Legal Eagle : Deed of Novation - a simple contract

August 29, 2016

Just imagine a young couple trying to build their first house and with not much money to employ all the top professionals in the trade. However, Lejean, one of the top architects in the small rural town where they live, is employed to design the house. Christopher St Philip is a building contractor and he has an agreement with the couple to do the actual construction of the house; and Khalil has agreed to do the installation work. The problem that the young couple faces is what is the contractual arrangement that they could enter into with Lejean, Christopher St Philip and Khalil that would provide them with one contract for the seamless completion of their house. A practical answer to the problem seems to lie in a Deed of Novation.

According to an online definition, novation "is a legal concept that, at its core, aims to achieve a process of substitution". Essentially, to novate is to replace or to substitute. Novation is widely used in the construction industry, especially when different persons are employed to design, construct and install.

Effectively, what novation would do is to discharge the original contract between the young couple (the continuing party) and the architect (the outgoing party) and then to substitute it with a new contract between the continuing party and the new or incoming party, the building contractor. Thus, the building contractor, the incoming party, would be required to perform the contractual obligations as if the building contractor were from the inception of the contract. So, in circumstances where the architect designs the entire house for the young couple, the architect, being a designer and not building a contractor, would of necessity end his obligations with the young couple after the house is designed and the relevant approvals given by the planning authorities and the parish council. Likewise, the building contractor, who is not an installer, must make way for the installation team. For example, after, say, six months, the architect is substituted by the building contractor who will, say, after 10 months, will be replaced by the installer.

 

RIGHTS AND OBLIGATIONS

 

A feature of novation is that it transfers both the rights and the obligations of the outgoing party to the incoming party; it requires the consent of all parties for it to be valid.

Like all valid and enforceable contracts, it is important for consideration to be provided. The Deed of Novation also carries a provision for a general release whereby the outgoing party and the continuing party releases each other.

The Deed of Novation will also contain a clause touching and concerning warranty. Each of the parties will provide a warranty that the work will be done in accordance with the original contract. Novation might have some resemblances to assignment but they must not be confused.

So, next time when faced with a challenge to construct a house using professionals and tradesmen at different stages, you may wish to consider employing an attorney-at-law to draft a Deed of Novation in order to maintain standards and have seamless transition of the different professionals and tradesmen necessary to complete the construction of the house. Think about it. Might just be a great idea.

Other Features Stories