What Is A Novation Agreement In Real Estate?

What Is A Novation Agreement In Real Estate

You must be wondering over the query, What is a Novation Agreement in Real Estate? Don’t worry. We are here to discuss all the necessary information on the Novation Agreement in real estate. Just like Succession Certificate , it is also a concern of many people. Novation Agreement in real estate is when you replace an existing property contract with a new one with the same or similar value.

The innovation agreement allows you to transfer all the rights and responsibilities from one party in the original contract to a new party, adding no part to the original agreement. Novation cancels the old contract and replaces it with a new one. Novation can happen in finance, real estate, or buying or selling a business. In real estate, you may need novation if the terms of your agreement change, the price of the house changes, or if another person is added to the contract.

What Is A Novation Agreement In Real Estate?

A novation Agreement in real estate is when you use the principles of novation to change a property contract related to a real estate transaction. It allows you to transfer the rights and responsibilities of the contract from one person to another. For example, you can transfer the costs and inspections of buying a property from the original person to a new person. By doing this, the old contract is no longer valid, and the new contract takes its place.

Novation can impact lease terms, property prices, buyers, and the costs of closing the deal. In the context of real estate, a Novation Agreement in real estate can be particularly advantageous for residential developments.

What Are The Three Types Of Novation Agreement?

A standard Novation Agreement in real estate is when two parties agree to add new terms and conditions to an existing contract, creating a new one altogether.


Expromission involves three parties—the person transferring their rights, the person receiving the rights, and another party involved in the contract. All three parties must agree to the new terms to transfer. The agreement issues from Bank Of Punjab.


Delegation happens when a new creditor takes over the rights of the original creditor. This means the original debtor is released from their debts to the first creditor, and the new party becomes legally responsible for fulfilling the obligations of the original debtor.

Novation with Debtors

In this type of Novation Agreement in real estate, a new debtor replaces the original debtor in a real estate contract. The new debtor assumes all rights and responsibilities under the existing contract, releasing the original debtor from liability.

What Is A Novation Agreement In Real Estate?

What Is The Difference Between Assignment And Novation Agreement In Real Estate?

Novation Agreement in real estate and assignment are two ways to transfer rights or property to someone else.

  • In an assignment, only the benefits are transferred to the new person or business, while the original party still has the obligations from the contract. For example, in a sublease, the original renter is still responsible for any damages or unpaid rent by the sub-tenant.
  • Novation, on the other hand, transfers both the rights and the responsibilities to the new party. The old party is released from obligations, and the original contract is canceled. In property law, novation happens when a tenant transfers their lease to someone else. As stated in the original lease, the new tenant takes over the responsibility for paying rent and any damages.

Both assignment and novation usually require the agreement of all parties involved.

What Are Some Examples of Real Estate Novation Agreement?

There are a few situations in real estate where novation might be necessary:

Adjusting the home price

This can happen when a home seller agrees to change the original selling price for various reasons. For example, if issues are found during a home inspection that the seller doesn’t want to fix, they may lower the price and transfer the responsibility of fixing it to the buyer. If a home’s appraised value exceeds the selling price, the seller and purchaser may agree to novate the contract and lower the price.

Transferring a lease

Real estate novation can occur when a lease is transferred from one person to another. For example, if a tenant signs a one-year rental agreement but wants to leave after six months, they can transfer the lease to someone else with the landlord’s approval. The new tenant is responsible for fulfilling the lease terms relieving the original tenant of their obligations.

Changing the Earnest Money deposit

If a home buyer can’t afford the initial down payment agreed upon in the original contract, they may negotiate a Novation Agreement in real estate with the seller. The seller might agree to lower the deposit amount to avoid future payment issues.


Novation is a significant process in real estate, and both buyers and sellers must understand it when dealing with a house purchase or sale. Novation happens when a new agreement needs to be created in a real estate transaction. In a Novation Agreement in real estate, when everyone agrees, one party in a two-party agreement transfers all rights and responsibilities from a contract to a third party. This means the original contract is canceled.

Novation differs from an assignment and Succession Certificate, where one party gives up its rights in the contract but still has to fulfill its terms. The original contract stays in effect. I hope this article helped you learn more about Novation Agreement in real estate!

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