When your business enters into a contract with another business or person, both parties are bound by the terms of the contract and are legally required to follow them. Situations can change though, and circumstances might require an update to your contract. To do so, you need to create a contract amendment.
Understanding Contract Amendments
A contract amendment allows the parties to make a mutually agreed-upon change to an existing contract. An amendment can add to an existing contract, delete from it, or change parts of it. The original contract remains in place, only with some terms altered by way of the amendment.
Keep in mind that when you're negotiating a contract, changes made during that process are not amendments. Since there is no existing contract in place, there's nothing to amend yet. You're simply negotiating the original terms.
When to Amend a Contract
You should amend a contract any time you or the other party wants to make changes to the terms of the agreement. You might discuss the change, have one party write it up, and then have both sign it. For example, your company, Hats For Less, LLC, buys ribbons from Ribbon Centric, Inc., who sends you notice that they have to raise their prices on a certain type of ribbon. After a phone call in which you both agree to a new price, Ribbon Centric sends you the amended contract, which you both sign. Another possibility is that Ribbon Centric just sends you the amendment with a letter explaining their new rates and you decide whether or not you want to agree to the new terms.
Contract amendments are also useful in cases where you and the other party have ended up handling matters differently than the contract requires. Let's say Hats for Less sells fascinators to a store called Wedding Hats and the contract guarantees you'll send shipments within 14 days. For the past year, there have been some delays because you can't always get the feathers you need to make the fascinators as quickly as you'd like. Wedding Hats has been understanding about the delays and has accepted that it takes you 30 days to ship. However, since you realize that you're contractually obligated to ship within 14 days and can no longer do so, it's a good idea to update the contract to reflect that change in practice.
How to Create a Contract Amendment
There are several ways to amend a contract:
- You can use a contract amendment letter to list the changes to the original document and have both parties sign.
- You can create a contract amendment created from a template or from a legal services provider.
- You can add amendment pages—digital or print—to the end of the original signed contract.
Best Practices for Contract Amendments
Follow these tips when creating a contract amendment:
- Always put a contract amendment in writing and make sure both parties sign and date it.
- Reference the title of the contract, if applicable; its original parties; and original signing date, so that it is clear what document you are amending.
- Attach the amendment to the original contract.
- Don't make multiple amendments, particularly if you're getting into amending previous amendments. In such situations, write a new contract so all terms are clear.
- Always restate the entire section or paragraph of the contract with the changes, instead of trying to describe how you're changing it. Doing so makes it clear what the governing language is.
Contract Amendment vs. Contract Addendum
It's important to understand the difference between a contract amendment and a contract addendum. An amendment changes the actual terms of the contract, such as the price of ribbons you buy from Ribbon Centric.
An addendum, on the other hand, keeps all the original contract terms in place and adds additional ones. For example, in your contract with Wedding Hats, you could add an addendum defining the terms of a new accessory you will be selling to them. All the information about the fascinator sales stays the same, but you add the terms for the new product.
An amendment is a neat and tidy legal way to make changes to an existing contract. With the new terms in writing, everyone can be clear on what they've agreed to so there's no room for misunderstanding.