Deed of Novation (Kenya)

A Deed of Novation in Kenya transfers an interest in property between the named parties and records the terms of that transfer.

Kenyan contract law, founded on received English common law principles as codified in the Law of Contract Act (Cap. 23) and supplemented by the Judicature Act (Cap. 8), draws a firm distinction between assignment and novation. An assignment transfers rights but not liabilities — the assignor remains bound by their contractual obligations. Novation, by contrast, extinguishes the original contract entirely and substitutes a new party with the consent of all three parties. The tripartite consent requirement is fundamental: under Section 3 of the Law of Contract Act (Cap. 23), a valid novation requires offer, acceptance, and consideration from each party. The continuing party's release of the outgoing party constitutes the consideration for the incoming party's undertaking of the obligations.

The High Court of Kenya (Commercial Division), which exercises unlimited original civil jurisdiction under Article 165 of the Constitution of Kenya 2010, has consistently treated a Deed of Novation as extinguishing the original contractual nexus. In commercial disputes before the Nairobi Commercial Division, courts examine whether all three parties consented to the novation, whether the original contract was capable of being novated (some statutory obligations are non-novatable), and whether the deed was properly executed. Execution as a deed — rather than a simple contract — removes the need to prove separate consideration and is the standard practice for novation instruments in Kenya.

A Deed of Novation in Kenya differs materially from a Deed of Assignment and from an Amendment Agreement. A Deed of Assignment transfers only the benefit of a contract to a third party; the original obligor retains liability. An Amendment Agreement modifies specific terms of an existing contract while preserving the original parties. Novation is the appropriate instrument when a business is sold, when a government contract transfers from one contractor to another, or when a partner or shareholder exits a commercial arrangement and their successor assumes identical obligations — scenarios that are common in Kenya's growing commercial, real estate, and infrastructure contracting sectors.

The Stamp Duty Act (Cap. 480) administered by the Kenya Revenue Authority (KRA) may impose stamp duty on a Deed of Novation depending on the nature and value of the underlying obligations being transferred. Commercial parties should consult an Advocate of the High Court of Kenya to confirm stamp duty treatment before execution. Kenya acceded to the Hague Apostille Convention in 2021, so deeds intended for use in Convention countries can be authenticated by apostille issued by the High Court Registrar.

A Kenya Deed of Novation is required whenever an outgoing party to an existing contract wishes to be fully discharged from future contractual liability and a third party is willing to step into their position with the consent of the remaining contracting party.

A Deed of Novation is required when a business registered with the Business Registration Service (BRS) via the eCitizen portal is sold as a going concern and the seller wishes to transfer all existing client contracts, supplier agreements, and service contracts to the buyer. Without novation, the seller remains contractually liable to all counterparties even after the business changes hands.

A Deed of Novation is needed when a construction or infrastructure contractor in Kenya — working on projects overseen by bodies such as the National Construction Authority (NCA) — is acquired by or merges with another contractor, and the client requires continuity of the same contractual obligations with the new entity as counterparty.

A Deed of Novation is required when a government procurement contract issued under the Public Procurement and Asset Disposal Act No. 33 of 2015, administered by the Public Procurement Regulatory Authority (PPRA), needs to transfer from a registered supplier to a successor entity following corporate restructuring.

A Deed of Novation is needed when a Kenyan law firm, accounting firm, or professional services practice restructures its partnership under the Limited Liability Partnership Act No. 6 of 2012 and wishes to transfer client engagement letters and retainer agreements from the old entity to the new LLP without individually renegotiating each client agreement.

A Deed of Novation is required when a commercial tenant registered under the Companies Act No. 17 of 2015 wishes to transfer its lease obligations to a related company — for example, following a group reorganisation — and the landlord (whether a private developer or the county government) consents to the substitution. Lease novation is distinct from subletting and produces a clean break for the outgoing tenant. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.

A Kenya Deed of Novation executed under the Law of Contract Act (Cap. 23) must include the following essential provisions to achieve a legally effective substitution of parties.

Parties and Recitals: Full legal names, BRS registration numbers for corporate entities, and registered addresses of all three parties — the outgoing party, the continuing party, and the incoming party. The recitals must identify the original contract by date, title, and parties, summarise its key terms, and state that all three parties have agreed to novation on the terms set out in the deed.

Acknowledgement of Original Contract: A clause confirming the original contract's existence, its current status (whether any obligations remain outstanding), and any accrued rights or liabilities as at the novation date. The continuing party must confirm the outstanding balance of any payment obligations or unperformed obligations as at the effective date.

Release of Outgoing Party: An express release clause by which the continuing party discharges the outgoing party from all obligations under the original contract with effect from the novation date. This clause is the core of the novation — without an express release, courts may hold that the original contractual obligation subsists alongside the new one.

Assumption by Incoming Party: The incoming party's express covenant to assume all obligations of the outgoing party under the original contract, to be bound by all its terms as if it had been an original party, and to indemnify the outgoing party against any claim arising from the assumed obligations after the novation date.

Confirmation by Continuing Party: The continuing party's express acceptance of the incoming party as the new counterparty, together with a novation of any obligations the continuing party owed to the outgoing party so that those obligations are now owed to the incoming party.

Effective Date: The specific date from which the novation takes effect. This date determines the allocation of accrued rights and future obligations between the outgoing party and the incoming party.

Stamp Duty and Costs: Identification of which party bears responsibility for any stamp duty assessed by the KRA under the Stamp Duty Act (Cap. 480) on the deed, and for any legal costs incurred in the novation process.

Execution as a Deed: The document must be expressed to be a deed, signed by each party in the presence of a witness who signs and provides their full name and address, and delivered as a deed. Execution as a deed removes the need to prove independent consideration for the continuing party's release of the outgoing party. The forms-legal.com Deed of Novation template includes all mandatory deed execution requirements under Kenyan practice.

Governing Law: Kenya law shall govern the deed, with disputes referred to the High Court of Kenya (Commercial Division) or, if the parties prefer, to the Nairobi Centre for International Arbitration (NCIA) under the Arbitration Act No. 4 of 1995 (revised 2022). Under Kenya law, Section 135 of the Companies Act 2015 (No. 17 of 2015) and Section 15 of the Employment Act 2007 (No. 11 of 2007) govern the core requirements for this type of document. Under Kenya law, Section 24 of the Land Registration Act 2012 (No. 3 of 2012) and Section 25 of the Data Protection Act 2019 (No. 24 of 2019) govern the core requirements for this type of document.