Quick Definition

Novation is a financial process where an existing contract is replaced with a new contract, transferring the rights and obligations to a new party.

Examples

• 1A business sells its ongoing contracts to another company, and through novation, the new company assumes all responsibilities and benefits.
• 2An individual refinancing their mortgage with a different lender, where the original loan agreement is replaced by a new one with the new lender.
• 3A company undergoing restructuring might novate its existing supplier contracts to a new corporate entity created during the restructuring.

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