If you’re running a business, you’ll eventually deal with a situation where a contract needs to move from one party to another.
Maybe you’ve sold part of your business, restructured your company group, brought in a new supplier, or you’re taking over an existing customer contract. The paperwork can feel deceptively simple - until you realise there are two common legal paths, and choosing the wrong one can create real risk.
This guide (updated for current practice and common commercial scenarios) breaks down the difference between an assignment deed and a novation deed in plain English, with practical examples so you can confidently work out what you actually need.
What Problem Are Assignment And Novation Trying To Solve?
Contracts are built on the idea that specific parties have agreed to specific rights and obligations.
So when a contract “moves”, the law generally needs one of two things to happen:
- Transfer of rights only (e.g. the right to receive payment), while the original party stays responsible for doing the work; or
- Replacement of a party, so a new party steps into the contract and takes over both the benefits and the burdens.
That’s where assignment and novation come in.
They’re both tools to change who gets something (or who must do something) under a contract - but they work in fundamentally different ways. If you’re not careful, you can end up with:
- a contract that can’t be enforced the way you thought it could;
- a party still on the hook for liabilities they assumed were gone; or
- a consent issue that triggers a dispute (or even termination).
What Is An Assignment Deed (And What Can You Actually Assign)?
An assignment deed is a legal document used to transfer rights under a contract from one party to another.
In most cases, assignment is about transferring benefits, such as:
- the right to receive payment (e.g. invoiced amounts);
- the right to receive goods or services; or
- the right to enforce promises (e.g. warranties, indemnities, or performance obligations owed to you).
Key Point: Assignment Usually Doesn’t Transfer Obligations
This is the part that catches people out.
Generally, you can assign rights, but you can’t assign your obligations under a contract without the other party agreeing (and even then, it’s often achieved through novation rather than assignment).
So if you “assign the contract” but you still have obligations (like delivering services, meeting KPIs, or fixing defects), you may still remain responsible for those obligations - even if someone else is now receiving the benefit.
Does The Other Party Need To Consent To Assignment?
Sometimes yes, sometimes no - it depends on the contract terms.
Many commercial contracts include a clause that says something like:
- assignment is prohibited;
- assignment is allowed only with written consent; or
- assignment is allowed to a related entity (like a subsidiary) without consent.
If you assign without complying with that clause, you might be in breach. That can lead to disputes, refusal to recognise the new party, or termination rights being triggered.
When Is Assignment Common In NZ Business?
Assignment deeds come up a lot in situations like:
- Debt and receivables: a business assigns the right to collect invoices to a financier or another entity.
- IP and brand assets: transferring ownership of copyright or other IP (often alongside other documents).
- Intra-group restructuring: shifting rights between related companies while keeping performance with the original party.
If you’re moving intellectual property as part of a restructure or transaction, it’s often done via an IP Assignment, rather than trying to “handwave” the transfer in an email or spreadsheet.
What Is A Novation Deed (And Why Is It Different)?
A novation deed is used to replace a party to a contract.
In practical terms, novation means:
- the original contract is effectively ended as between the outgoing party and the other party; and
- a new contract relationship is created on the same terms (or updated terms) with the incoming party.
This is why novation is often described as transferring both:
- rights (benefits); and
- obligations (burdens).
Key Point: Novation Requires Consent From All Parties
Because novation changes who is legally responsible for performing the contract, it requires agreement from:
- the outgoing party;
- the incoming party; and
- the remaining party (often the customer, supplier, landlord, or counterparty).
If even one party doesn’t agree, you usually can’t novate - which is why it’s important to plan for novation during negotiations (for example, in a sale of business or restructure).
When Is Novation Common In NZ Business?
Novation comes up a lot where performance responsibility is moving, such as:
- Business sales: the buyer takes over key customer and supplier contracts.
- Contracting and outsourcing: a different service provider takes over a services agreement.
- Company restructures: a new entity becomes the contracting party for operational reasons.
It’s also common where a contract is closely tied to a party’s identity or capability - for example, contracts involving trust, skill, licensing, or reputation (think specialised consulting, professional services, or high-risk industries).
Assignment vs Novation: The Practical Differences (With Examples)
If you’re trying to decide which document you need, it helps to compare them side-by-side.
1) What Is Actually Transferred?
- Assignment: transfers rights (benefits) under a contract.
- Novation: transfers rights and obligations by replacing a party.
Example: You’re a marketing agency and you want your related company to receive payments from a client contract, but your agency will still deliver the services. That’s usually an assignment of receivables/rights scenario (subject to the contract allowing it).
Example: You’re selling the marketing agency and the buyer will now deliver the services and invoice the client. That’s usually a novation scenario - the buyer becomes the contracting party.
2) Who Needs To Agree?
- Assignment: consent depends on the contract terms (but notice may still be required).
- Novation: all parties must agree.
Practical tip: If you’re negotiating new contracts and you think you may restructure or sell later, it’s worth making sure the “assignment/novation” clause is workable - this can save a lot of headaches down the track.
3) What Happens To The Original Party’s Liability?
- Assignment: the original party usually stays liable for obligations (unless something else changes the arrangement).
- Novation: the incoming party takes over obligations, and the outgoing party is typically released from future obligations (subject to how the deed is drafted).
This is crucial. If your goal is to step away from responsibility under the contract, assignment alone usually won’t achieve that.
