Assignment and Novation Difference
Published on 13th August, 2016 by Benjamin Li Yong Le
Many people even lawyers are confused by the difference between assignment and novation. This article will discuss and clarify any doubts between the two legal concepts.
Everyday I see people "assigning" contracts and other rights without knowing what assignment entails. Today I will discuss what an assignment actually is and whether novation should be a more appropriate option.
An assignment involves the transfer of an interest or benefit from one person (“Assignor”) to another (“Assignee”). However, the “burden”, or obligations, under a contract cannot be transferred.
Thus, an assignment usually applies to assignments of tenancies or debts whereby the Assignor still retains responsibility of the contractual obligations, and only gives away the benefits.
The Assignor still owes obligations to the other contracting party, and will remain liable to perform any part of the contract that still has to be fulfilled since the burden cannot be assigned.
In practice, what usually happens is that the assignee takes over the performance of the contract with effect from assignment and the assignor will generally ask to be indemnified (contractual obligation whereby one party agrees to pay any losses or damage suffered by the other party) against any breach or failure to perform by the assignee. The assignor will remain liable for any past liabilities incurred before the assignment.
Usually when people say they want to "assign" something, they are actually referring to the concept of novation.
Novation is a legal mechanism whereby one party can transfer ALL its obligations under a contract and ALL its benefits arising from that contract to a third party. The third party effectively replaces the original party as a party to the contract. A novation requires the agreement of all THREE parties involved - the assignor, the assignee and the third party to whom the rights are being transferred.