Deed Of Novation Template: When To Use It And What To Include

In business, relationships change all the time. You might be taking over a supply contract from another business, selling part of your operations, or moving a project from one entity in your group to another.

When that happens, a common question is: how do we formally “swap” a party to an existing contract without starting again from scratch?

That’s where a deed of novation comes in. And if you’ve been searching for a deed of novation template, you’re probably looking for something that’s practical, legally sound, and tailored to how Australian businesses actually operate.

Below, we’ll walk you through when you should use a deed of novation (and when you shouldn’t), what a deed of novation template typically includes, and the common pitfalls to avoid so you can keep your contracts enforceable and your commercial relationships stable.

What Is A Deed Of Novation (In Plain English)?

A novation is a legal mechanism that replaces one party to a contract with a new party, with the consent of everyone involved.

In most business contexts, it looks like this:

• Outgoing party: the original party leaving the contract
• Incoming party: the new party stepping into the contract
• Continuing party: the party staying in the contract (often the customer, supplier, landlord, or contractor)

After the novation takes effect, the incoming party becomes responsible for the contract going forward, and the outgoing party is usually released from future obligations (subject to what the deed says).

A deed of novation is commonly used because it’s a “deed” (rather than just a simple agreement), which can help in situations where you want extra formality and certainty (for example, where consideration is unclear or you want a longer limitation period).

If you’re dealing with a contract transfer scenario, it’s also worth understanding whether you actually need novation or whether another approach (like assignment) is more appropriate. We’ll unpack that next.

When Should You Use A Deed Of Novation In Your Business?

A deed of novation is usually the right tool when you want to replace a party and ensure the new party takes on the rights and obligations under an existing contract.

Common situations where Australian businesses use a deed of novation include:

1. Selling Or Buying A Business (Or Part Of One)

If you’re buying a business, you may want to take over existing customer contracts, supplier arrangements, service agreements, or key operational contracts.

Often, those contracts were signed by the seller. If you want the buyer to step in as the contracting party (instead of just “working alongside” the seller), novation is a common pathway.

2. Corporate Restructures And Group Transfers

If you operate multiple entities (for example, one company owns assets and another runs operations), you may want to move a contract from one entity to another.

This is especially common when businesses:

• set up a new entity for a new project or division
• move contracts into a different entity for risk management
• restructure before investment, financing, or sale

3. Replacing A Contractor Or Service Provider Within An Existing Engagement

Sometimes a contractor wants to change the entity providing services (for example, they start a new company, or a subcontractor arrangement changes). If the customer needs certainty about who is contractually responsible, a novation may be appropriate.

4. Major Projects With Ongoing Deliverables

In long-running projects (construction, IT implementation, managed services, and similar arrangements), the parties may want continuity of contract terms but need to change who is legally “on the hook”. A deed of novation can preserve the contract framework while properly swapping the party.

When you’re working through the legal mechanics of transferring obligations, you might also come across the concept of an assignment of contracts (which is different from novation).

Deed Of Novation vs Assignment: What’s The Difference?

One of the most common mistakes we see is using the wrong document for the job.

Here’s the key difference:

• Assignment usually transfers rights under a contract (for example, the right to receive payment). It does not automatically transfer obligations to the assignee. In practice, a party can sometimes arrange for another person to perform obligations (for example, via subcontracting), but that typically does not release the original party from liability unless the contract (and the other party) agrees to a full replacement (which is where novation comes in).
• Novation replaces a party, so the incoming party takes on rights and obligations, and the outgoing party is typically released from future obligations (to the extent set out in the novation deed).

Another practical difference is consent:

• Assignment may be allowed without the other party’s consent (depending on the contract terms and what’s being assigned), or it may require consent.
• Novation generally requires the consent of all parties, because you’re changing who the contract is actually with.

In many transactions, both concepts come up, but they’re not interchangeable. If you’re looking at documentation options, you may also see a Deed of Assignment used where only rights are being transferred (or where the underlying contract allows for it).

As a general rule, if you need the new party to step into the contract completely, novation is usually the safer, clearer approach.

What Should A Deed Of Novation Template Include?

