What occurs in the process of novation?

In the process of novation, a new contract completely replaces an old contract between parties, effectively creating a fresh agreement that takes the place of the previous one. This means that all the original terms may be modified or completely new terms can be established, but the primary point is that the old contract is nullified.

In a novation, the consent of all parties involved is necessary, which distinguishes this process from simply assigning rights and responsibilities under the existing contract. By forming a new contract, the original obligations and rights are extinguished and substituted with those defined in the new agreement. This applies in real estate transactions and other contractual dealings, making novation a useful tool for resolving issues like changes in parties, terms, or scope of work without leaving any obligations from the prior contract outstanding.