This guide is designed to help you understand novation and when you might be able to transfer a business lease.
The guidelines below are designed for a standard business to business novation where the original leaseholder is insolvent. If the original contract holder does enter insolvency then the process will be different and if this is the case for you then please give us a call and we can advise.
What is Novation?
A novation is a process where a lease agreement is transferred from one business to another.
If a lease is novated then the terms of the agreement remain the same, including the type of contract, length of the lease, annual mileage allowance and any maintenance elements.
A lease agreement can rarely be transferred from a business to an individual or vice versa as this will change the type of agreement, which is not possible.
Why Would We Need a Novation?
There are a number of reasons that you might want to look into a novation for a lease vehicle, but the funders will only allow a transfer in certain circumstances.
The main reason that we see clients requesting a novation is if one company has been bought out by another and the assets need to be transferred to the new company’s name.
Who Can Request a Novation?
A novation is the transfer of a financial agreement from one business to another, that usually occurs when one company is absorbed by a second or the original company is going into liquidation and their assets taken over by a different company. It will need to be an authorised party at one of these companies who will need to request the novation, they can be from either of the businesses but an authorised person will need to sign contracts in order to transfer to the lease agreement between the companies.
Criteria for Novation
The specific criteria for a novation can vary between funders but below are the general guidelines. This is not an exclusive list, and some finance companies may ask for additional information.
- A novation can usually only be between two limited companies unless the funder specifies otherwise. This includes LTDs, LLPs and PLCs.
- There will need to be a significant length of time left on the contract, for most this will be 6 months but some may ask for up to a year.
- Both businesses will need to be solvent. There are exceptions but these are rare.
- The contract type needs to remain the same.
- The current agreement cannot be in arrears.
- The address on the documents must match the addresses listed on Company’s House.
Please be aware that the company that is going to take on a lease must have a credit check as part of the approval process so that the transfer can go ahead.
Novation Process
Like the criteria for a novation, the process differs slightly between funders.
If you feel that you need to novate a lease that Wessex Fleet has arranged for you then we will speak to the specific funder for that lease and advise you on their process.
In general, the company looking to take on the lease will usually need to complete a proposal form, so that we can then complete the application with the lease funder on their behalf.
Most funders might also ask for a copy of the proposed company’s set of accounts or their opening balance sheet if they are a newly founded company, in order to show that they can realistically afford to take on the additional cost of the lease(s).
How Much Does a Novation Cost?
Unfortunately, there is no set amount to novation that we can advise you on. The cost of novation will usually be dependent on the work that is required by the funder and this can vary between funders as well.
Your funder should advise you of any cost that there is for the novation and on how this should be paid.
How Long Does the Novation Process Take?
Again, there is no uniform answer to this question. Each novation is unique and as a result of this the time it takes to complete the process can vary.
Other Considerations
There may be a cost to novation from the lease funder due to the work they will need to do in order to transfer the lease from one business to another.
If your lease is< strong style="color:rgb(2,144,193)"> through or managed by Wessex Fleet then we will speak to the funder on your behalf in order to find out if there is a cost to the novation, as well as any paperwork and processes that you will need to complete.
As mentioned above the company looking to take on the lease will need to have a credit check completed as part of the process, if there are issues flagged at this time then the novation may not be able to proceed.
If you need to novate a lease agreement or have any further questions then please get in touch with us on 01722 322 888.