Embed Size (px)
Citation preview
Home
Head Office - Telephone: +44 (0)1992 576440 Facsimile: +44 (0)1992 576445
Novation and Assignment – What's the Difference?
Alway Associates provide commercially sensible problem avoidance and dispute resolution support
to help our clients to run their construction contracts more effectively
Novation and Assignment – What's the Difference?
Novation is a 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 thecontract. When a contract is novated the other contracting party must be left in the same position as he was in
prior to the novation being made. A novation requires the agreement of all three parties involved.
An assignment is a transfer, recognised by law, of a right or obligation of one person to another. Assignment
differs from novation in so much that the parties to the contract do not change. Most rights and obligations are
capable of assignment.
An assignment of a right arising under a contract is an exception of the rule of privity in that rights are conferred
upon persons who are not a party to the contract. It must be noted that a burden (i.e. a contractual liability, such
as the liability to pay for the works) cannot be assigned.Contracts used in the construction industry often contain
terms restricting or prohibiting assignments. Such terms have the effect of making any purported assignment
invalid as against the other party to the contract – see Linden Gardens v Lanesta Sludge [1994] 1 AC 85
where a badly drafted clause in a now superseded version of a JCT Form of Contract was held to prevent theassignment of certain rights under the that Contract. However, the right to prevent assignment may be lost by
waiver.
Perhaps the most widespread use of assignment in the construction industry today is in connection with collateral
warranties. The collateral warranties given by consultants, contractors and sub-contractors are often assigned to
subsequent owners or leases. Assignment can do no more than transfer rights available to the assignor; it is not
capable of creating new rights in favour of an assignee. Thus while the client can in theory assign the right to have
a building adequately designed, it is unclear what right would be transferred to sue for damages in the event of
breach. If the developer/assignor has sold the building or created a full-repairing lease, then his right would be to
nominal damages only. A solution that avoids these problems is to draft the document in the form of a novation,
where the assignee third party may take over the full contractual rights of the developer, as though named as an
original party of the building contract.
Michael Rowlinson
back to index
Special Articles
Alternative Dispute Resolution
Bank Charges
Services
Construction Law Commercial Advice
Arbitration
Adjudication
Claims - Time & Money
Specialist Quantity Surveying Functions
Expert Witnesses
Adjudicators
Training/Seminars
Project Management
Mediation
O ffice Address & Contacts
Head Office
11 Station RoadEpping, Essex,
CM16 4HA
Telephone: +44 (0)1992 576440Facsimile: +44 (0)1992 576445
2014 Alway Associates (London) Ltd All rights reserved
Alway Associates (London) Ltd - Co. Reg. 3951627
Registered office: Ashford House, Walsgrave Triangle, Eden Road, Coventry, CV2 2TB
terms & conditions - construction law advice - construction contracts advice - site plan
A part of the Rhead Group Ltd
