What is meant by "novation of contract"?

Novation of a contract refers specifically to the process of replacing an old contract with a new one, thereby extinguishing the original agreement and substituting it with a new set of terms or obligations. This legal mechanism is often used when the parties to a contract wish to switch out one party for another or change the essential terms of the contract while retaining the core elements of the agreement.

This distinction is important in contract law, as novation involves a complete transfer of obligations to a new party or a new contract. It requires the consent of all involved parties, ensuring that everyone agrees to the changes being made and that the original contract is terminated. This is different from simply adding a party to an existing contract, adjusting payment terms, or extending the contract duration, all of which would not serve to replace the original agreement entirely. By understanding the concept of novation, real estate professionals can better navigate contractual relationships and their implications in various transactions.