Novation Agreement: An alternative to the procedure of Assignment


The use of agreements in UAE is one of the most prevalent things being a Civil Law country. Everything needs to be required in a proper written manner as the literal rule of interpretation is being opted by the Judicial System. Therefore, the role of agreements cannot be set aside. Generally, many instances occur wherein the contracting parties require the replacement of one party but want equal and binding obligation with the new party or want to add more responsibilities into the existing Agreement in this case role of the Novation Agreement comes into effect. Thus, the use of a Novation Agreement is not only used between individuals, but it can be used in various manners and situations pertaining to the collection of Debt, Mergers, and Acquisitions, Sales of shares, or business and Financial Markets. In this article, we will try to provide relevant information to the readers about the Novation Agreement and its meaning, role, and techniques of drafting.

What is the meaning of the Novation Agreement?

Novation means the substitution or replacement of a person or party existing in the contract with a new person or party and or to change the terms and conditions of an existing contract. This process can only be done when there is the consent of all the parties involved. Resultantly, to successfully formulate Novation Agreement, it is required to have the consent of all the parties to the contract or Agreement in which Novation is required.

What is the role of the Novation Agreement?

Suppose an agreement is executed between the parties, and then at a later stage party to such contracts want to add any other third party in the place of existing party, then in such case role of the Novation Agreement is required. The following things can be successfully formulated if Novation Agreement has been executed between the Contracting Parties. The said activities which define the role of the Novation Agreement are mentioned below:

  1. Used for replacing an existing obligation with new or any other Obligation(s).
  2. Used for adding a new Obligation to be performed by the contracting parties.
  3. Used for replacing an existing party to a contract with the new party.

These contracts are mainly used when a third party wants to enter into an existing agreement subject to the replacement of departing party. Generally, termination of a current contract and entering the contract from the beginning is an expensive procedure so to save the expense, usually parties to the existing contract prefers Novation Agreement as a solution between them.

In which transactions use of Novation Agreement is prevalent? 

The use of a Novation Agreement is prevalent in almost each transaction being executed in the world of Commercial Business. The nature of transactions mentioned below will inform you about the use of the Novation Agreement:

  • Real Estate

In real estate transactions, Novation Agreements are used to allow the procedure of due diligence and inspection of the property.

  • Constructions

If many sub-contractors are required to perform the tasks as required in the Construction, then by the use of this Agreement same obligations can be imposed upon the sub-contractors.

  • Government Tenders/Contracts

In government contracts, this Agreement will assign the same obligations to the different contractors required to perform the specific task.

  • Banking Transactions

In Banking Transactions, using these agreements may save the expense of executing new contracts in cases wherein a transfer of loan or other debts is required to be transferred, or the condition of such an Agreement needs to be renewed or changed.

  • Financial Market Transactions

In financial market transactions wherein credit default swaps, or bilateral transactions are completed through a proper Chanell in this issue, novation agreements are used between tripartite to effectively initiate the transaction.

  • Debt Collection

In debt collections wherein two parties owe an amount to one creditor, but the said debt is owned by different parties, and the same is to be returned to one creditor, then this Agreement can be formulated between all the parties in order to assign the obligations to repay the debt to one creditor.

How can we assist you?

Nour Attorneys Law Firm tends to provide you with one the best Legal Documents Drafting Services and Legal Contract Review Services with the aid of our highly experienced and qualified Commercial Contract Lawyers, which possess the best skills in drafting contracts and agreements so that the interest of our clients must be secured from any future disputes.

Our law firm possesses specialization in drafting contracts and agreements in such a manner that our clients\’ interest is protected for a more extended period and will be protected from any loophole or lacunas. Our team of Commercial Contract Lawyers will help you provide the best Legal Document Drafting Services and Legal Contract Review in one of the most professional and diligent manners.

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