Novations and Nominees

A novation is an agreement made between two contracting parties to allow for the substitution of a new party for an existing one. A few examples:

  1. When a tenant passes the lease over to another person making him or her responsible for rent payments and any property damages according to the original lease contract.
  2. When a homeowner signs a Purchase and Sale agreement that includes the ability for the buyer to exercise an option to put the property on the market via the MLS and grants the buyer, as contract owner, and permission to execute a listing agreement with a real estate company.

According to MLS policy, staff is responsible to verify several items when ALL listings are entered in the MLS. First, that there is an exclusive agreement to list the property, that the agreements are signed and dated appropriately (as best as can be determined), that the MLS listing offers compensation to cooperating brokers and finally, all required documents are uploaded (typically lead and listing).

In the case of a listing with a novation agreement, the MLS will also verify:

  1. Novation: There is a Purchase Agreement signed by the seller (deed owner) to the buyer (contract owner) with the option to premarket and list the property.  In many cases, the novation clause not only grants the buyer the ability to sign an Exclusive Right to Sell Agreement and to put the property in the MLS, but also that the seller will provide any information and complete disclosures as required.  Additionally, the agreement may contain an option to either purchase the property and/or substitute that with a new agreement from a third party. Staff verifies there is a novation in place so that it can be listed in the MLS.
  2. Exclusive Right to Sell: Staff verifies there is a listing agreement or master agreement that grants the MLS Brokerage the right to sell the property in the MLS, signed by the contract owner shown in the novation contract.
  3. Disclosures: That there are lead paint forms uploaded to the listing, when disclosure is required by Massachusetts Law to be presented before a purchase agreement is executed.

You may wonder how this differs from the Nominee clause in our Berkshire MLS Standard Purchase and sale agreement.

Novations and nominations both give the purchaser the ability to transfer their interest in the agreement to a third party. However, a novation requires the agreement of the vendor and will release the original purchaser from all liability under the contract. A nominated party can enforce the agreement in the same way as the original signing party. The nominee language simply swaps out the buyers in the purchase agreement, and does not grant the right to market or list the property prior to deed transfer.

23. NOMINEE: BUYER may require the conveyance to be made to another person, persons, or entity (“Nominee”), upon notification in writing delivered to SELLER at least five days prior to the Date of Closing. The appointment of a Nominee shall not relieve BUYER of any obligation hereunder. Any Note or mortgage or other document to be delivered from BUYER to SELLER shall be executed by or unconditionally guaranteed by BUYER, unless otherwise specified herein.