What is the term for the termination of a contract and substitution of a new one with the same terms but a new party?

The correct term for the termination of a contract and the substitution of a new one with the same terms but involving a new party is novation. Novation occurs when one party in a contract is replaced by a new party, while maintaining the fundamental terms and conditions of the original agreement. This legal concept is essential in contract law as it ensures that obligations under the contract are fulfilled while allowing for changes in the party responsible for carrying them out.

In a novation, all parties must agree to the change, which distinguishes it from other contract modifications. It effectively frees the original party from their obligations under the contract, transferring those responsibilities to the new party. This process is not just a simple assignment, where the original party may still retain some responsibility; rather, it is a complete reassignment of obligations.

Understanding novation is crucial in various business transactions, particularly in partnerships, leases, and finance. It allows for flexibility in contracts while still upholding the integrity of the original terms among the remaining parties.