Novation agreements in Dubai replace one party to an existing contract with a new party. A novation transfers both rights and obligations and releases the original party from further liability under the contract.
This is different from an assignment, which transfers rights or benefits while leaving the original party responsible for the underlying obligations.
Quick Answer
A novation transfers the benefits and obligations of an existing contract to a new party and discharges the original party from further liability. Because one contracting party is being fully substituted, every party to the original contract must consent and sign. An assignment transfers rights or benefits only, so the original party remains responsible for its duties.
Federal Decree-Law No. 25 of 2025, effective 1 June 2026, provides that obligations generally cannot be transferred without consent unless the original contract allows it. Under Article 421, attached securities and guarantees continue, but the security provider is not bound without separate express consent.
Article 424 confirms that selling mortgaged property does not itself transfer the secured debt. An express agreement and the mortgagee’s consent are required before registration of the sale.
Article by Faris Raian
Faris Raian is the founder and managing partner of Leaders Advocates and a senior legal consultant with over 15 years of legal experience in the UAE. Registered with the Dubai Legal Affairs Department, he advises businesses, investors, and international clients on corporate and commercial matters, contract strategy, dispute resolution, arbitration, and regulatory issues. His experience with commercial contracts and business risk is particularly relevant to novation agreements, where changes to parties and obligations must be coordinated carefully within the wider transaction.
How Novation Agreements in Dubai Work
A valid novation substitutes a new contracting party for the original party. The benefits and obligations move together, and the original party is discharged from further liability under the replaced arrangement.
Consent is central because the remaining counterparty is being asked to accept a different person or business in place of the original one.
Replacing a Party to an Existing Contract?
A poorly structured novation can leave the original party liable or create problems with guarantees and security. Have the agreement reviewed before everyone signs.
Novation and Assignment Are Not the Same
Novation
• Transfers both rights and obligations to the new party.
• Requires the consent and signature of every party to the original contract.
• Fully discharges the original party from further liability.
Assignment
• Transfers rights or benefits, while obligations remain with the original party.
• Can generally be completed without the other party’s consent, although notice affects enforceability.
• Does not release the original party from the underlying duties.
Why UAE Courts Look at Substance, Not Labels
In a reported UAE case involving an AED 1.5 billion financing facility, the court applied an objective test based on the actual facts and circumstances. It disregarded how the parties had described their arrangement.
The court found that no debt novation had occurred and that the original debt remained enforceable. Calling a document a novation agreement does not make it one if the substance does not support a full substitution of parties and obligations.
What a Proper Novation Agreement Should Address
• The obligation being extinguished under the original contract.
• The obligation or arrangement that replaces it.
• Which securities, guarantees, and accrued rights survive the novation.
• Whether each guarantor or security provider has given separate, express consent to remain bound.
• Clear consent from every contracting party, not only the two parties changing places.
The Rules Under Federal Decree-Law No. 25 of 2025
Federal Decree-Law No. 25 of 2025 took effect on 1 June 2026. It provides that obligations generally cannot be transferred without consent unless the original contract specifically allows the transfer.
Securities and Guarantees Under Article 421
Article 421 provides that securities and guarantees attached to a transferred debt continue after the transfer. The person who provided that security is not bound to support the new arrangement unless that person has separately and expressly consented.
This distinction can leave the debt transferred while a guarantor or other security provider is released from supporting it if separate consent was overlooked.
Mortgaged Property Under Article 424
Article 424 confirms that selling mortgaged property does not, by itself, transfer the underlying secured debt. The transfer requires an express agreement and the mortgagee’s consent before the sale is registered.
Structuring or disputing a novation agreement in Dubai? Ekaterina Butseva and the team at Leaders Advocates bring complex litigation and dispute resolution experience to contractual restructuring and related disputes.
Not Sure Whether You Need a Novation or Assignment?
Choosing the wrong structure can mean the original party remains responsible for contractual obligations. Get advice on the right transfer structure before changing the parties to your agreement.
Common Mistakes
• Assuming an assignment and a novation create the same legal effect when only novation releases the original party.
• Failing to obtain separate, express consent from guarantors or security providers.
• Using a novation label where the substance does not establish a genuine substitution, leaving the original debt enforceable.
Relevant Legal Services
A Contract Lawyer in Dubai can draft or review the novation terms. A Corporate Lawyer in Dubai can advise on the wider transaction, while a Litigation Lawyer in Dubai can act where the novation is disputed.
People Also Ask
Conclusion
Novation agreements in Dubai require a genuine substitution, consent from every contracting party, and careful treatment of guarantees, securities, and mortgages. The document’s substance must match its label.
Is Your Novation Agreement Being Disputed?
If there is disagreement over consent, transferred obligations, guarantees, or whether the original party was actually released, the wording and substance of the transaction need careful review.
