Novation

Definition

Replacing a party to a contract so the original one is released.

Why It Matters

An assignment can move a contract to you while leaving the seller on the hook, and a novation substitutes you for them, which means the counterparty has agreed in writing to deal with you instead. That difference decides whether the revenue on the schedule actually travels: a customer who never signed anything can leave the week after closing and owes you no notice. Ask which of the contracts carrying real revenue will be novated rather than assigned, and start those conversations when the letter of intent is signed, because the other side has no reason to hurry.

In numbers: A supplier agreement worth $240,000 a year that is assigned but never novated can be ended at the supplier's discretion, so the price paid for that revenue bought nothing.