Keep a Good Thing Going with a Contract Extension Agreement

Keep a Good Thing Going with a Contract Extension Agreement

by Edward A. Haman, Esq., June 2019

Your contractual business relationships don't need to end just because the agreement has an end date. Whether more time is needed to complete the requirements of the contract, or you simply want to continue a good business relationship, a contract extension agreement can help accomplish your goals.

Keep a Good Thing Going with a Contract Extension Agreement

Contract Continuation Options

When a contractual business relationship is to continue beyond the terms of the original agreement, the parties have three choices:

  1. Execute a new contract. This results in a more lengthy and complex document, but may be the best way to go if there are numerous modifications to be made to the original agreement.
  2. Execute a contract extension agreement. By choosing this option, the parties continue to keep the contract in force, with all of the same terms of the current contract.
  3. Execute a more limited contract extension agreement. The parties may choose to execute a contract extension agreement that modifies only one or more of the terms of the current contract.

Some contracts include provisions allowing for extensions. In such a case, the contract extension clause needs to be considered, so that any terms or conditions for an extension are followed.

Adding a contract extension agreement is simpler than preparing a new contract. With an extension, you simply continue with the terms of the existing contract, plus any modifications you may choose to make.

Uses of a Contract Extension Agreement

There are several situations in which a contract extension can be useful. Extending a contract can be necessary in order to complete a project, or desirable in order to continue a productive working arrangement. In terms of timing, a contract extension can be done after the term of the contract has expired, or as soon as it becomes clear that an extension is desired or needed.

Parties who signed an agreement that expires after a certain period of time may find that their working relationship is going so well that they want to continue working together beyond the term of the original contract. A contract extension can accomplish this.

At some point after a contract is signed, it may become apparent that the time frames in the agreement are insufficient to complete the tasks. For example, with a building construction contract, it may originally have been expected by both parties that government permits could be obtained within 30 days, but a few days into the contract it becomes obvious that the permit process will take twice that amount of time. A contract extension can adjust for such a mutual mistake in expectations.

Some business partnerships are formed for a limited period of time, such as until a certain date or until a certain project is completed. If the partners decide that they want or need to extend the length of the partnership, this also can be accomplished with a partnership contract extension agreement.

Contract Extension Documents

An agreement to extend a contract can be accomplished in one of three ways:

  1. By a contract extension letter signed by both parties. This is a simple document, which may consist of only a few sentences.
  2. By an exchange of letters between the parties. One party sends a contract extension request letter, and the other party sends an acceptance letter. It must be clear that the parties agree to the same terms of the extension.
  3. By both parties' signing a simple contract extension agreement. This can be done using a contract extension template.

One method is not necessarily better than the other. The manner in which an extension is accomplished will depend upon various factors, such as the nature of the contract, the extent of any changes that are needed, and the relationship of the parties.

In many situations, a contract extension agreement can be used to continue a business relationship without the necessity of starting from scratch with a completely new contract.