What is the term for the substitution of one party in a contract for another party?

The term that refers to the substitution of one party in a contract for another party is known as novation. Novation involves the replacement of one of the original parties with a new party in a contract, which requires the consent of all parties involved. Through novation, the original party is released from any obligations and liabilities under the contract, while the new party assumes those obligations.

In a real estate or legal context, novation ensures that the new party takes on the rights and responsibilities of the original party, creating a new contractual relationship that all parties recognize. This is particularly important in situations like assigning a lease or transferring a mortgage, where one party wishes to exit the contract, and a new party is willing to step in.

Understanding novation is crucial for both real estate professionals and clients, as it impacts the transferability of contracts and obligations in real estate transactions. The term "assignment," while related, typically refers to the transfer of rights but not the obligations in a contract, which is why novation is the more accurate term in this context.