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 takes the counterparty's consent and releases the seller. That difference decides who answers for the contract later, which is why a seller presses for it. Whether the revenue travels is a separate question: a contract that bars assignment without consent moves only with that consent, and a customer who never signed anything can leave the week after closing. Ask which revenue contracts need consent and which will be novated, and start those conversations when the letter of intent is signed, because the other side has no reason to hurry.

In numbers: A customer contract worth $240,000 a year with two years left is $480,000 of revenue that, where it bars assignment without consent, moves only once the customer signs. Novated, it also releases the seller, which is the seller's reason to ask.