Novation
What it means
Novation is a legal mechanism to transfer a contract to a new party. When a franchise is sold, the agreement may be novated to the buyer, or a lease novated, so the incoming franchisee steps fully into the outgoing one's position.
It differs from a simple assignment: novation replaces the original contract with a new one on the same terms, extinguishing the old party's obligations, and requires everyone's consent.
In practice
On a resale, check whether the agreement and lease are being novated or assigned, and get legal advice on exactly which obligations, and liabilities, you are taking on.
A real example
When a franchisee sells her outlet, the franchise agreement and the lease are novated to the buyer with the franchisor's and landlord's consent, releasing her from future obligations.
Novation, FAQs
What is novation in a franchise sale?
Replacing the seller with the buyer as a party to the agreement or lease, with everyone's consent, so the buyer takes over the rights and obligations and the seller is released.
How is novation different from assignment?
Assignment transfers rights but may leave the original party with obligations; novation replaces the contract entirely with all parties' consent, releasing the original party.
See the full franchise glossary, the Fee Index or our buyer guides.