A deed of novation template can be a helpful starting point, but it needs to be drafted carefully to match your commercial deal and your underlying contract.

Here are the clauses and details you’d typically expect to see in a well-prepared deed of novation (and why they matter).

1. Correct Parties And Contract Details

This sounds obvious, but errors here can derail the whole document.

Your deed should clearly identify:

• the outgoing party (including correct legal name and ACN/ABN where relevant)
• the incoming party (including correct legal name and ACN/ABN where relevant)
• the continuing party
• the original contract being novated (date, name, and ideally attach a copy as a schedule)

If the wrong entity is named, you may end up with a deed that doesn’t achieve the transfer you intended.

2. The Operative “Novation” Clause (The Core Of The Deal)

This clause does the heavy lifting. It usually states that:

• the incoming party is substituted for the outgoing party under the original contract
• the continuing party agrees to the substitution
• the incoming party agrees to be bound by the contract as if they were the original party

In plain terms: it’s the part that makes the swap legally effective.

3. Start Date / Effective Date

You’ll want clarity on when the novation takes effect.

This might be:

• the date the deed is signed
• a specified future date (for example, settlement date in a business sale)
• conditional upon something happening (for example, the landlord’s consent, or finance approval)

This matters because it determines who is responsible for performance (and risk) at each point in time.

4. Release Of The Outgoing Party (And Any Exceptions)

Most incoming parties expect to take over obligations going forward, and most outgoing parties want to be released from future obligations.

A deed of novation template should spell out:

• whether the outgoing party is fully released from obligations after the effective date
• whether any obligations remain (for example, warranties about work already completed, or liabilities for breaches that happened before novation)

This is a key negotiation point, especially where the continuing party is worried about things like defective work, unpaid amounts, or unresolved disputes.

5. Treatment Of Past Rights And Liabilities

One of the biggest practical questions is: what happens to what occurred before the novation?

For example:

• Who is entitled to unpaid invoices issued before the novation date?
• Who is responsible if the outgoing party breached the contract before novation?
• What happens to service credits, credits, or claims that arose before the novation?

There isn’t a one-size-fits-all answer. Your deed should clearly allocate these items so you don’t end up with grey areas that turn into disputes later.

6. Consents And Authority

Novation typically requires all parties to agree. Your deed should confirm that each party:

• consents to the novation
• has authority to sign
• has obtained any necessary internal approvals

If someone is signing on behalf of another person or entity (for example, a director signing for the company, or an authorised representative), it’s worth ensuring the signing arrangement is correct. If you need formal authority in place, an Authority to Act Form can help document who is authorised to give instructions and sign in a business context.

7. No Other Changes (Or Clear Variations If You Need Them)

Sometimes you want a straight swap of parties with everything else staying the same.

Other times, novation is a chance to tidy up parts of the contract (pricing, scope, payment terms, reporting lines, and so on).

A good deed of novation template should either:

• confirm that, aside from the party substitution, the original contract remains unchanged, or
• clearly list any agreed changes (often in a schedule)

If you’re changing terms at the same time, it may be cleaner to document the changes separately in a Deed of Variation (or incorporate them carefully into the novation deed).

8. Warranties And Indemnities (Risk Allocation)

Depending on the deal and risk profile, parties sometimes include warranties (promises about facts being true) and indemnities (who pays if certain losses happen).

For example, the outgoing party might warrant that:

• they have performed the contract up to the novation date
• there are no disputes on foot (or disclose them)
• amounts stated as owing are accurate

Or the incoming party might indemnify the continuing party for future breaches after the novation date.

These clauses can be commercially important, but they need to be drafted carefully so they match what you actually agreed.

9. Execution As A Deed (Signing Requirements)

Because this document is usually executed as a deed, signing formalities matter.

In Australia, deed requirements can vary depending on the state/territory, the type of party signing (individual vs company), and the signing method (including whether electronic execution is being used). For companies, execution may occur under section 127 of the Corporations Act (depending on the company structure and preferences), or by other legally effective signing methods. If the deed isn’t properly executed, you can end up with enforceability issues.

