What does the term "novation" refer to in contracts?

The term "novation" specifically refers to the substitution of a new contract in place of an old one, whereby the original party is released from their obligations and a new party assumes those obligations. This legal mechanism requires the consent of all parties involved, which distinguishes it from simple modifications or terminations of agreements.

In a novation, one party to the contract is replaced by another, thus creating a fresh agreement. This differs from mere modifications, where the existing terms may be altered without changing the involved parties, or from termination, where the contract ends altogether. Novation ensures that all parties agree on the shift in responsibilities, which upholds the legal integrity of the contract framework.