Deeds of Assignment and Novation
A deed of assignment is used where a loan is effectively ‘sold’ on to a third party. Only the original lender’s rights under the loan agreement are assigned. This means the right to receive repayment of the loan and any interest are assigned on to a third party. A deed of assignment can only be used where there are no further advances to be made under the original loan agreement.
An assignment of loan does not require the borrower to be a party to the deed, but there must be no prohibition on assignment in the original loan agreement, or the borrower’s consent will need to be obtained.
A deed of novation transfers rights and obligations. It is a tripartite agreement between the original lender, the new ‘replacement’ lender and the borrower. It is used in the situation where further amounts can be drawn down by the borrower under the loan facility. The new party effectively replaces the original lender in the agreement, and carries out the obligations of the original lender, and is also entitled to receive repayment of the loan and interest.
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.