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Novation is the replacement of one of the parties in an agreement between two parties, with the consent of all three parties involved. To novate is to replace an old obligation with a new one. For example, a supplier who wants to relinquish a business customer might find another source for the customer.

Ing to federal procurement law, a novation contract is appropriate when a government contractor transfers its obligations to that contract to a new entity. The government agency handling the novation process refers to the new contractor as a successor in interest.

There are two novation agreement templates: A standard novation agreement, under which the new party is assigned the rights and liabilities that came into effect sometime after the contract was signed. An ab initio novatio agreement, under which the new party assumes all historic rights and liabilities.

In most novation agreements, the parties agree to extinguish the original contract and replace it with an entirely new contract. One of the original contracting parties is replaced by a third party who takes up the rights and obligations afforded to the original contract.

- In every novation there are four essential requisites: (1) previous valid obligation; (2) agreement of all parties to new contract; (3) extinguishment of old contract; and (4) validity of new one. Savannah Bank & Trust Co. v. Wolff, 191 Ga.

Novation is a complex process, as all the parties involved (the original parties and the incoming party) have to sign the novation agreement. This is because while the benefits under a contract can be assigned without the other party's consent, contractual obligations cannot be assigned without their consent.

It enables the replacement with the mutual consent of all. In financial markets, it refers to trading the securities to a third party on the buyer's behalf. It has major applications in banking, real estate, and contractual projects. The major types of Novation include standard, expromissio, and delegation.