Amending a Contract: Why and How
People and businesses enter into contracts every day. These contracts reflect the parties’ intentions at the time they enter into the contract. However, situations change over time and the parties may want to alter the contract to reflect new terms or conditions. In these situations, the parties will typically enter into a written amendment to a contract that is signed by both parties.
What Is a Contract Amendment?
In short, an amendment is a change to an existing contract that alters its terms in some way. This may include adding, removing, or revising certain portions of a contract. An amendment does not replace an existing contract entirely, but it will often substitute a portion of it.
Amendments should meet the following basic requirements to be valid and avoid misinterpretations.
Basic Requirements of Contract Amendments
It is good practice for all amendments to be in writing and signed by the parties. If there is a written contract between the parties, then there should be a written amendment to it. Even if there is a verbal contract between the parties, it would still be a good idea to have a written amendment. Many written contracts require that any amendments must be in writing and signed by the parties to be enforceable. Otherwise, any amendment (such as a verbal amendment) will not be binding on the parties. In addition, certain contracts (such as real estate contracts) must be in writing in order to be enforceable. This applies equally to any amendments to a real estate contract. By having an amendment in writing signed by the parties, the parties take a little more time to ensure that the amendment is correct and it reduces the likelihood of the parties having different understandings as to the amendment.
An amendment should start with recitals stating that the parties entered into a contract, what has changed since the contract was entered into and a general statement as to how the parties intend to amend the contract. Although the recitals are not binding on the parties, it lays out a nice roadmap for what the parties intend by entering into the amendment. This could prove very useful if someone (such as a mediator, arbitrator or a court) is trying to interpret the amendment.
If the amendment is changing terms and conditions, then the amendment should specifically cite those portions of the contract that are being amended. The amendment should then clearly state the new language that amends and supersedes those portions of the contract that are being amended. Likewise, if the amendment is adding new language, then it should clearly state the new language upon which the parties have agreed.
The amendment should also state (i) the date upon which it becomes effective and binding upon the parties, (ii) that the contract should be interpreted taking into account the effect of the amendment, and (iii) that except for those provisions of the contract that are specifically being amended, that all other terms and conditions of the contract remain in full force and effect.
By taking these steps, the parties reduce the likelihood of problems in the future.