{"id":175446,"date":"2022-08-30T02:11:31","date_gmt":"2022-08-30T01:11:31","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=175446"},"modified":"2025-07-02T00:39:57","modified_gmt":"2025-07-01T23:39:57","slug":"assignment-novation-loan-agreement","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/assignment-novation-loan-agreement\/","title":{"rendered":"What Are Assignment and Novation Clauses in a Loan Agreement?"},"content":{"rendered":"\n

If you get to the final stage of a business loan application, the bank will present you with a loan agreement<\/a>. While some terms in the loan agreement may be familiar, others might be vaguer. For example, the lender\u2019s right to \u2018assign or transfer all its rights and obligations by novation\u2019. This article will explain what novation and assignment mean in your loan agreement, how it operates, and how this impacts your business. <\/p>\n\n\n\n

What Are Novation and Assignment? <\/h2>\n\n\n\n

Novation<\/a> is a legal process that transfers rights and obligations under a contract to a third party with both parties’ consent. <\/p>\n\n\n\n

On the other hand, assignment is the right to transfer the contractual obligations of one party to a third party, regardless of whether the other party to the contract consents. <\/p>\n\n\n\n

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To understand how novation and assignment apply to your loan agreement and how these rights might ultimately affect your business, it is important to consider novation and assignment in practice.<\/p>\n<\/div>\n\n\n\n

Novation and Assignment in Practice<\/h2>\n\n\n\n

The law does not easily release parties from their contractual obligations. Otherwise, contracts would not have much legal effect. For example, after your business signs a loan agreement, you cannot simply notify the bank that another person or company will make the loan repayments on your business’s behalf. Likewise, unless the contract states otherwise, the bank must make the loan money available to your business and cannot rely on another party to do so on its behalf. <\/p>\n\n\n\n

Hence, the bank may rely on clauses in the loan agreement to release them from their obligations. Consider the following example. <\/p>\n\n\n\n

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Bank A provides your company with a revolving credit facility<\/a> of up to \u00a31m. However, a year goes by, and you have not drawn on the facility. Consequently, Bank A may no longer want to honour its contractual obligation to your company.<\/p>\n \n

However, Bank A cannot just transfer the loan without your approval. Hence, if you consent to Bank A\u2019s request to sell the loan to Bank B, the law calls this novation. This means that you are essentially creating a new loan contract with Bank B. After novation, the original party, Bank A, disappears.<\/p>\n \n

Even if you are not prepared to consent to Bank A\u2019s request, it may still want to transfer the loan. Where the loan agreement contains an assignment clause, Bank A may nevertheless transfer its rights to benefit from your business\u2019 repayment to Bank B. The law calls this an assignment.<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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