What You Need to Know About Contract Addendums

A contract addendum is an addition that is added to an existing agreement to clarify or add additional information. A contract addendum is commonly added when one party needs to add terms or conditions following the drafting of the original contract. An existing agreement may be modified by a contract addendum to update information or to reflect another contingency that was not mentioned in the original document. A contract addendum typically outlines specific changes that the parties mutually agree upon so that there is no misunderstanding about the terms of the modified agreement.
Typically , situations that require a contract addendum include:
• Adjustments to the purchase price, taxes, or other financial areas of a contract including the proposed method of financing.
• Changes to the time period for performance of the contract or postponement of a deadline.
• Incorporation of additional documents such as those that explain contingencies.
• Stipulations regarding specific areas of costs for an itemized purpose.
• Clarifications made in a contract for specific details about a product or service involved with a deal.

What is a Contract Amendment?

Contract amendments are used to modify the terms of an existing contract. Like an addendum, an amendment does not create a new contract but rather works to revise some portion of the existing agreement. The most common type of amendment is a modification to one or more terms of the original contract. For example, if one party wishes to amend the price, a change for just that specific term can be made as long as both parties agree. In the event that one party wishes to change a general term, such as the effective date of the contract, the change can still occur. However, it is important to specify the date on which the change will take effect to avoid any confusion.
The scope of contract amendments is not limited only to price or time changes. Parties can amend any part of the contract in need of revision, even down to the specifics of what work will be performed on a task. Amendments can be useful and time-saving in instances where parties are willing to work within the terms of an existing contract rather than rewriting a new one.

Addendum Versus Amendment: The Major Differences

While both an addendum or amendment may be used to alter or enhance an existing contract, there are some key differences between the two. Contract amendments are changes made to the terms of an existing legal contract. This is often a necessary step to bring about a deletion or insertion of certain terms or clauses. But if the changes are more significant than just language changes, they may need to be addressed through an addendum.
It is important to note that while a contract amendment essentially modifies the original terms of a contract, the substantive commercial terms remain the same. This is generally not the case for an addendum, which typically means that the original terms are no longer in effect due to the changes. An addendum usually deletes the old terms and adds new terms that take their place.
The change in terminology (amendment vs addendum) can also signal whether a contract includes severability language, which specifies that if a particular clause of the contract is found to be unenforceable, the remaining contract provisions will still remain in effect.
A contract amendment does not always require the consent of both parties, although it is generally recommended. Contract addenda usually require that any such revisions be drafted by all parties to the contract. In many circumstances, a signature from all parties is needed so that the changes can become enforceable.

Legal Consequences and Precautions

While the legal implications of addendums and amendments differ based on the context in which they are used, there are some general best practices to keep in mind: First, ensure a clear distinction between contract terms and extraneous issues. Second, follow your state’s rules on signature requirements. For addendums, you may find that an addendum must be signed by both parties, and not just the party seeking the change. And third, make sure there is no ambiguity in the wording of your amendment or addendum. Ambiguity invites potential legal challenges to the terms and can potentially render documents unenforceable. There are also specific best practices that you ought to keep in mind for addendums and amendments: For addendums: examine the language of any relevant state laws to find specific requirements for enforceability. In general, addendums should be attached (as new documents) to the original contract to avoid confusion around which contract a party reference in any communications that deal with aspects of the contract. Avoid attaching a new page to the end of a contract; use a separate page to contain the addendum. If there is concern about the enforceability of an addendum, you might consider signing and dating it in the presence of a notary public. For amendments: you do not need to specify the original language you are changing. Because cohesion is key, if an amendment affects multiple parts of an existing contract, consider creating a separate amendment for each term. Remember that additional documents may need to be executed to remove an existing party from the contract and/or to add a new one if this change is made through an amendment.

When to Use an Addendum or Amendment

The choice between using a contract addendum or contract amendment depends on the type and degree of change you want to make to the original contract. Contract addendums are preferable to contract amendments for most types of changes because they leave the original contract intact and avoid confusion about whether a particular term that has changed is actually a term of the original contract.
To avoid possibility of ambiguity, however , some items that tend to be more complex may be better addressed in a contract amendment.
It may sometimes be difficult to decide whether to use a contract addendum or a contract amendment, so here are some practical criteria to consider:
Examples of when to use a contract amendment include:
Some contract changes are unavoidable, however, and should be addressed as soon as possible with the other party. Also be aware that certain types of contracts may have a provision specifying that all changes must be made in the form of a formal contract amendment.

