getting all the parties to the table to agree and execute might be more complex. The main issue for an outgoing party will be persuading the other original party to sign. The other original party often has concerns about service continuity and may want certain assurances or information about the incoming third party.

Equally, the other original party is not obliged to agree: they can refuse to novate and then sue for breach if the party trying to exit the contract fails to meet its contractual obligations. As they still have this other option, in any novation scenario, the outgoing party is probably in a weaker bargaining position, and the other original party may well use this to their advantage.

Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

Author profile

About this article

Read, listen and watch our latest insights

art
  • 15 September 2025
  • Immigration

Sharp rise in Sponsor Licence Revocations – What employers need to know

The Home Office has reported a record number of sponsor licence revocations over the past year, as part of its intensified efforts to crack down on abuse of the UK’s immigration system.

art
  • 10 September 2025
  • Commercial Real Estate

Trouble at the Table: The Challenges Facing the UK Hospitality Sector in the run up to Christmas 2025

The UK hospitality sector, long celebrated for its vibrancy and resilience, is facing a perfect storm of economic, operational, and structural challenges in 2025.

art
  • 09 September 2025
  • Commercial Real Estate

Le bail commercial anglais: quelques points essentiels à considérer

Typiquement, les baux commerciaux en Angleterre sont de court terme, d’une durée de 5 ou 10 ans, avec un loyer de marché et des ajustements du loyer périodiques en fonction de l’inflation ou d’autres facteurs. 

art
  • 09 September 2025
  • Corporate and M&A

The Failure to Prevent Fraud Offence – be prepared to avoid criminal liability

The failure to prevent fraud offence is a new corporate offence which has come into force on 1 September 2025.

art
  • 08 September 2025
  • Employment

Can employers still make changes to contracts after the Employment Rights Bill?

The short answer is yes but it will be much more difficult for employers following the introduction of the Employment Rights Bill because their ability to fairly dismiss employees who do not agree contractual changes is being restricted. 

art
  • 05 September 2025
  • Privacy and Data Protection

When Ignoring a DSAR Becomes a Criminal Offence

On 3 September 2025, Mr Jason Blake appeared at Beverley Magistrates Court and was fined for failing to respond to a data subject access request (DSAR).