Loan Novation Agreement (Nigeria)
LOAN NOVATION AGREEMENT
Companies and Allied Matters Act 2020 | Conveyancing Act 1881 | Land Use Act 1978 | Stamp Duties Act (Cap S8, LFN 2004)
THIS LOAN NOVATION AGREEMENT is made on [Effective Date]
BETWEEN:
(1) [Continuing Party Name] (RC: [Continuing Party RC]), of [Continuing Party Address] ("the Continuing Party");
(2) [Outgoing Party Name] (RC: [Outgoing Party RC]), of [Outgoing Party Address] ("the Outgoing Party"); AND
(3) [Incoming Party Name] (RC: [Incoming Party RC]), of [Incoming Party Address] ("the Incoming Party").
RECITALS
A. By a Loan Agreement dated [Original Loan Date] ("the Original Loan"), the Continuing Party advanced to the Outgoing Party the sum of [Original Principal] on the terms therein set out.
B. As at [Effective Date], the outstanding balance under the Original Loan is [Outstanding Balance].
C. The parties have agreed to novate the Original Loan on the terms of this Agreement, substituting the Incoming Party in place of the Outgoing Party — [Novation Type].
1. NOVATION
1.1 With effect from [Effective Date], the Original Loan is novated and the Incoming Party is substituted in place of the Outgoing Party in all respects under the Original Loan.
1.2 The Incoming Party hereby assumes all the rights, obligations, and liabilities of the Outgoing Party under the Original Loan, including the obligation to repay the outstanding balance of [Outstanding Balance] together with interest at [Interest Rate] until the final maturity date of [Maturity Date].
2. RELEASE OF OUTGOING PARTY
2.1 The Continuing Party hereby releases and discharges the Outgoing Party from all obligations and liabilities under the Original Loan with effect from [Effective Date], and agrees not to bring any claim against the Outgoing Party in respect of the Original Loan from the effective date.
3. SECURITY
3.1 Existing security under the Original Loan: [Security Documents]
3.2 Treatment of security: [Security Treatment]
3.3 Governor's consent requirement: [Governors Consent Required]
3.4 CAC charge re-registration: [CAC Filing Required]
4. CONDITIONS
4.1 This Agreement is conditional upon satisfaction of the following conditions: [Additional Conditions]
5. GOVERNING LAW
5.1 This Agreement is governed by [Governing Law].
5.2 This Agreement shall be duly stamped under the Stamp Duties Act (Cap S8, LFN 2004) before enforcement.
Continuing Party
________________
Signature
Outgoing Party
________________
Signature
Incoming Party
________________
Signature
What Is a Loan Novation Agreement (Nigeria)?
A Loan Novation Agreement in Nigeria sets the principal, interest, repayment schedule and security governing a loan between lender and borrower.
Novation in Nigerian law is governed by the general law of contract as received in Nigeria through the common law tradition. The Supreme Court of Nigeria has consistently held that novation requires the consent of all parties to the original contract and the incoming party: without tripartite consent, there is no valid novation (see Bilante International Limited v NDIC [2011] 15 NWLR (Pt 1270) 407). The practical effect of a valid novation is that the original loan agreement is discharged and a fresh contractual relationship arises between the continuing party and the new party on the same or renegotiated terms.
Loan novation in Nigeria commonly arises in the context of corporate transactions — mergers, acquisitions, and business sales governed by CAMA 2020 — where the acquirer of a business assumes the target company's loan obligations; in property transactions where a new purchaser takes over the seller's mortgage loan from the bank (mortgage assumption); and in banking restructuring transactions where a bank sells its loan book and the borrowers are novated to the purchaser bank.
For loans secured by charges over company assets registered at the Corporate Affairs Commission (CAC) under CAMA 2020, Section 216, a novation that changes the lender requires the existing charge to be updated or a fresh charge registered in the name of the new lender. For loans secured by a mortgage over land — governed by the Land Use Act 1978 — a novation that substitutes the mortgagor requires fresh governor's consent under Section 22 of the Land Use Act 1978 for the new mortgagor's interest. The Stamp Duties Act (Cap S8, LFN 2004) requires the novation agreement to be stamped before it is admissible in evidence in Nigerian courts.
