A lot of people have a misconception about the assignment and novation that maybe both the things are same. However, this is not that way! Assignment and novation can be used to effect changes in the business and both of them are used to achieve different goals of the business.
One thing that assignment and novation shares in common is, they both are the ways for someone to transfer his interest in a contract to somebody else.
Are you also somebody who use to think that assignment and novation are the same things?
Well, if that’s the case then your views are surely going to change from now because in this guide, we are going to highlight some major differences between the assignment and novation. So are you ready to dive in the study?
WHAT IS MEANT BY ASSIGNMENT? – A BRIEF INTRODUCTION:
The term assignment is basically a legal term that is used in the context of the law with respect to contact and of property. Meanwhile the process of assignment takes place, the assignor has to transfer the rights or benefits to another generally an assignee.
Under an assignment, you keep performing your obligations under the main contract. However, some rights are given to a third party.
Assignment refers to the transfer of rights from one party to another. The contract of assignment usually occurs when a part assigns their contractual rights to the third party. From here, the assignor has to carry the burden of the assigned and he can be held liable by the assignee if he failed to fulfill his responsibilities under the contract.
WHAT IS MEANT BY NOVATION? – A BRIEF INTRODUCTION:
The term novation in aspects of contract law and business law is the act of replacing an obligation to perform with another obligation; or adding an obligation to perform, or replacing a party to an agreement with a new party.
If you are going to compare assignment and novation then novation would be understandable in terms of achieving the transfer of both rights and obligations to a third party.
Novation is usually observed in big corporate takeovers or in the sale of the business. The deeds of novation are used to transfer the contracts from seller to the buyer and allow the buyer to carry on seller’s business. Basically, novation happens when a party decides to transfer the benefits and responsibilities within the contract to another party.
HIGHLIGHTING THE DIFFERENCE BETWEEN ASSIGNMENT AND NOVATION:
In the light of the legal documents, in order to be binding, the parties must consent to them in one way or another. This depends upon your need that whether you want an assignment or novation, you would also have to ask for the permission from different parties.
Keeping the light towards the novation, the parties must agree for the consent. If you are planning for novation of your rights under the contract to a third party, you will have to get the consent of the other party to the contact and to the thirds party who will be obtaining your rights.
However, according to AssignmentMaker UAE, looking at an assignment only some parties would have to give the consent. However, here you would have to stay sure about the consent requirements, and would have to go through the contract or deed of novation with keen understanding of the requirements and permissions.
Assignment and novation share a mutual fact and that is the transfer of the benefits under the contract. However, this solely depends upon the parties that how would they like to take the benefit from the project or task.
The major difference between the deed of novation and assignment is the dependency- The deed of novation would always require the consent of all the parties. This includes the consent of both original parties to the contract along with the new incoming third party. However, in the process of assignment, the consent of the parties is depending upon the choice of assignor.
Another particular difference highlights the transfer of obligations under the contract. In the deed of novation, the transfer of obligations under the contract do take place however, in the assignment the transfer of obligations do not take place.
Third major difference indicates the replacing of the party to a contract- The novation asks for the party to get replaced while in assignment, the replacing of a party is not needed!
Below are some of the issues that must be considered in the process of assignment and novation both;
- Whether the new party would be having the ability to perform the obligations?
- Who will be liable for the past works under the contract?
- How the work would be affecting the subcontractors?
- With the switching of the process, are there any existing financial agreements or securities that would be needed to update?
ASSIGNMENT VS NOVATION:
Here comes the most confusing thing that holds back a lot of the business decisions. But let me tell you a secret- Assignment is always better than the Novation and here is the reason;
Novation has the potential to limit the future liabilities to an assignor, but on the other hand it is also usually more burdensome for the parties that are still involved. Moreover, novation or deed of novation is not always achievable if the third party would refuse to give consent.
This is essential for the two parties in an agreement to appraise their relationship before transitioning to novation. An assignment is preferential for the parties that are planning to continue performing their obligations, but also shift some of their rights to another party.
Prime thing that must be remember is, assignment will provide the rights to the third party while the novation would terminate the agreement and novated agreement would have be created. This new document will receive rights and obligations for third party.
FINAL TAKEAWAY:
Assignment and novation, both of the mechanisms differ from each other in several ways. No matter if you choose assignment or deed of novation, get your agreement written up, signed, and then get it stored at a secure place. This would help you and your business to avoid damaging conflict in the end.
