Blog Post

Novation v. Assignment

  • By David Hoechster
  • 02 Mar, 2023
What is a Novation?

“A novation is the substitution of a new contract for an old one which is thereby extinguished.” Carolina Equip. & Parts Co. v. Anders, 265 N.C. 393, 400, 144 S.E.2d 252, 257 (1965)." Crop Prod. Servs., Inc. v. McDonald, 723 S.E.2d 173 (N.C. App. 2012). "“The intention of the parties to effectuate a novation must be clear and definite, for novation is never to be presumed.” Kirby Bldg. Sys., Inc. v. McNiel, 327 N.C. 234, 243, 393 S.E.2d 827, 832 (1990)..." Crop Prod. Servs., Inc. v. McDonald, 723 S.E.2d 173 (N.C. App. 2012)

In a real estate investment context, the “Novation Agreement”, as they are commonly called, is typically utilized to change the purchaser of the property. Generally, it is used to replace one obligation or party with another in a contract. The terms of the contract maybe changed the new contract. Critically, all parties to the original contract must agree to the changes to execute a novation. Once all parties accept it, the novation nullifies and replaces the previous agreement.

Assignments v. Novations

Assignment contracts are common in wholesaling deals. In an assignment, the wholesaler assigns the benefits of the original contract to another party and the original contract remains intact.
Unlike a Novation, in an assignment deal the assignor (the wholesaler) remains legally responsible for the terms of the contract.

Conclusion
The novation is a tool in the real estate investors’ belt, but it may not always be the best tool for the job. Before attempting to use a novation or an assignment discuss your options with a Licensed Attorney that is familiar with Real Estate Investing.

*The information provided on this site does not, and is not intended to, constitute legal, financial, tax, or real estate advice. Please consult your expert for advice in those areas. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter.

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