“Novation”

Any amendment to a loan agreement will almost certainly contain a provision along the following lines (emphasis added; otherwise untouched):

Except as otherwise provided herein, the execution of this Second Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders, constitute a waiver of any provision of any of the Credit Documents or serve to effect a novation of the Obligations.

I’m not crazy about novation. Whether you call it jargon or a term of art, you can be sure that many readers don’t know what it means, and that many of the rest rely on seat-of-the-pants etymology to understand it.

As to what it actually means, here’s a definition provided by Black’s Law Dictionary:

The act of substituting for an old obligation a new one that either replaces an existing obligation with a new obligation or replaces an original party with a new party.

So I vote that instead of “does not serve to effect a novation of the Obligations” you say “will not result in any of the Obligations being replaced.” Or you could combine the two: “does not serve to effect a novation of the Obligations, in that it will not result in any of the Obligations being replaced.”

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.