Assignment & Novation Flashcards
What is assignment?
When a party of a contract assigns their rights under a contract to a third party
Can you give an example of a assignment within construction?
On a residential project an employer may assign their right for the contractor to fix snags to a the residents as the units are handed over
Does assignment need the permission of both parties to a contract?
Not automatically - however most contracts contain assignment clauses confirming or limiting this
What is novation?
Novation is where both contractual rights and obligations are transfered to a third party?
Original contract breaks and a new one is formed
Does novation require agreement of all party’s?
Yes - it is a three way agreement
When is it common to see novation in construction contracts?
Under design and build contracts - design team will often be novated
Design team may be contractually obligated to agree to this
What does adopted design mean?
In a D&B contract where the design team is novated, the contractor may adopt the design (accepting liability for any defects in the design)
Not desirable for contractor but employers may require
Where a design team is novated to the contractor under a D&B contract - is the contractor liable for design completed before novation?
Not unless the contractor also agrees to adopt the design
Novation requires all parties to ____ to the agreement
Consent / Agree
How is assignment dealt with in a JCT Standard Building Contract?
Assignment of any kind is expressly prohibited without the agreement of both parties
What is the difference between novation and assignment?
Assignment: transfer of rights
Novation: transfer of rights and obligations
What is a key concern when novating a design team to a contractor in a D&B contract?
Weather the new party (contractor) has rights to take action against the design team for design done pre-novation
How does novation effect an employers rights with the novated party?
- They lose all contractual relations with the novated party and therefore the right to take action for a breach
- It is therefore common for there to be a collateral warranty between the employer and novated party
What are the 3 ways contract benefits can be transfered under JCT contracts?
a) Collateral warranties
b) Third party rights
c) Assignment
What contract clauses in JCT contracts refer to assignment?
7.1: Standard possition is assignment of rights is excluded
7.2: But assignment can be permitted