In practice, Nigerian banks — regulated under the Banks and Other Financial Institutions Act 2020 (BOFIA 2020) — routinely require a credit assessment of the incoming borrower before consenting to a novation, and may impose new security requirements, updated facility terms, and fresh documentation as conditions of their consent.
The legal framework governing the Loan Novation Agreement (Nigeria) in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Loan Novation Agreement (Nigeria) in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Contract Law (received English common law) sets the foundational requirements.
When Do You Need a Loan Novation Agreement (Nigeria)?
A Loan Novation Agreement in Nigeria is needed whenever the parties to a loan wish to substitute one party — either the borrower or the lender — with a new party, and all three parties consent to the substitution.
A Loan Novation Agreement is needed in a business acquisition — where a purchaser buys the shares or business of a company and wishes to assume the company's existing bank loan obligations, with the bank's consent — to formally transfer the debt from the seller's balance sheet to the buyer's balance sheet and release the seller from any personal or corporate guarantee obligations under the original loan.
A Loan Novation Agreement is required in a property sale with mortgage assumption — where a buyer of mortgaged real property in Nigeria wishes to take over the seller's existing mortgage loan from the lending bank, rather than obtaining a fresh mortgage. The bank must consent, assess the buyer's creditworthiness, and agree to substitute the buyer as the new mortgagor, releasing the seller from liability under the Deed of Legal Mortgage.
A Loan Novation Agreement is needed when a CBN-licensed bank sells a portfolio of performing or non-performing loans to another financial institution — such as the Asset Management Corporation of Nigeria (AMCON) acquiring distressed loans from commercial banks — and the borrowers must be formally novated to the purchasing institution.
A Loan Novation Agreement is required in a company restructuring — for example, where a parent company's loan is transferred to a subsidiary, or where a company divides into two entities and the loan obligations must be allocated — to confirm the original lender consents and the new obligor is clearly identified.
A Loan Novation Agreement is needed when a microfinance institution licensed by the CBN transfers its loan book to a larger commercial bank as part of a merger or acquisition, requiring the borrowers of the microfinance institution to be novated to the acquiring bank under new loan documentation.
Parties in Nigeria should prepare a Loan Novation Agreement (Nigeria) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Loan Novation Agreement (Nigeria)
A Loan Novation Agreement in Nigeria must contain the following essential elements.
Identification of All Three Parties: Full legal names, RC numbers (for companies under CAMA 2020), and addresses of: (1) the original lender (Outgoing/Continuing Lender); (2) the original borrower (Outgoing/Continuing Borrower); and (3) the incoming party (New Borrower or New Lender) who is being substituted. All three parties must sign the agreement.
Description of Original Loan: A precise reference to the original loan agreement being novated — including the date, parties, principal amount in NGN, interest rate, maturity date, and any security documents (Deed of Legal Mortgage, Debenture, Guarantee) that formed part of the original facility.
Outstanding Balance Confirmation: A statement of the outstanding principal balance, accrued unpaid interest, and any fees owed under the original loan as at the effective date of novation — being the amount of the debt that is being transferred to the incoming party.
Release of Outgoing Party: An express release clause confirming that the outgoing party (original borrower or original lender) is fully discharged from all obligations under the original loan agreement from the effective date of novation, and that the continuing party waives all claims against the outgoing party arising under the original loan.
Assumption of Obligations by Incoming Party: An express covenant by the incoming party that it assumes all the rights and obligations of the outgoing party under the original loan agreement from the effective date, including obligations to repay principal and interest, to maintain security, to comply with covenants, and to be bound by Events of Default provisions.
Security Transfer or Re-execution: A clause addressing the treatment of existing security — whether the existing Deed of Legal Mortgage, Debenture, or Guarantee is transferred to the benefit of the incoming lender, or whether fresh security documents must be executed. For land-secured loans, fresh governor's consent under Section 22 of the Land Use Act 1978 may be required.
