Small business owners enter into contracts all of the time. Some contracts are formal, others are informal. But no matter what type of contract it is, one thing is certain. Contracts—or the terms of the contract—often need to change.
And that's where contract amendments come into play. They essentially make a change to your original agreement. But what types of contracts can be amended? Do you need to hire a lawyer? What steps can you take to amend one? We'll answer all these questions and more, so let's get started!
What is a Contract Amendment?
A contract amendment is a change to the terms of an existing agreement. It can be used to add, delete, modify, or otherwise alter almost any provision of the agreement. Contracts can come in the form of:
- Written Contracts: Based on something in writing
- Oral Contracts: Based on verbal agreements between the parties involved
- Implied Contracts: Based on the established behavior and conduct of the parties involved
This type of change is also sometimes known as a contract addendum.
Why Do Contracts Need to be Amended?
There are all sorts of reasons why parties to a contract might want to amend the terms of the agreement—and those reasons are as varied as all of the different types of contracts people might have.
But, that said, there are some fairly common reasons to amend a contract. Those reasons include:
- Change prices, fees, or other material obligations for a product or service
- Insert a new clause, subsection, contract term, or an entire section into the contract
- Extend or shorten the length of the contract (known as the "term")
- Change parties' liabilities (for example, to increase or decrease potential liabilities for either party)
- Extend or shorten certain time periods outlined within the contract, like delivery or shipping times
- To fix a typo in a written agreement
What Are the Different Types of Contract Amendments?
It is also important to understand that in addition to the different reasons for amending a contract, there are different types of amendments, including:
- Additions: Add new terms or provisions to an existing contract
- Deletions: Remove terms or provisions to a contract
- Modifications: Changes the language or terms of a specific section or provision in the existing contract
When Can You Make a Contract Amendment?
All contracts can be amended at any time unless they explicitly say they cannot.
If the contract you and the other party agreed to expressly states that the agreement cannot be amended (or cannot be amended within a certain time frame), then it cannot be amended.
That said, contracts that can't be amended are uncommon—and more often, an agreement will use language that allows for amendments when needed. For example, a contract may say, "This agreement can only be amended by a signed agreement of both parties."
In that case—or in the case of an oral agreement—if the parties decide that necessary changes are needed to the original contract or that, say, new terms are required, then the agreement can most certainly be amended at any time the parties so choose.
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Should You Hire a Lawyer To Amend a Contract?
Now, you may be tempted to tackle contract amendments yourself. Avoid that.
The reason you don't want to tackle this yourself? If you are amending a contract, something significant about the contract likely changed—and if that is the case, you want to be doubly sure that the new circumstances and the desired change are reflected in the amended contract.
There are a lot of legal "magic words" in contracts—and getting one wrong can have severe ramifications, both legally as well as financially.
So, read this article, know your rights, and then engage a law firm for legal advice and to redline the old agreement and create the new, amended contract/legal document you need.
How to Amend a Contract
So how, exactly, are contracts amended? Generally, the amendment process involves the following steps:
- Review the original contract: The first step in amending any contract is to review the original document thoroughly. This will help to identify the exact changes that need to be made.
- Draft the amendment: Once the necessary changes have been identified, the next step is to draft the amendment(s). This can be done by creating a separate document, known as an addendum, or by modifying the original document directly.
- Obtain signatures: All parties to the revised contract must sign the amendment in order for it to be valid. In some cases, witnesses or notarization may also be required.
- Keep records: It's important to keep thorough records of all amendments made to a contract, including the date of the original contract, the date of the amendment, a record of any previous amendments, and a copy of the amended signed contract.
What about Amending Oral or Implied Contracts?
The process for amending a different type of contract (like an oral or implied contract) will vary—but will generally involve the parties verbally agreeing on the changes to the contract moving forward.
For example, let's say Joe's Apply Delivery has been delivering apples to Mary's Market every Wednesday for the past 10 years—establishing an implied contract that apples will be delivered on Wednesdays.
If Joe wanted to amend the implied contract—and start delivering apples on Fridays instead of Wednesdays—the amendment could be as simple as him telling Mary, "Hey Mary, it would be much easier for us to deliver your apples on Friday, and in any case, that would probably be good for you as you would have fresh fruit for the weekend."
If Mary agrees—and Joe starts to deliver on Fridays—the contract has been amended without anything being put in writing.
(Ideally, both oral and implied contracts really should be in writing too—but again, it is not a legal requirement.)
Common Contract Amendments
When it comes to the contract amendment process, there's no one-size-fits-all approach. Amending different sorts of small business contracts may require different sorts of actions.
Let's take a look at how to amend some of the most common small business contracts:
Real Estate Contracts
A real estate contract is a contract that relates either to the sale or lease of real property. Real estate contracts MUST be in writing to be valid. Some common reasons for amending real estate contracts include changes in financing arrangements, delays in construction or move-in dates, changes in property ownership, and so on. The written amendment must precisely follow the rules as set forth in the contract and by your state.
Leases
As indicated, a subset of the real estate contract is the lease. A small business may wish to amend a lease for all sorts of reasons: To get a lower rent, to end the lease early, to lock in favorable rental terms, etc. Leases must also be amended in writing.
Employment Contracts
Employment contracts relate to the terms of an employee's work relationship with an employer. Reasons to amend typically include a change in compensation terms, job duties, or new termination provisions. Amendments need to be in writing and the assistance of a labor law attorney is vital.
Partnership Agreements
Partnership agreements establish the rights and responsibilities of each partner in a business relationship. Yet, as businesses grow and change, amendments to terms may be necessary.
As there is a lot to consider when looking to amend a partnership agreement (payouts, termination, equity, property rights, buy-outs, inheritances, etc.), legal representation is almost always necessary to ensure that amendments are done properly, are enforceable, and that each partner's interests are protected.
Sales Contracts
Sales contracts relate to the purchase and sale of goods and products. Amendments might be necessary if, for example, the price of goods changes, supply chain issues arise, or the quantity or delivery date of the products needs to change, and so forth.
As such, when amending a sales contract, it's important to clearly identify in writing the specific changes being made.
Common FAQs About Contract Amendments
What is the Difference Between an Addendum and an Amendment?
An addendum is a new document that adds new terms to a contract while keeping all of the original ones intact. In contrast, an amendment changes the terms within the existing contract.
What is a "Contract Variation"?
A contract variation is the same thing as a contract amendment. Sometimes a party just wants to use the term "contract variation" instead.
Although they essentially mean the same thing, it's usually best to stick with the term "amendment" as it is more common and thus helps to avoid confusion.
Can You Change an Entire Contract Before it is Signed?
Yes, you can make changes to a contract before it is signed, but in that case, it is not considered an "amendment" or an "addendum" because the contract is not yet legally binding. Rather, it's a new contract that both parties will soon sign.
Or, in other words, there is nothing yet to amend. A change only becomes an amendment after the contract is signed.
Can a Contract be Amended Unilaterally?
No, it is not possible for one party to unilaterally change the terms of a contract. Here's why: A contract is also often referred to as a "meeting of the minds."
Both sides must agree to all provisions to create the contract, and both sides must agree to any proposed amendments to the contract.
If both sides don't agree to the amendment, there is no meeting of the minds, and therefore, no amendment is possible. As such, one person alone cannot amend a contract.
Amendments: The Bottom Line
Agreements are just that—agreements between parties. And sometimes agreements change. When that happens in a contract situation, the need for a newly revised agreement is usually accomplished by amending the original agreement, and that really is all that an amendment is: A revised agreement.
The good news is that an amendment means that your business is moving forward. That contract you previously signed needs to reflect some new reality. You're still in the game!
