Getting to Know Contract Amendments
A contract amendment is a formal way to modify the terms of an existing agreement that is currently in effect. You will need to amend a contract any time you and the other party want to make a change to the agreement. For example, if you want to change the length of a lease or even terminate it early, you will need to create a contract amendment that both you and the other party sign. Amendments should be made by the mutual consent of both parties. A unilateral change made by one party without the other’s consent does not constitute a valid contract amendment.
It is important to properly modify the terms of an existing contract so that all parties are aware of their obligations. It should come as little surprise that allowing a contract to run its course without making any changes or modifications creates a "runaway contract." The contract is allowed to operate under its terms without anything modified or added. If one of the parties to the contract wants to terminate it before the contract expires , the appropriate action is to follow the procedures for termination outlined within the contract. However, if the contract does not contain a termination clause, no one can terminate the contract without the consent of the other.
Mutual consent is required. Because of this, an amendment is different from the other options for modifying a contract. An addendum and a novation are two other options available when creating changes to a contract. An addendum modifies a contract by altering some of the current terms, but does not change the identity of any of the parties involved. An example of a contract addendum might be a change to the parties’ method of payment. A novation, on the other hand, completely extinguishes the old contract and replaces it with a new one. A novation is necessary when there’s a new party introduced into the agreement.
Amending a Contract: Why and When
Contracts are seldom carved in stone. At some point after an agreement is executed, circumstances arise or change, necessitating amendments, which—if properly drafted and executed—will help you develop and preserve business relationships, manage expectations, and assure legal compliance. Amendments may be required when there is a change in the terms of a contract, if there is a change to a party to the contract, or if a party to the contract has an interest or right that has terminated. If an amendment is required and not obtained, the contract may be unenforceable or require litigation for its enforcement, bringing unnecessary costs, business disruption and delay.
An agreement may need to be amended to change a due date or payment amount or method. Amendments are often needed to extend the term of a contract or to alter a specification or cost. It may be necessary to delete a party who is no longer part of the contract or to add a new party by novation. Contracts requiring action by state regulators may need to be amended to comply with a change in statute, rule, regulation or requirements (which generally must be the subject of a separate request for approval). A party may require an amendment in order to cure an existing or possible default, in order to avoid litigation to determine whether a party failed to perform (and thus is in default or unenforceable) or whether the default is excused or waived.
All amendments to an existing contract should be in writing and executed by all parties to the contract. The terms of the amendment should precisely reflect the intent of the parties. For example: Does the amendment change the entire agreement? Is there a specific portion of the contract to be modified or amended? Is there a provision requiring additional consideration for the amendment to be valid? If not, is this amendment free of coercion or undue pressure?
What Should Be Included in Your Amendment Template
An effective amendment template should clearly identify the details from the original contract, commonly by including the date the contract was executed and the parties that are involved. The details of the provisions that are to be changed must also be highlighted, and separated and labeled from the new provisions. It is important to include the correct references, and to be specific about any deletions and additions so that there is no doubt at a future date as to what the parties’ intent was when they executed the amendment.
The signatures should be original signatures in ink, and witness signatures should be provided if possible. The following is a list of the most basic provisions that appear in most amendment templates, but you should always seek the advice of competent counsel to ensure that your amendment template includes the necessary provisions for your particular need:
- The date of the original contract
- The names of the parties to the original contract
- Language that identifies the original contract, such as the contract number or any other identifiers (this may be a description of the subject matter addressed in the contract)
- The specific language that is being modified in the original contract. If you are deleting language, it is helpful to highlight the original cross-out language, or to strike through the original language (but be careful not to alter the original agreement if you are requiring the party to return it)
- Language that includes the new modified provision or provisions
- The signatures of the parties, with the new date of the signature appearing on the amendment
- Language indicating that all other provisions of the original contract remain in full force and effect
- Language including effective dates for the amendment, which is addressed in the body of this article
- Witness signatures, if applicable.
How to Amend a Contract: A Step by Step Approach
To ensure a successful contract amendment, there are several key steps that must be followed. While some contracts include the specific procedure for amending or modifying the terms, others contain a general statement requiring an amendment or modification in writing. This article will discuss the step-by-step procedure for amending a contract.
The first step is to obtain the consent of all parties to the agreement. Many contracts already have such a clause and, if so, you will just need to follow the procedure. If not, you will need to contact the other parties to see if you can convince them to mutually agree to amend the contract.
Next, draft the proposed written amendment and have all parties sign it. The usual rule applies – once the amendment is signed, the parties are bound by the new provisions, and they can’t go back and enforce provisions found in the original version of the contract that have been superseded by the amendment.
