Novation Agreement Checklist For Changing Suppliers

Do you need a novation agreement to move an existing supplier or customer contract to someone new? In many cases, yes - especially if you want the old party to be released and the new party to take over the contract properly.

The good news is that this doesn't have to be complicated. A novation agreement UK businesses use is usually a practical three-party document that records who is leaving, who is coming in, what happens to past liabilities and when the change takes effect.

This matters during an outsourcing agreement, a business sale, a group restructure, or even a simple supplier change where an existing contract still has time left to run.

Do I Need A Novation Agreement To Change Suppliers?

You usually need a novation agreement if you want to transfer the whole contract to a new supplier and release the old supplier from future obligations.

A contract is a relationship between specific parties. If your IT services agreement says Supplier A must provide IT support, Supplier A can't simply hand that whole responsibility to Supplier B without your consent. That's where novation comes in.

A novation is different from just telling everyone that invoices will now come from a new company. It replaces one party with another, so the new supplier steps into the contract and takes on the rights and obligations from the agreed date.

You may need a novation agreement where:

• Your current supplier is selling that part of its business to another company.
• You're outsourcing a function, such as payroll, IT support, logistics or facilities management.
• Your supplier is restructuring and wants a group company to take over the contract.
• You have bought a business and want key customer or supplier contracts moved to your company.
• You're moving from one service provider to another before the old contract has expired.

Sometimes the supplier agreement itself will say whether assignment or novation is allowed, and what consent is needed. If the contract is silent, you should still be careful. Without clear consent, you may end up with a messy dispute about who owes what.

How Does Novation Of A Contract Work In The UK?

Novation of a contract in the UK works by agreement between all relevant parties: the outgoing party, the incoming party and the continuing party.

Think of it as a tripartite consent process. The old supplier agrees to leave, the new supplier agrees to take over, and your business agrees to accept the new supplier in place of the old one.

For example, Mike runs a Manchester-based cleaning company. He has a 24-month service agreement to clean offices for a coworking space at £3,000 per month. After 10 months, Mike sells his commercial cleaning division to BrightWorks Ltd.

If BrightWorks simply starts turning up and sending invoices, the coworking space could still argue that Mike's company remains responsible under the original contract. If cleaning quality drops in month 12, there may be confusion about whether Mike, BrightWorks or both are liable.

With a deed of novation, the parties can agree that:

• The contract transfers to BrightWorks from 1 June.
• BrightWorks takes over the monthly cleaning services from that date.
• Mike's company is released from future obligations after 1 June.
• Any unpaid invoices for services before 1 June remain payable to Mike's company.
• Any claims about work done before 1 June are dealt with in the way the deed sets out.

That level of clarity can make a big difference. Without a written agreement, you may struggle to recover unpaid invoices, enforce service standards or work out who is responsible if something goes wrong.

Assignment Vs Novation: Which One Do You Need?

You need novation if obligations are moving to a new party; assignment may be enough if only rights, such as the right to receive payment, are being transferred.

Assignment and novation often get mixed up, but they do different jobs.

Assignment

Assignment transfers a benefit under a contract, such as a right to be paid. It doesn't usually transfer burdens, such as the obligation to perform services, supply goods or meet service levels.

For example, if a supplier assigns its right to receive invoices to a finance company, your business may need to pay that finance company. But the original supplier may still be responsible for delivering the goods or services.

Novation

Novation transfers both the benefit and the burden of the contract. The incoming party takes over performance, and the outgoing party is usually released from future obligations.

You'll usually look at novation if:

• The new supplier will actually perform the contract.
• You want the outgoing supplier released from future responsibility.
• The contract is being moved as part of a sale of business or asset transfer.
• The service relationship is ongoing and performance matters.

Your contract may include a clause restricting assignment, novation or subcontracting. Some clauses require written consent, and some say consent can't be unreasonably withheld. The exact wording matters, so it's worth checking the contract before anyone signs a transfer document.

What Should A Novation Deed Checklist Include?

A novation deed checklist should cover the parties, the contract being transferred, the effective date, the release of liability and any special conditions for the handover.

A deed is often used because novation involves a release from existing obligations, and using a deed can help avoid arguments about whether valid consideration has been given. Execution also matters. If a UK company signs a deed, you should check the Companies Act 2006 rules on company execution, including whether it will be signed by two authorised signatories or by a director in the presence of a witness.

Here is a practical fill-in outline you can use when scoping the document. It isn't a finished legal document, and a lawyer should tailor it before you use it.

