Assignment vs novation, two fancy words for the same thing? Nope. Stick around, and I’ll tell you why.
Hi, everyone, Simon here from The Contract Company. Contracts, it’s what we do all day every day and sometimes overnight.
So, the right of assignment is the right to assign rights. That doesn’t really help, does it?
And novation is the ability to transfer rights and obligations that you have under a contract.
Great, Simon, what does that mean? Okay, simple example.
Let’s say you run a lawn mowing business. The rights you have as the mower of the lawn is to receive payment. So you provide your services, i.e. you mow the lawn. The other party has to pay you.
Now, the right for you to receive payment is something you can assign to a third party. This means you could say to the person who’s paying you, “Don’t pay me, which you’re meant to do under the contract, “but pay that person over there.”
So you can usually do that, as in assign that right, without seeking the consent of the other party. Unless, of course, you vary that in a contract.
Most contracts will say you can’t assign the rights without the other party’s consent. But absent that sort of clause in a contract, you could transfer your right, in this case, to receive payment, to someone else.
Novation
Novation is basically the transfer of rights and obligations that would accrue under a contract.
So back to our mowing example. You mow a lawn for a living. You have obligations under the contract to mow the lawn, and you have rights under the contract to receive payment for doing so.
If you wanted to novate your rights and obligations, what that really means is you’re saying to the other party. “I wanna step out of the contract and substitute “a new person in. That new person will take over “all the obligations I have under my contract. I.e. the obligation to mow the lawn for you “and any rights I have under that contract. I.e. the right to receive payment for my services.”
So that’s the main difference.
A Recap: Assignment vs Novation
Assignment is you can transfer rights, the ability to be paid. Novation, you can transfer obligations and rights. I must admit, from what I’ve seen, they are often confused in contracts.
While I’ve tried to make that as simple as possible, I did read, or at least skim through, a 330-page PhD assignment on assignment and novation. So it’s fairly more complicated than I’ve made out, but I hope that helps.
Anyway, any questions, 1-800-355-455. simon@contractcompany.com.au.Hope that helps.
