Arbitration Agreement Novation: What Every Business Owner Should Know

Arbitration agreements are a common way for businesses to resolve disputes without going to court. They are often included in contracts and require that any disputes be resolved through arbitration instead of litigation. However, what happens when the terms of the arbitration agreement need to be changed? This is where novation comes in.

Novation is a legal term that refers to the substitution of a new contract or party for an old one. When it comes to arbitration agreements, novation can be used to modify the terms of an existing agreement or replace it entirely with a new agreement. This can be useful if the original arbitration agreement is no longer sufficient for the needs of the parties involved.

In order to novate an arbitration agreement, all parties involved must agree to the changes. This can include adding or removing parties, changing the scope of disputes covered, or modifying the language used in the agreement. Once everyone agrees to the new terms, the original arbitration agreement is superseded by the new agreement.

Novation can be a useful tool for businesses that want to modify their arbitration agreements. However, it is important to note that there are some limitations. For example, novation cannot be used to avoid the provisions of the Federal Arbitration Act, which governs the enforcement of arbitration agreements in the United States. Additionally, novation must be done in accordance with the rules of the particular arbitration forum being used.

If you are a business owner who is considering novating an arbitration agreement, it is important to consult with legal counsel. They can help you determine whether novation is the best course of action and guide you through the process.

In conclusion, novation can be a valuable tool for businesses that need to modify their arbitration agreements. It allows for flexibility and customization, while still maintaining the benefits of arbitration. However, it is important to proceed with caution and ensure that all parties involved are in agreement before making any changes. With the help of legal counsel, businesses can navigate the novation process and ensure that their arbitration agreements are best suited to their needs.