This Deed of Novation of Loan is a tripartite agreement whereby the Lender transfers all of its rights and obligations relating to a particular loan agreement, to a new third party lender.
The deed of novation only works where there is a single lender and a single borrower under the original agreement. The loan itself must be unsecured and not guaranteed.
The rights are the right to receive repayment of the loan, and the right to receive interest.
The obligations are the requirements to make further advances to the borrower.
If there are no further advances to be made under the loan, a Deed of Assignment should be used in place of a Deed of Novation (see below right). An assignment transfers the lender’s rights under the original agreement (the main right being the right to be repaid) to the third party. An assignment cannot however, transfer any of the lender’s obligations, and thus is not suitable for a financing arrangement where there are further advances to be made.
There must be consideration (ie. payment) from the third party lender to the original lender. This is because novation creates a new contract. This document is executed as a Deed to avoid any problems that may be caused by any deemed lack of consideration.
The original lender should be mindful of its duties of confidentiality to the borrower. It cannot market the asset (ie. the loan) to potential buyers, as this would be in breach of its duty of confidentiality. However, the new lender will want to know information about the borrower, including the borrower’s identity and the terms and conditions of the loan agreement. The original lender must ensure that the borrower’s consent is obtained to make such disclosure to potential new lenders.
For the sake of simplicity, it is easier if the Date of Novation is an interest payment date. Otherwise, a calculation will have to be made of interest which has accrued but remains unpaid.
Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.
This Deed of Novation of Loan is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.
The document is a deed and so it should be executed by two directors or one director and a secretary of the Lender, the Buyer and the other contracting party.
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