When the parties reach a consensus and sign the innovation agreement, they exempt each other from any commitment resulting from the original agreement. This means that the new party cannot hold the original party to account for the obligations arising from the agreement. Novation contracts become useful when the transfer of contractual rights and obligations is legally and contractually limited. Many contracts are coming for corporate transactions such as mergers and acquisitions. Innovation is beneficial for situations in which payments or benefits can no longer be executed under the terms of the original contract. Innovation helps restructure the debt to avoid default or bankruptcy of the debtor. Novation is also used in futures and options trading to describe a particular situation in which the central clearing house between buyers and sellers presents itself as a legal counterpart, i.e. the clearing house becomes a buyer for each seller and vice versa. The result is the need to determine the creditworthiness of each counterparty and the only credit risk to which participants are exposed is the risk of default by the clearing house. In this context, innovation is seen as a form of risk management. An innovation is a contract that replaces a party with an existing contract for a party that was not in the original contract.
If one party enters into a contract to do something for another party, the executing party may delegate its duty of delivery to another party. However, the original exporting party remains responsible for the breach of contract if the party to whom it has delegated its obligations does not fulfil its obligations. This problem can be avoided by the so-called “Novation.” The assignment of an agreement does not mean a standing ovation. No new agreement is required in an assignment when duties and fees are transferred from the assignee to the agent. In real estate law, a new one occurs when a tenant transfers a tenancy agreement to another party that assumes both responsibility for rent and liability for any consequential damage to the property, as indicated in the original tenancy agreement.