Novation Vs Assignment

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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.

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.

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.

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.Nor does an assignment require the permission of the other original contracting party.An assignment is not possible where the services or the consideration was linked to the person of the party which wants to assign the contract.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. a contractual liability, such as the liability to pay for the works) cannot be assigned.Where the original contract stays intact and party transfers rights, benefits and liabilities under a contract (the assignor) to a new party (the assignee), this is called an “assignment”.An assignment must be absolute with no contractual strings to remain attached between the assignor and the other original contracting party.Josh and Mak International is a UK and Pakistan-based law firm with a clear vision based on a zeal for legal excellence.As, one of the top law firms in Pakistan, listed in the Legal500, we provide not just the best legal services in Islamabad, but work closely with our private and corporate clients to ensure delivery of the highest level of legal representation.Another example of legal assignment is upon death, where the executor assumes the position of the deceased and to whom all contracts of the deceased are assigned.The criteria for a successful novation is the complete acceptance of the liability by the new debtor, the acceptance of the new debtor by the creditor, and the acceptance by the outgoing creditor of the new contract as full performance of the old contract.

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