Addenda and amendments to contracts often contain critical details related to payment or performance. Too often these important contract elements are used incorrectly or overlooked. Learn when you should use an addendum and when an amendment is more appropriate.
When to Use an Addendum
A contract addendum is an attachment to the initial contract that details any additions to be included as part of the contract. An addendum usually contains items that were not included when the contract was being drafted. Addenda are modifications added to an existing agreement to add or change a few of its terms and conditions. It does not replace the original contract.
Use an addendum to add information agreed to after the parties have agreed on the contract terms. For example, in real estate contracts, an addendum might be used to add a spouse as a co-owner to a purchase agreement.
When to Use an Amendment
A contract amendment attaches to the initial contract and alters the original terms or conditions. It does replace the specified portion of the original contract. Use an amendment to change details in the original contract after it is executed by both parties. For example, use an amendment when both parties agree to extend the term of the agreement. For construction or supply contracts, an amendment refers to changes made before the contract is awarded; a modification is the term for any change made after the contract award.
How to Add an Addendum
- Use a style and format consistent with the original contract. This includes using the same font, size, and margins as the original document.
- Create a title clearly identifying the relationship with the original contract. For example, title the attachment, "Addendum to July 3, 2019, Agreement to Provide Widget Services."
- State the contract parties. Restate both parties as detailed as in the original contract.
- Note the effective date of the addendum.
- Identify the related terms and contract sections. Clearly list affected parts of the contract and corresponding modifications.
- Include the signature block for both parties. If possible, have the original signatories also execute the addendum. Include a notary block section if the signatures must be notarized.
How to Add an Amendment
Several methods are commonly used to amend an agreement.
- Formatting: Any changes to the original contract are shown using redlines and strikethroughs of the text. Additions are indicated with underlined text, and deleted text is crossed out. Most word processing programs have a strikethrough option. Precede the amended information with a clarifying statement about the amendment process and an indication of the section to be modified. For example: "The parties agree to amend the Agreement by the following additions (indicated by underlining) and deletions (indicated by strikethroughs): Section 10 is amended to read as follows:"
- Replacement: Replace entire paragraphs or clauses completely. State which clause is being replaced, and then add the new clause that will replace it.
- Description: You can describe the portion of the amendment being replaced. For example: "The rate in the second sentence of the third paragraph is being modified from '$150' to '$175' per hour."
Keeping track of all the contract components, including addenda and amendments, can be logistically burdensome and a compliance challenge. Missing addenda or overlooked amendments can result in significant consequences to companies.