Novation and assignment agreements

These agreements change the parties to a contract, transferring the benefits and obligations to another business or individual.

Our agreements have been drawn for common situations such as transfer of customer contracts on business sale, or the transfer of a life insurance policy.

If you aren't sure whether to novate or assign, this article explains the difference.


Assignment agreement

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This agreement can be used to transfer a wide range of contracts. Commonly, it is used to assign a large number of customer contracts from the seller of a business to the buyer, either where novation is impractical, or where the original contracts allow assignment.

For example, a website hosting service provider sells its UK contracts, or a white goods retailer sells its maintenance contracts.

We also include a template letter to customers informing them of the assignment, so that you can ensure a successful future relationship with your new clients or customers.

The agreement can be used if one party is resident outside the UK.

Deed of assignment: life or endowment policy on divorce

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This deed of assignment transfers the rights to an insurance policy or endowment policy to your former spouse or partner.

Use by agreement or by order of the Court, to transfer your entire interest, whether all or a half share.

The transfer will be complete and valid only when the insurer has been formally notified. As well as the deed document, we have included a template notice for that purpose.

Taxation of life assurance policies is complex and we recommend that you consult with a tax accountant. The effect of tax is an important consideration in assessing the value to the assignee of the policy.

Deed of assignment: life or endowment policy by trustees

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This deed of assignment transfers an endowment or other life assurance policy from trustees to beneficiary.

It includes a template notice to the insurer that the policy has been transferred.

Deed of assignment: life insurance policy or endowment policy

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This deed transfers the rights to receive an insurance policy (including an endowment policy) to some other person or company, for money or value.

It is a clear, simple document, easy to complete even if you have not carried out such a transaction before.

It includes reasonable warranties by the seller and undertakings by the buyer.

The transfer becomes complete and valid only when the insurer has been formally notified. As well as the deed document, we have included a template notice that the assignment has taken place. This may or may not be useful to you: your insurer may prefer you to use their own form, but sometimes other parties, like your bank, also need to know or appreciate being told.

Alternative documents

We offer a simpler version of this document if you are a trustee assigning the policy to a beneficiary. See Deed of assignment: life or endowment policy by trustees.

For a divorce or separation situation use Assignment of life or endowment policy on divorce.

Service contract novation agreement

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Transfer a service contract between customers using this easy to use and effective novation contract. Although this  agreement can be used to transfer any service contract, we have used the example of a transfer of website hosting services between hosting providers. Changes for other types of service agreement are very simple to make. The most common use for this agreement would be to change the parties to service contracts on the purchase of a business.

Novation agreement: transfer debt to new debtor

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Use this agreement to transfer the right to receive a debt repayment from creditor to his transferee.

Example uses: when a business is sold and the purchaser takes on the liabilities of the seller, or when restructuring debt (a third party buys the obligation to repay a loan and interest).

Debt novation agreement: transfer debt to new creditor

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In this agreement, a creditor transfers the right to repayment his transferee.

Common uses would be the one-off transfer of a debt, or when factoring debt (buying the debts or loans owed to the seller) or when buying a business that has extended credit to customers.

This is an easy to use, effective debt novation agreement.

Building contract novation agreement

We have used the construction industry as an example for how this agreement might be used, it is suitable for any service contract where the client wants to arrange for some other person to take his place in a part worked project.

For example, it could be used:

  • when the owner of a development is forced to sell before completing the project and the buyer wishes the existing contractor to continue the development.
  • when an unincorporated business is sold along with an unfinished land or building.
  • by a seller of land for development who wants his land to be as attractive for a buyer as possible by setting up contracts with architect and others in advance of the transfer.

CallTalk to us about transferring a contract

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Choosing whether to novate or assign

The basic law is that ‘A’ cannot transfer his obligations to ‘C’ that he has under a contract with ‘B’, without ‘B’ agreeing.

Novation is the legal mechanism where the rights and obligations are transferred with the permission of all parties (both new and old).

When it is possible to obtain the contractual consent of all three parties, use a standard, three-sided novation agreement.

If many contracts are being transferred at the same time, such as when one business buys another including customer contracts, it may be simply not practical to ask each other party (in our example, each customer) to sign a novation agreement.

So, the parties that are transferring the contracts sign an assignment agreement and hope that the other original parties not object.

So that the original parties cannot cancel the contract if they do object, most businesses that have large numbers of contracts make sure that the terms of each contract allow them to assign the contract without permission. In that case, there is no breach of contract and the other original party cannot cancel.

If a client or customer becomes aware that his supplier has changed, and he continues to accept services from the new supplier, he will be deemed to have accepted the new contract. There is no specific time period or circumstance when you can be sure this has happened.

Why novation should not be by deed?

You may hear or read of a “deed of novation”. Many documents that can be simply signed are also referred to as deeds. This is due in part to the continued mystification of the law in some quarters.

A novation never needs to be by deed. The deed format is used where one party to a contract receives no consideration. However, a novation is invariably "for value", and as such, a deed of novation confers little additional advantage.

In the unlikely event that a party agrees to novation out of pure kindness, the consideration can be entered as “one dollar”, or a "peppercorn". The sum does not need to have any relation to the value of the debt being novated.

Novating a debt

A common misconception is that novating a debt cancels an old debt and creates a new one to the new owner. Instead, novation just changes the parties to the original contract. However, in most cases, novation is an easier option than cancelling an old agreement and drawing a new one.

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