Novation
Novation is the substitution of one contracting party for another with the consent of all parties. Used in construction to transfer consultant contracts to the builder.
Ask Chalkline about this →Novation in contract law is the substitution of one contracting party for another with the consent of all parties to the contract. Unlike an assignment (where a party transfers their benefits under the contract to another, without necessarily transferring the burdens, and without needing the other party’s consent), a novation requires the consent of every party and transfers both rights and obligations to the new party. The original party drops out completely.
Two distinguishing features:
- All parties must consent, in writing, typically by a novation deed. The non-substituting party (the one staying in the contract) has a veto on who their new counterparty is.
- The original contract continues with the new party in place; it is not torn up and replaced. The contractual terms, dates, prices, and conditions carry over.
In construction: the most common use of novation is the consultant novation in a Design and Construct (D&C) contract. The client engages an architect for early design, then novates the architect’s consulting contract from the client to the builder at the moment the D&C contract is signed. From that point, the architect works for the builder, not the client. The mechanism transfers design liability through to the builder and is the structural backbone of D&C delivery. See the full procurement treatment at novation of design consultants to the builder.
Beyond D&C, novation appears in residential construction when:
- A builder enters into a contract and then sells the business, novating the in-progress contracts to the new owner.
- A subcontractor’s contract is novated from a head contractor to a different head contractor mid-project.
- A consultant joining the project mid-way takes over from a departing consultant under a novation deed.
Novation vs assignment vs subcontracting:
| Mechanism | What transfers | Consent required from | Original party stays in contract? |
|---|---|---|---|
| Novation | Rights AND obligations | All parties | No |
| Assignment | Benefits only (rights) | Counterparty (usually) | Yes (obligations remain with the assignor) |
| Subcontracting | Performance of specific scope | Counterparty (depending on contract terms) | Yes (the head contractor remains liable) |
Risk to watch: a novation deed often comes with fitness-for-purpose flow-down clauses. The novated party (the consultant) is asked to warrant the work to the same fitness standard the head contract requires the builder to deliver. Consultants resist this. The negotiation typically settles at “reasonable skill and care” with the builder absorbing the gap to the head contract’s fitness obligation.
Also known as: assumption of obligations; novated transfer.
Category: Contracts & commercial.
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Last updated: 2026-05-16. Verified: 2026-05-16. Quarterly review for currency.