Pitfalls to Steer Clear of When Amending a Contract
Contract Amendments are an integral part of the contract management process. As businesses and relationships grow and change, so too does the need to amend contracts. Businesses are often hesitant to amend contracts because the law surrounding contract amendments can be murky at best and stormy at worst. If you know what you are doing though, it should not be a problem. Here are some of the common mistakes and how to steer clear of them:
Ambiguous Language – One of the most common mistakes made in contract amendments is the use of language that is unclear or ambiguous . It’s important to ensure that any amendments are unambiguous so no one is surprised or confused when reading the document.
Failing to Update all Relevant Documents – Imagine going to court and having a judge only read part of a contract. This is what could happen if you fail to update any legal documents relating to the original contract.
Neglecting to Seek Legal Advice – To best manage your business and contractual relationships, it is important to seek the advice of a competent attorney knowledgeable in this area of the law.
Amendment Templates, Tools and Resources
While it is crucial to include all necessary terminology in your new contracts, it may not be feasible to renegotiate every section every time you want to update the terms of the agreement. This is where a contract amendment comes in. Fortunately, there are a number of useful tools and templates that can help streamline the contract amendment process. If you are looking for a basic contract amendment template, Law Insider has many free templates for you to customize for your purposes. The site also provides a list of its professionals, who can provide you with guidance on which clauses to use and how to draft them. There are other places you can find contract amendment templates, as well. Some notable ones include: In general, any office management or document preparation software can help you with the drafting process through features like autofill and the ability to save information in a client or project file. Cloud-based services like Google Docs, One Drive, and Box not only have word processing and spreadsheet functionality to help you with your document preparation, but they also allow you to store and access your documents from anywhere (as long as you’re connected to the internet). Cloud storage can also provide you with an additional level of backup against data loss, and the collaborative functionality allows you to share documents and collaborate in real-time with members of your law firm. There are many other places to look to find useful tools for contract amendment preparation. Some good places to search include: In a perfect world, there would be no need for contract amendments, but life isn’t perfect. With the right combination of tools and templates, you can draft reliable contract amendments without putting your best clients at risk.
Legal Issues Surrounding Your Amendment
Contract amendments are strictly governed by the laws of the jurisdiction that has authority over the particular contract. Adjusting jurisdiction can lead to a situation where an amendment is valid in one country but invalid in another, potentially giving rise to liability if an attempt is subsequently made to enforce the contract.
The legal enforceability of amendments also comes into play when dealing with written documents. If parties agree to an amendment verbally, it may be difficult to enforce in a writing only jurisdiction. This is particularly relevant in oral agreement cases where the amendment has not been properly documented and where enforceability is later disputed.
Because wording the amendment correctly is essential to its validity, it is best practice to consult a legal professional before making any changes to an active contract. An expert can help avoid situations where a poorly worded contract amendment exposes the individual or company who initiated the amendment to liability.
Successful Contract Amendments: Case Studies
While not exhaustive, these will provide sound examples of what a well-prepared contract amendment can accomplish.
1. For the Mall Owners
A local real estate developer, several years earlier, had constructed a large outdoor mall as part of a mixed use center in the suburbs of a major metropolitan area. Part of the mall site was available for development additional by a prominent hotelier. The hotelier sought to include the site in two nationally recognized franchise arrangements so that the actual hotel operation would have the benefit of the marketing muscle and top tier market position of these two major franchises. This was not accomplished in the original deal but could be accomplished with the appropriate amendments to the original lease. This would take considerable work with the franchisors but it was suggested that the hotel make the investment in connection with the commencement of the hotel operation. After several months of discussions and negotiations, the parties affixed their signatures to the necessary documents . The hotel was developed and is a centerpiece of the operation with agreements from the franchisors so that the hotel enjoys excellent traffic and a prime location.
2. For the Commencing Hotelier
Several years after the mall was completed, a nationally recognized franchisor was seeking to introduce its brand in the same major metropolitan area. A large land owner was seeking to add this nationally renowned brand to a developer of upper-end, full service hotels. The free market forces had dictated that there was a need for another hotel in this market. Discussions were held between the hotelier and the mall owners. The parties were supremely satisfied with the result because it made the territory that they wished to be in, available to both parties. The mall owner had achieved what it needed: the ability to prospectively control the location for the hotel; the hotelier implanted itself into a market it needed to be in and did so with the benefit of a visible location, the critical mass and planned synergies of the mall and the support of the franchise system. It was a win-win for both parties.