1. Parties: Name the outgoing party, incoming party and continuing party, including company numbers where relevant.
2. Background: Briefly explain the original contract, why the transfer is happening and what each party wants to achieve.
3. Contract Details: Identify the contract by date, title, parties and any schedules, variations or related purchase orders.
4. Novation Date: State the exact date and, if useful, the time the new supplier takes over.
5. Transfer Of Rights And Obligations: Say that the incoming party assumes the outgoing party's rights and obligations from the novation date.
6. Release Of The Outgoing Party: Set out whether the outgoing party is released from future obligations only, or also from some past obligations.
7. Past Liabilities: Allocate responsibility for unpaid invoices, pre-transfer breaches, defects, warranties and claims that have already arisen.
8. Continuing Contract Terms: Confirm that the original contract continues on the same terms, except as changed by the novation deed.
9. Consent And No Further Approval: Record that all three parties consent to the novation and any required internal approvals have been obtained.
10. Data, Confidentiality And Records: Deal with personal data, confidential information, handover materials and document retention.
11. Notices: Update notice details, invoicing contacts, service addresses and escalation contacts.
12. Governing Law And Disputes: Keep this consistent with the original contract unless there's a good reason to change it.
13. Execution: Make sure each party signs correctly, especially if the document is a deed.

Templates can be a useful starting point, but they often miss the commercial details that matter most, such as old debts, data transfers and responsibility for work already done.

How Do You Transfer A Contract To A New Supplier Step By Step?

You transfer a contract to a new supplier by checking the original contract, getting consent from all parties, documenting the novation and managing the handover carefully.

A simple process can save a lot of back-and-forth later.

1. Review The Original Contract: Check clauses on assignment, novation, subcontracting, change of control, termination, notice and consent.
2. Confirm What Is Being Transferred: Work out whether the whole contract is moving, or only part of the services, a customer account, a site or a business unit.
3. Check Outstanding Issues: List unpaid invoices, service credits, complaints, defects, open purchase orders and any work in progress.
4. Agree The Commercial Position: Decide who is responsible for pre-transfer liabilities, future performance, pricing changes and transition support.
5. Prepare The Novation Deed: Put the agreement in writing and make sure it lines up with the original contract.
6. Handle Data And Confidentiality: If personal data is moving, check your UK GDPR and Data Protection Act 2018 obligations, including controller and processor roles.
7. Sign Correctly: Use the right execution blocks for each party, especially if a company, LLP or individual is signing a deed.
8. Notify The Operational Teams: Update billing systems, account managers, delivery contacts, access rights and notice details.

If employees are transferring as part of an outsourcing, insourcing or service provider change, you may also need to consider the Transfer of Undertakings (Protection of Employment) Regulations 2006, often called TUPE. TUPE can apply to service provision changes, and it can bring consultation and employee information obligations. That's a separate legal workstream from the novation, but it often sits alongside it.

What Can Go Wrong If You Skip The Paperwork?

If you skip the paperwork, you may be left with uncertainty about who must perform the contract, who gets paid and who is liable if something goes wrong.

The most common problems are practical, not theoretical. For example, your accounts team might keep paying the old supplier while the new supplier starts chasing payment. Or your operations team might complain to the new supplier about poor performance, only to be told the old supplier is still legally responsible.

The biggest risk areas are:

• No Release: The outgoing party may remain liable for future breaches because it was never properly released.
• No Consent: The continuing party may say the transfer was invalid and refuse to deal with the new supplier.
• Unclear Past Liabilities: Disputes can arise over defects, late delivery, unpaid invoices or warranty claims from before the transfer date.
• Data Protection Gaps: Personal data may be shared with the wrong party or without the right contractual protections under UK GDPR.
• Insurance Issues: The incoming supplier may not have the same cover, licences, accreditations or security standards as the outgoing supplier.
• Wrong Execution: If the document is meant to be a deed but isn't signed correctly, you may face avoidable arguments about enforceability.

If something has already moved without a proper novation, start by gathering the original contract, emails approving the transfer, invoices, delivery records and any notices sent. Then get advice on whether you need a confirmatory novation deed, side letter or fresh contract to tidy up the position.

Key Takeaways

• A novation agreement is usually needed when a whole contract, including obligations, is moving to a new supplier.
• Novation normally needs consent from three parties: the outgoing party, incoming party and continuing party.
• The release of liability is one of the most important parts of the document, especially for past and future obligations.
• Assignment is different from novation because assignment usually transfers rights, not performance obligations.
• Your checklist should cover the contract details, transfer date, liabilities, data, confidentiality, notices and proper execution.
• If the transfer involves outsourcing or a service provider change, also consider data protection and TUPE issues early.

If you'd like help with your novation deed, reviewing the original contract, managing supplier handover risks or checking data and TUPE issues, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.