The terms Deed of Assignment and Deed of Novation are often used interchangeably during legal negotiations and discussions, however, there are important differences between these deeds.
A ‘Deed of Assignment’ simply means an assignment of rights. In practice, an assignment of rights normally occurs when a third party that was not a party to the original agreement takes the benefit of another party’s contractual rights. An example of this might be where a financier or lender of money assigns or transfers their rights to recovery of a debt to a third party. Under a Deed of Assignment, the third party would not be bound by any terms of the original loan agreement between the lender and the defaulting party under the loan while taking the benefit of being able to recover the debt. Depending on the terms of the original agreement, rights may be assigned to a third party without obtaining consent from the other original party member.
On the other hand, a “Deed of Novation’ is an agreement in which a third party not only acquires the rights under a contract but also the obligations under the contract. This is effectively substituting an existing party to the contract with a new party without changing the rights under the original contract. A Deed of Novation will usually take the form of a ‘Tripartite Agreement’ meaning that both the original parties to the contract and the new third party all execute the Deed. A typical example of where a Deed of Novation would be appropriate is a tenant under a lease finding a new tenant to take over their existing lease.
Determining whether a Deed of Assignment or Deed of Novation is most appropriate in the circumstances requires consideration of the matter as a whole and the terms of the original agreement. These considerations can be complex, particularly where leases are involved as there are additional legal issues to consider when dealing with land rights.
Prepared by Byron Hunter
This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.