Novation is a legal process that occurs when an existing contract is replaced by a new one, transferring all rights, obligations, and liabilities from the original parties to new parties. In real estate transactions, novation can occur when a mortgage, lease, or other contractual agreement is replaced or modified to accommodate changes in parties or terms. Novation requires the mutual consent of all parties involved and effectively extinguishes the original contract while creating a new, binding agreement.
Related terms
- Assignment
- Contract modification
- Lease transfer
- Mortgage assumption
- Sublease
- Contract termination
- Due diligence
- Estoppel certificate
References
- Investopedia: “Novation Definition”
- Nolo: “What Is the Difference Between Assignment and Novation?”
- The Balance Small Business: “Understanding Lease Novation and Assignments in Commercial Real Estate”
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