What does novation involve in contractual terms?

Novation refers to the process of replacing an existing contract with a new agreement that can involve substituting one party for another or replacing one contract with a completely new one. This means that all rights and obligations under the original contract are extinguished and replaced by those under the new contract, effectively creating a fresh legal relationship. In the context of real estate and contracts, this is particularly important because it allows parties to transfer their rights and obligations, which can happen in various situations, such as when one party sells their interest in a property, and a new party takes over the contract.

Adding a new party to a contract, terminating an existing contract, or merely modifying the terms of a contract do not align with the concept of novation. Those processes involve either keeping the original contract in place with some alterations or ending the agreement entirely without the replacement aspect that defines novation. Therefore, the essence of novation lies in the substitution and replacement of one party or contract with another, making it distinct from other contract-related actions.