What is a Deed of Novation?

If a lot is being sold, and there is an infrastructure contract in place with that lot, there may be a need for a Deed of Novation. A Deed of Novation is a simple and effective tool to assist in transferring rights and obligations from the previous owner of the lot to the new owner of the lot in respect of the infrastructure contract. 

Entering into a Deed of Novation may be simpler than terminating a contract and re-negotiating terms for a new contract. 

Entering into a Deed of Novation will release the obligations of the previous owner under an infrastructure contract and transfer those contractual rights to the new owner/s or company. A Deed of Novation registers that new party’s acceptance of the original contract. 

A Deed of Novation transfers one party’s rights and obligations contained within a contract to another party.

While the terms of the original contract remain unchanged, the identity of one party is being substituted with another. The benefit of this for the strata company is that the contract does not change. Instead, they’re now simply dealing with a different entity.  

When a contract is novated, the new party now assumes all the legal responsibility under the contract. The liabilities or obligations being passed on must be clear to avoid significant consequences.

If the scheme or lot owner is changing its name from ‘Tea and Teapots Pty Ltd’ to ‘Teapots ‘R Us Pty Ltd’, you will not need to make any contractual amendments. This is because the actual legal entity is not changing. 

However, if a lot is being sold, and there is a need to transfer the existing contract and obligations to a third party, a Deed of Novation to transfer the infrastructure contract rights and obligations would be required – or the infrastructure contract would terminate. 

A Deed of Novation is usually a straightforward document setting out the changes being made to the contract.

You would expect to see the following inclusions in a deed of novation:

• novation or effective date – the date from which the novation applies to the parties;
• release – a clause releasing the original party from all performance of the contract from the novation date;
• representations – any representations or warranties made by either party; and
• fees – any fees or payments to be made by either party.

You must sign a deed in ‘wet ink’. This means that deeds cannot be electronically signed and must be signed by the party to whom the contract is transferring too, and served on the strata company. This signing must be accurately witnessed by someone who is not a party to the deed.

Further detail may be found in the Infrastructure Contract Template supplied by Lavan.

SCAWA201 - Template - Infrastructure Contract for use by lot owners with Deed of Novation.docx