Kwan Ho Lau

Contractual novations: the “partial novation” phenomenon and is advance consent absolute?

Loan agreements, particularly those documenting a syndicated lending arrangement, may provide that a lender’s rights and obligations are transferable to another bank or financial institution by delivery of a duly completed and executed transfer certificate to a designated person, such as a facility agent. The borrower’s active participation is not required in this process. That has not prevented English law from recognising the transfer to be an effective novation, for the borrower is said to have consented in advance to the novation through its agreement to the transfer clause. Is the lender’s ability to transfer its loan interests an unfettered one? An interesting question also arises as to the effect of a novation with one lender on the other syndicate lenders’ contracts.