Texas Real Estate Sales Agent ExamContractsMedium
A tenant has a one-year lease agreement for an apartment. Three months into the lease, the tenant's employer relocates them to another city. The tenant finds a new person to take over the remainder of the lease, and the landlord agrees to release the original tenant from all future liability, accepting the new person as the sole tenant. What legal action has occurred?
- ABreach of Contract
- BAssignment
- CSublease
- DNovation
Show answer & explanationAnswer & explanation
Correct answer: D. Novation
Novation is the substitution of a new contract for an old one, or the substitution of a new party for an old one in an existing contract, with the consent of all parties. In this case, the original tenant's liability is completely released, and a new tenant takes their place with the landlord's agreement.
Why the other options are wrong
- A. A breach of contract would occur if the original tenant abandoned the lease without the landlord's agreement, which is not the case here.
- B. An assignment transfers all of the tenant's rights and responsibilities to a new tenant, but the original tenant typically remains secondarily liable unless released by the landlord.
- C. A sublease involves the original tenant leasing a portion or all of the property to a subtenant, but the original tenant remains primarily liable to the landlord.
Novation (Contracts)
The act of replacing an old contract with a new one, or replacing one of the parties in a contract with a new party, with the mutual consent of all involved parties.
- Requires agreement from all original and new parties.
- Completely extinguishes the old contract or party's obligations.
- Different from assignment or sublease where original party may retain liability.
Memory trick: New Nova's Nullify Old Obligations.