Real-Life Scenarios and Case Law

A contract amendment can prevent the potential business disaster that occurred in the case of Three Chutney Restaurant, Inc. v Star Union, LLC., 2011 WL 5927642 (Conn. Super. Ct. 2001). In this case, Threes Chutney Restaurants entered several leases from Star Union, LLC, for space in residential buildings as restaurants. Each lease was guaranteed by Group Ventures, LLC, a company affiliated with Three Chutney. The leases required Three Chutney to obtain written permission from Star Union prior to making any structural changes to the leased spaces. Further, the leases provided that the tenants were not permitted to assign a lease without Star Union’s written consent.
In an effort to use the same space as a restaurant and a lounge, Three Chutney approached Star Union about obtaining permission for structural changes and an assignment of its lease to Group Ventures. Star Union agreed to the changes provided that Three Chutney complied with all zoning regulations. Over the next several years, Three Chutney made numerous structural changes to the kitchen and dining areas without notifying Star Union. Three Chutney also often failed to pay rent on time. Finally, in early 2005, Three Chutney informed Star Union that it would not be renewing its leases and planned to vacate the premises. When Three Chutney did not vacate in May 2005, however, Star Union filed suit seeking possession of the premises.
The Superior Court of Connecticut held that Three Chutney was not in default of its lease. The court found that although the Three Chutney had delayed payment of its rent on multiple occasions, it failed to comply with its obligation to obtain prior written permission to make structural changes to the premises, which constituted a material breach of the lease. Specifically, the court noted that the language of the lease made it evident that Star Union relied on the Three Chutney’s compliance with the structural change provision. The court further explained that under Connecticut law, where the breach of a lease is one which goes to the essence of the lease, the non-breaching party has the right to terminate it. Here, the court reasoned, in the absence of complying with the structural change provision, Three Chutney’s use of the space was illegal. As such, Three Chutney’s breach allowed Star Union to terminate the lease. Three Chutney ultimately vacated the premises and Star Union took possession of the properties.
Three Chutney illustrates another potential pitfall with failing to reduce contract changes to writing: three years after the verbal agreement, Star Union took the position that the structural changes were illegal. Without an agreement in writing to eliminate the potential for a conflict, alternative dispute resolution would prove to be time consuming and costly.
A contract addendum would have been helpful in the case of Stone v Peters, 2012 WL 4466582 (Kan. Ct. App. 2012). In 1995, Dale Stone and Leslie Peters executed an oil and gas lease for property located in Kansas. The lease provided that "[t]his lease may not be assigned, sublet, or otherwise encumbered in part or as to all amounts." In 1998, Leslie Peters formed Peters Drilling, Inc., which drilled and operated a well on the property. In 2004, Peters and Stone agreed to a new drilling agreement which included several amendments to the lease. Specifically, the parties asserted that Peters was permitted to make an adjustment to the surface design and to use up to five additional, contaminant-free tanks in its operation. Further, the parties asserted that Peters will bore additional wells in the future under the original agreement. However, the drilling agreement was silent with respect to when these amendments would take effect and whether Peters had the right to assign its interest in the lease to another company.
In 2009, Peters sold its operating rights and leasehold estate rights to Grassy Creek, a company that Peters owned. Stone brought suit claiming that Peters lacked authority to assign its interest in the lease. The court affirmed summary judgment against Stone. The court reasoned that the drilling agreement provided that Peters’ rights under the original lease would be controlled by the amended drilling agreement. Because the amendments to the drilling agreement provided that Peters would be permitted to drill deeper wells and it would have the right to assign its rights to any other company, the court held that Peters had assigned its interest in the lease to Grassly Creek.

Answers to Frequently Asked Questions

While many of the differences between contract addendums and amendments are fairly simple to get your head around, you may still have a few lingering questions that need answered.
Q: How can I draft a contract addendum?
A: You should outline the changes or additions you want, numbered in the order they will go into the addendum. Consider if the addendum needs to be notarized or require witnesses before you add any extra clauses. You have to draw up the addendum according to the requirements of that state’s law.
Q: If I change the original addendum, is that a contract amendment?
A: Not necessarily. It depends on how extensive the changes are and what the implications will be once the changes have been made. The bigger the changes you make, the more likely it will be seen as an amendment instead of an addendum.
Q: Can contract addendums be handwritten?
A: They can be. But in some circumstances, getting it properly typed out by an attorney might be the best way to ensure that nothing gets lost in translation.
Q: Do addendums need to be notarized?
A: They don’t, though it is a best practice to do so . By notarizing, you create a signature verification and make it harder to forge a signature.
Q: What happens if a contract addendum is not enforced?
A: It will be considered void. That means that it will be treated as if it never existed. It’s important to note that a contract addendum does not cancel or nullify the original contract.
Q: Are contract addendums enforceable?
A: Yes, as long as the original contract doesn’t specifically prohibit contract addendums. Sometimes, original contract may have an ant-addendum clause, in which case when an addendum is created and not filed as per the provisions of the anti-addendum clause, it may be deemed to be void.
Q: What to do when you’ve amended a contract?
A: The first step is to make sure that the amendments and the original terms are consistent with one another. The second step is to create the contract amendment, with the proper revisions. The third step is to make sure that all parties involved in the original contract witness the revisions.
Q: Is a contract addendum legally binding?
A: Yes, a contract addendum has to be signed to form a legally binding contract.