And zooming out: while templates can be useful, it’s important the document still meets the requirements of a binding agreement. If you want a plain-English refresher on what makes agreements enforceable, what makes a contract legally binding is a helpful concept to keep in mind as you finalise your documentation.

Common Mistakes With Deed Of Novation Templates (And How To Avoid Them)

Searching for a deed of novation template makes sense when you want a faster path to getting things signed. But in our experience, the risk isn’t usually the idea of using a template-it’s using a template without checking what your underlying contract actually says.

Here are some common pitfalls we help businesses avoid.

1. Ignoring The Original Contract’s Transfer Restrictions

Many contracts contain “assignment and novation” clauses that restrict:

• whether a party can assign rights
• whether a party can novate the contract
• whether consent is needed, and how it must be given

If you don’t follow those rules, the attempted transfer may be invalid, and you could also be in breach of the original contract.

2. Having The Wrong People Or Entities Sign

This happens more often than you’d think-especially where there are multiple trading names, a business has recently restructured, or an individual signs instead of the company (or vice versa).

Always confirm the correct legal entity (and get the ACN/ABN right) before you circulate the deed for signature.

3. Leaving “Past Liabilities” Vague

Disputes commonly arise where it’s unclear who is responsible for:

• past defects or performance issues
• unpaid invoices
• refunds, credits, chargebacks, or customer claims

A deed of novation should address these points clearly rather than relying on assumptions.

4. Accidentally Changing Commercial Terms

Sometimes a template includes “standard” provisions that unintentionally change the parties’ bargain. For example, it might add broad indemnities, change notice provisions, or introduce new warranties.

If you do want to change commercial terms, it’s usually better to do it intentionally (and clearly), rather than letting a template do it by accident.

5. Treating Novation Like A Quick Admin Task

A novation can have real financial and legal consequences. If the contract is valuable, high-risk, or long-term, it’s worth getting legal help to make sure the document matches the deal and is properly executed.

This is especially true where the original contract is complex, or where you’re dealing with multiple documents as part of a broader transaction. In those cases, support with contract review can save time (and cost) later by catching issues before they become disputes.

Next Steps: How To Use A Deed Of Novation Template Safely

If you’re considering a deed of novation template for your business, a good process is:

1. Check The Underlying Contract First

Look for clauses covering assignment, novation, consent, and any conditions that apply to a transfer (for example, consent must be in writing, consent can’t be unreasonably withheld, or consent is at the other party’s absolute discretion).

2. Confirm Your Commercial Deal

Before drafting, make sure the parties agree on the commercial details, including:

• the effective date
• who handles work-in-progress
• how outstanding amounts will be paid
• what happens to any disputes or claims

3. Decide Whether You Need Novation Or Another Document

If you only need to transfer rights (and not obligations), a novation may be unnecessary. If you’re not sure, it’s worth getting advice early so you don’t create extra paperwork or risk using the wrong mechanism.

4. Draft The Deed (And Any Related Documents) Consistently

Novation often sits alongside other transaction documents. For example:

• sale documents (if you’re buying/selling a business)
• service agreements or customer contracts
• variations to adjust pricing or scope

If you’re doing a broader contract overhaul at the same time, support with contract drafting can ensure the suite of documents works together, rather than contradicting itself.

5. Sign Properly And Store The Paper Trail

Once executed, keep copies of:

• the signed deed (with all signature pages)
• the original contract that was novated
• any written consents or approvals that were required

This makes enforcement easier and reduces the risk of confusion down the track.

Key Takeaways

• A deed of novation is commonly used when you need to replace a party to a contract, so the incoming party takes on the rights and obligations going forward.
• If you’re only transferring rights (and not obligations), assignment may be more appropriate than novation-always check the original contract first.
• A solid deed of novation template should cover the parties, the original contract details, the effective date, release terms, and how past liabilities and outstanding amounts are handled.
• Common pitfalls include ignoring transfer restrictions in the original contract, getting the wrong entities to sign, and leaving “pre-novation” liabilities unclear.
• If you’re also changing commercial terms, you may need a separate variation document (or carefully drafted novation terms) so changes are intentional and consistent.

If you’d like help preparing or reviewing a deed of novation for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.