Ace Your First Step in Real Estate 2026 – Master the Principles with Confidence!

Novation means replacing the original contract with a new one between the same parties. The old agreement is discharged and a fresh contract takes its place, often with new terms or arrangements, while the parties remain the same. This is what sets novation apart: you’re eliminating the previous contract and substituting it with a new obligation, all involving the same participants.

In contrast, transferring rights to a third party describes assignment, where the contract itself isn’t replaced and the original contract typically remains, with the third party gaining some rights under it. A new contract between different parties would not be novation, because the same parties aren’t involved. And assigning rights does not automatically terminate the original contract; it generally transfers rights while the contract still continues, unless the parties agree otherwise.