Assignment vs Novation in Cyprus Law | Complete Guide for Contracts

Understanding the distinction between novation and assignment is essential for anyone entering into commercial, property, or financial agreements in Cyprus. These two mechanisms are often confused, yet they produce very different legal results under Cyprus contract law. Choosing the correct one can determine whether rights, obligations, and liabilities are properly transferred — and whether a transaction is legally enforceable.

What Is Assignment Under Cyprus Law?

An assignment transfers only the rights or benefits of a contract from one party (the assignor) to another (the assignee). The original contract remains in force, and the assignor keeps all obligations, duties, and liabilities.

Rights under a contract are generally assignable unless the contract is of a personal nature. Assignment is typically used to transfer:

• the right to receive payment

• the right to claim a debt

• other contractual benefits that are not personal in nature

Because Cyprus does not operate a statutory regime for legal assignments, assignments function through equitable principles.

While an assignment can be valid even without formalities, it must be ensured that the underlying agreement which will be assigned prohibits or has specific requirements for the assignment of the Agreement such as the written consent of all the Parties to the Agreement.  

What Is Novation Under Cyprus Law?

A novation completely replaces the original contract with a new agreement which can include the same terms as the original agreement or different ones, or different parties (Hellenic Bank v Polydorides). Through novation, an incoming party takes over both rights and obligations, while the outgoing party is fully released from future liability.

Novation requires the explicit consent of all parties involved and is the correct legal tool when a complete transfer of the contractual position is required. Under Cypriot Law, unlike assignment, novation is governed by Art. 62 of the Companies Act Cap. 149 where it is stated that:

“If the parties agree to substitute a contract with a new one, rescind or alter the contract, the original contract ceases to require performance”.

Novation is commonly used in:

• lease transfers and tenant replacements

• development and construction agreements

• corporate restructuring or business transfers

• loan, repayment, or financial agreements where obligations must shift to a new party

A novation to be valid requires:

-  Mutual Consent of all the existing parties to the Agreement as well as any new parties that will be added and

-  Clear intention to replace the existing contract with a new contract,

-  The discharge of any prior obligations in place to enable the novation.

Novation agreements must be distinguished from simple contract amendments as in the former case, the original agreement ceases to exist all together and it is replaced by a new Agreement, whilst in the latter case, the agreement continues to have effect and be valid but some of its terms are being amended.

The Supreme Court in the Bank of Cyprus v Coudounaris Food Products Ltd outlined the necessary elements for a novation to be valid as follows:

i.   The presence of a pre-existing agreement is required.

ii.  There must be an express substitution of duties or contracting parties.

iii. The parties must demonstrate a clear intention to terminate and replace prior liabilities.

Like all other contractual Agreements, a novation agreement must have the necessary consideration lack of which may render the novation invalid. (Civil Appeal No. 236/2014).

The novation of lease agreements warrants explicit reference. Judicial decisions in Cyprus confirm that a tenant’s replacement must be supported by unequivocal evidence of the landlord’s intention to novate; acceptance of rent, by itself, does not create a new tenancy (Limnatitis v. Synnos).

Why the Difference Matters?

Under Cyprus law, assignment transfers only benefits. Novation transfers the entire contract — benefits and obligations.

Using an assignment when a novation is required can leave the original party unexpectedly liable for future performance. This distinction is especially important in real estate projects, sale-of-property contracts, debt restructuring, and multi-party commercial agreements, where obligations must be clearly and legally transferred.

Summary

• Assignment: transfers rights only; the original party remains liable; the contract continues unchanged.

• Novation: replaces the contract; transfers both rights and obligations; the outgoing party is released.

For businesses, investors, property developers, landlords, and individuals operating in Cyprus, understanding whether a transaction requires assignment or novation ensures legal clarity, reduces risk, and supports proper contract management.

We can help

If you would like help navigating any of the issues outlined above, our team is here to offer expert guidance and support.

Contact Us

Disclaimer: The content of this article is provided for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy of the information, readers should not act upon it without seeking professional legal counsel specific to their individual circumstances.