4) Does The Contract Itself Change?
Both assignment and novation can be drafted to keep the commercial terms mostly the same - but novation more often involves some “tidying up” changes because all parties are already signing anyway.
For example, a novation deed might also update:
- invoice details and payment mechanics;
- who gives approvals or instructions;
- insurance requirements; or
- privacy and data handling responsibilities (especially if customer data is involved).
If personal information is being transferred (e.g. a client list), it’s smart to think about Privacy Act 2020 obligations and ensure your Privacy Policy and contracts match what’s actually happening.
Common Scenarios: Which One Do You Need?
Most business owners don’t wake up thinking “today I need a novation deed.” It usually comes up in the middle of something bigger - like a sale, restructure, new funding, or operational change.
Here are a few common scenarios and the likely solution (noting that the contract wording and your goals matter a lot).
Selling Your Business Or Buying A Business
If you’re selling a business and key customer/supplier contracts need to move to the buyer, novation is often the cleanest approach because the buyer needs to take over performance obligations.
In many sales, this issue is identified during legal due diligence and then dealt with as part of completion deliverables.
When a transaction is structured as an asset sale, documents like an Asset Sale Agreement often interact with assignment/novation steps, because the agreement sets out what must be transferred, how, and on what terms.
Changing Your Business Structure (Without Changing The Work)
Let’s say you started as a sole trader, then later incorporated a company. You may want future invoices and contracts to sit with the company (for liability management, tax structuring, or growth reasons).
If the company is going to take over doing the work, you’ll often need novation for existing contracts. If you just want the company to receive payments while you still perform (less common, and sometimes messy), you might look at assignment - but you’ll need to tread carefully and check the contract terms.
When you’re making structural changes, it can also be a good time to review whether you need a Company Constitution or other governance documents to reflect how decisions are made and who has authority to sign.
Transferring A Contract Within A Group Of Companies
Groups often move contracts between entities for operational reasons - for example, creating a new “operating company” and a separate “asset holding company”.
If you’re changing the contracting party that provides the services or supplies goods, novation is typically required.
Also, if there are key stakeholders or investors, you may want to ensure your Shareholders Agreement is aligned with who owns what assets and which entity is taking on which liabilities.
Leases: Assignment, Novation, Or Something Else?
Leases are their own category, because they often have specific rules and landlord consent requirements.
In many commercial leasing situations, the “transfer” of a lease is done by a deed specific to leases, rather than a general assignment deed used for standard commercial contracts.
For example, a Deed of Assignment of Lease is commonly used where a tenant transfers its lease interest to a new tenant, with the landlord’s consent.
Because leases can involve ongoing obligations and risk (like make-good, repairs, and rent), you should always get advice before assuming a simple “assignment” will get you out of the lease.
What Should Be In An Assignment Deed Or Novation Deed?
There’s no one-size-fits-all document (and it’s one of those areas where DIY templates can cause expensive problems). But there are common clauses you’ll usually need.
Typical Clauses In An Assignment Deed
- Definitions: what contract is being assigned and who the parties are.
- Assignment clause: the assignor assigns specified rights to the assignee.
- Notice/consent mechanics: how consent is recorded (if required) and what notice is given.
- Warranties: e.g. that the rights exist, the contract is in force, and there are no undisclosed disputes.
- Consideration: what is being paid (if anything) for the assignment.
- Execution block: signed correctly, often as a deed to help with enforceability requirements.
In some cases, you may also need a side letter or acknowledgment from the other contracting party confirming they’ll recognise the assignee (especially where ongoing dealings are expected).
Typical Clauses In A Novation Deed
- Agreement to novate: clear wording that the incoming party replaces the outgoing party.
- Release: the outgoing party is released from future obligations (and sometimes past obligations are dealt with separately).
- Assumption of obligations: the incoming party agrees to perform from an agreed date.
- Continuity: the contract continues on the same terms (unless varied).
- Apportionments and handover: what happens to invoices, deposits, work-in-progress, credits, refunds, or disputes.
- Privacy and confidential information: what data is being transferred and how it must be handled.
If staff are also moving as part of a broader transaction, you’ll likely need to look beyond novation/assignment and consider employment arrangements and documents like an Employment Contract (because employees don’t automatically “transfer” in the same way a commercial contract might).
Don’t Forget Authority To Sign
One practical issue we see a lot is the right person not signing - or the signature not being properly authorised.
For companies, you’ll usually want to confirm who can bind the company (directors, authorised signatories) and whether a director’s resolution is required internally.
This matters because even a perfectly drafted deed can be challenged if it wasn’t executed correctly.
Key Takeaways
- Assignment deeds and novation deeds both deal with transferring contracts, but they work differently and have different legal consequences.
- An assignment usually transfers rights/benefits only (like the right to receive payment) and the original party usually remains responsible for obligations.
- A novation replaces a party to the contract, transferring both rights and obligations to the incoming party.
- Novation generally requires consent from all parties, while assignment consent depends on the underlying contract (but may still require notice or written approval).
- If your goal is to exit a contract and stop being liable for ongoing performance, assignment alone often won’t be enough - a novation (or another tailored arrangement) may be required.
- The correct document (and correct drafting) matters, because mistakes can leave you exposed to liability, payment disputes, or unenforceable arrangements.
If you’d like help working out whether you need an assignment deed or a novation deed (or getting the document drafted properly), reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