CAC Filing (if applicable): Where the novation changes the lender under a registered debenture, a clause confirming that the parties will jointly file a memorandum of satisfaction of the existing charge and register a fresh charge in the name of the new lender at the CAC under CAMA 2020, Section 216, within 90 days.
Effective Date: The specific date on which the novation takes effect — which may be different from the signing date — and any conditions precedent to effectiveness (such as receipt of governor's consent or CAC registration).
Governing Law: The laws of the Federal Republic of Nigeria, with jurisdiction in the Federal High Court or State High Court of the relevant state.
Additional compliance elements for a Loan Novation Agreement (Nigeria) used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.
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Forms Legal. (2026). Loan Novation Agreement (Nigeria) (Nigeria) [Legal document template]. Forms Legal. https://forms-legal.com/nigeria/financial/loans/loan-novation-agreement-nigeria
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year = {2026},
howpublished = {\url{https://forms-legal.com/nigeria/financial/loans/loan-novation-agreement-nigeria}},
note = {Free legal document template. Based on Contract Law (received English common law)}
}Frequently Asked Questions
A loan novation and a loan assignment are legally distinct transactions under Nigerian law, and the choice between them has significant practical consequences. In a loan assignment, the original lender (assignor) transfers its right to receive repayment to a new lender (assignee) — but the original borrower's obligations remain unchanged, and the original borrower's consent is not required (only notice is needed, under Section 25 of the Conveyancing Act 1881 applicable in southern states). The assignor may remain liable to the assignee if the assigned debt turns out to be unenforceable. In a loan novation, by contrast, the entire original loan contract is extinguished and replaced by a new contract between the continuing party and the incoming party — with the outgoing party fully released from all liability. A novation of a borrower's obligations (substituting a new borrower) always requires the lender's consent, as the lender is taking on new credit risk. A novation of the lender's position (substituting a new lender) requires the borrower's consent because the borrower is entering into a new contractual relationship with a different creditor. The Supreme Court of Nigeria confirmed in Bilante International Limited v NDIC [2011] 15 NWLR (Pt 1270) 407 that novation requires the clear consent of all three parties. AMCON — the Asset Management Corporation of Nigeria — operates under its own statutory framework (the AMCON Act 2010) which gives it special powers to acquire and enforce bank loans without conventional novation requirements.
Whether the borrower's consent is required for a loan novation in Nigeria depends on which party is being substituted. If the novation substitutes the lender — replacing the original bank with a new lender — then the borrower's consent is legally required, because novation (unlike assignment) creates a new contract between the borrower and the incoming lender, and a party cannot be forced into a contractual relationship with a new entity without their agreement. Nigerian courts have consistently held that novation requires the assent of all three parties. If the novation substitutes the borrower — replacing the original borrower with a new borrower — then both the lender's consent and the continuing borrower's consent are required: the lender must agree to accept the new borrower's credit risk, and the original borrower must consent to have their obligations transferred. In practice, CBN-licensed banks in Nigeria will require a full credit assessment of the incoming borrower before consenting to a borrower substitution, and will typically require the execution of fresh security documentation (new Deed of Legal Mortgage, new Debenture, new personal guarantees from the incoming borrower's directors) as conditions of their consent. An agreement that purports to novate a loan without the requisite tripartite consent is not a valid novation and will not release the outgoing party from their original obligations.
