Deal structure

Using a novation agreement for a property with code violations

A novation agreement can be a strategic tool for properties burdened with code violations, especially if those violations make a direct cash sale difficult. This approach involves stepping into the seller's shoes to resolve issues and secure a traditional buyer. This is not legal advice.

November 6, 2026 · 3 min read

Understand the nature of the violations

Before considering a novation, get a clear picture of the code violations. Are they minor cosmetic issues, or do they involve serious structural, safety, or environmental problems? Obtain copies of any official notices or orders from the local code enforcement office. This is not legal advice.

The severity and cost of remediation will dictate if a novation is feasible. Minor violations might be quick fixes, while major ones could require significant time and capital, increasing your risk.

Assess repair costs and timelines

Estimate the total cost and time required to bring the property into compliance. This includes not just the repairs themselves, but also any permit fees, inspection costs, and potential fines. Get contractor bids to ensure accuracy. This is not legal advice.

With a novation, you're essentially marketing a property that still needs work, but with a plan. You must be confident in your ability to manage and fund these repairs, or find a retail buyer who understands the scope.

Seller's willingness to cooperate

A successful novation requires the seller's full cooperation. He or she must be willing to sign the novation agreement, understand that you are marketing his or her property, and remain patient during the process. His or her trust is crucial. This is not legal advice.

If the seller is hesitant or uncommunicative, a novation becomes much harder. This strategy works best with motivated sellers who are truly stuck and see the novation as their best path forward.

Finding a retail buyer for the novation

The goal of a novation is to find a retail buyer who will ultimately purchase the property from the seller at a higher price after you've handled the marketing and perhaps some repairs. You market the property as if you owned it, but the seller remains on title. This is not legal advice.

This retail buyer must be willing to close on a property with known issues, or one that is undergoing remediation, typically securing his or her own financing. His or her understanding of the novation structure is key.

Risks and considerations with novation

Novation agreements carry risks. You're investing time, and potentially money, into a property you don't own. If you can't find a retail buyer, or if the repairs spiral, you could lose that investment. This is not legal advice; consult with a qualified legal professional.

Always ensure your novation agreement is clear about responsibilities, timelines, and contingencies. Get competent legal counsel to draft or review these agreements, as state laws vary significantly. This is not legal advice.

The novation agreement and the agent

Sometimes a property with code violations might already have an agent involved. A novation can still work, but it needs clear communication and agreement from all parties. The agent must understand your role and the fee structure. This is not legal advice.

Your novation agreement should address how any agent's commission will be handled upon the final sale. Transparency here prevents later disputes and ensures a smoother transaction for everyone involved. This is not legal advice.

Questions people ask

Is a novation legally complex?

Yes, novation agreements can be legally complex because they involve multiple parties and contractual obligations. It is highly recommended to seek qualified legal advice to ensure your agreement complies with state and local laws. This is not legal advice.

What if I can't find a retail buyer?

If you can't find a retail buyer, you risk losing the time and money invested in marketing and any repairs. Your novation agreement should outline what happens in this scenario, such as terminating the agreement. This is not legal advice.

Can a novation cover severe violations?

A novation *can* cover severe violations, but it significantly increases your risk due to higher repair costs and potential longer timelines. It requires a deeper assessment of the financial and logistical feasibility before proceeding. This is not legal advice.