Deed of Novation of Loan

This Deed of Novation of Loan is a tripartite agreement under which an existing lender transfers all of its rights and obligations under a loan agreement to a new third party lender.

When To Use This Deed of Novation Template

Use novation where the lender is being replaced and the lender’s obligations also need to move to the new lender (for example, an obligation to make further advances). This deed is designed to work where there is a single lender and a single borrower under the original loan agreement, and where the loan is unsecured and not guaranteed.

Assignment Versus Novation

If there are no further advances to be made under the loan, a Deed of Assignment of Loan is likely to be more appropriate. Assignment transfers the lender’s rights (such as the right to repayment and interest) but it cannot transfer obligations, so it is not suitable where the lender still has obligations to perform.

Key Commercial And Practical Points

Novation creates a new contract, so there must be consideration (payment) from the new lender to the original lender. This document is executed as a deed to help avoid issues that can arise where consideration is questioned.

For simplicity, it is often easier if the date of novation is an interest payment date. Otherwise, interest accrued but unpaid will usually need to be calculated.

Confidentiality Point

The original lender should be mindful of its confidentiality obligations to the borrower. The new lender will usually need information about the borrower and the loan terms, so the original lender should ensure that the borrower’s consent is obtained before making disclosures to potential new lenders.

Land Registry Execution Point

The execution provisions of this template are compliant and consistent with the requirements of the Land Registry for prescribed form deeds introduced from 20 September 2019.

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