The treatment of security on a loan novation in Nigeria is one of the most legally complex aspects of the transaction, and the approach depends on the type of security and the nature of the novation. For a debenture (fixed and floating charge over company assets) registered at the CAC under CAMA 2020, Section 216: if the novation substitutes the lender, the existing charge may be formally transferred to the new lender by a Deed of Transfer of Charge and a memorandum filed at the CAC; alternatively, the existing charge may be discharged and a fresh debenture executed in favour of the new lender and registered within 90 days. If the novation substitutes the borrower, the existing debenture over the old borrower's assets must be released, and a new debenture over the incoming borrower's assets must be created and registered. For a legal mortgage over real property secured under the Land Use Act 1978: a novation that changes the mortgagor (borrower) requires fresh governor's consent under Section 22 of the Land Use Act 1978, because the new mortgagor is granting a new mortgage over a right of occupancy. Without governor's consent, the new mortgage is void ab initio, as confirmed in Savannah Bank of Nigeria Ltd v Ajilo [1989] 1 NWLR (Pt 97) 305. Personal guarantees given by directors or third parties for the original borrower's obligations are typically discharged by the novation and fresh guarantees from the incoming borrower's directors are required.
A loan novation agreement in Nigeria is subject to stamp duty under the Stamp Duties Act (Cap S8, LFN 2004) as amended by the Finance Acts. The Finance Act 2020 amended the Stamp Duties Act to clarify that electronic instruments are also stampable. A novation agreement must be stamped before it can be tendered as evidence in any Nigerian court proceeding — an unstamped novation agreement is inadmissible in evidence. The rate of stamp duty applicable to a novation agreement is ad valorem duty on the value of the debt being novated: under the Stamp Duties Act, a deed of novation falls within the class of 'instruments by way of agreement' subject to a flat NGN 500 fee or an ad valorem rate depending on the nature of the underlying transaction. The FIRS (Federal Inland Revenue Service) administers stamp duty on instruments where the Federal Government is a party or where both parties are companies, while the relevant State Internal Revenue Service (such as the LIRS — Lagos Internal Revenue Service — for Lagos State transactions) administers stamp duties between individuals or between individuals and non-federal entities. The stamp duty on a novation agreement should be paid before or at the time of execution to avoid penalties.
Loans acquired by the Asset Management Corporation of Nigeria (AMCON) operate under a special statutory regime — the Asset Management Corporation of Nigeria Act 2010 (AMCON Act, as amended by the AMCON Amendment Act 2019) — which gives AMCON unique powers that differ significantly from ordinary loan novation principles. AMCON acquires eligible bank assets (non-performing loans and other distressed financial assets from CBN-licensed banks) by operation of statute and through its own acquisition process, without requiring the conventional tripartite consent of borrower, original lender, and AMCON that a standard loan novation demands. Under the AMCON Act, AMCON's acquisition of a loan from a bank is deemed to constitute a statutory transfer of all the bank's rights and interests in the loan, and AMCON steps into the shoes of the original bank lender automatically. AMCON is expressly empowered under the AMCON Act to enforce the acquired loans — including security enforcement — without commencing fresh proceedings. When AMCON subsequently seeks to recover the loans it has acquired, it typically enters into compromise agreements or Deed of Forbearance arrangements with the obligors, rather than formal novation agreements. If AMCON wishes to sell an acquired loan to a third-party investor, a formal novation or loan transfer agreement would typically be required, with the obligor's consent depending on the circumstances and the terms of the original loan documentation.
A loan novation and a loan restructuring are distinct legal transactions with different purposes and legal consequences under Nigerian law. A loan novation substitutes one of the parties to the loan — either the borrower or the lender — with a new party, while the loan terms may remain the same or be renegotiated. The defining feature of a novation is the change in a contracting party and the discharge of the outgoing party's obligations. A loan restructuring, by contrast, keeps the same parties in place but modifies the terms of the existing loan — for example, by extending the maturity date, reducing the interest rate, deferring or capitalising arrears, converting a term loan to a revolving facility, or granting a grace period for repayment. A loan restructuring is documented by a Deed of Variation or Loan Restructuring Agreement signed by the original lender and borrower. Under CAMA 2020, a restructuring that modifies the terms of a registered charge does not require re-registration, but a variation that changes the secured amount or the identity of the secured party may need to be noted at the CAC. CBN-licensed banks are required to comply with the CBN's Prudential Guidelines for Deposit Money Banks when restructuring non-performing loans — including requirements for additional provisioning, new collateral valuations, and board approval for restructurings above certain thresholds.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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