An addendum legal is a proposed explanation or change that's been added after the contract was initially approved. For example, it may be an additional product added to a list of merchandise.

Addendum

Real estate property sale contracts will usually have addenda, the plural of addendum. This is because these types of contracts will commonly have numerous negotiations made between the two parties, for example:

  • Appliances included.
  • Payment proceeds.
  • Closing timeframe.
  • Contingencies after a home inspection.

To make sure there are no disputes or confusion, addenda should be attached to and signed separately from the initial contract. Any addenda that's been left without signatures may be confused with fraudulent documentation, declined proposals, or rough drafts. Generally, there's no limit on the number of addenda that a contract may incorporate. A novation occurs when the number of amendments made is so extreme that the original contract is completely replaced.

When Does a New Contract and an Amendment Differ?

There are many times when differences arise between amendments and new contracts. These generally involve government regulation or taxation. For example, many jurisdictions charge tax on rental car contracts or per rental. An amendment made to a car rental agreement, possibly to allow an upgrade or to include insurance, usually won't initiate an additional car rental tax. However, withdrawing the original renter from the agreement and replacing that party with a new one would most likely establish a new agreement and generate a new car rental tax.

Contract Addendum

A contract addendum may also be known as a/an:

  • Addendum.
  • Amending agreement.
  • Contract amendment.

Contract addendums should be utilized when making small changes to an agreement or contract. Usually, this occurs when a condition or term of an agreement has created a dispute and needs to be updated. For example, a specific date may need to be added or a clause may need to be removed.

When Should I Use a Contract Addendum?

A contract addendum may be used in the following circumstances:

  • Adding a significant update to the job description in a contract of employment. The amended contract would address the update, be attached to the contract of employment, and have signatures from both parties.
  • Hiring an independent contractor to finish a project by a specific date. In cases where the work isn't completed, an amended contract would be created to update the due date to provide the independent contractor with additional time to finish the project.
  • A lessor and lessee sign a lease agreement. The lessor realizes after signing the contract that they won't be able to accomplish some of the tasks that were stated in the lease agreement. If the lessee agrees to complete the tasks for the lessor, then both parties may decide to create an amended contract to address the updated terms.

Significant changes to the original contract may be just cause to create a new record altogether. One example is if the lessee is moving to a new rental property owned by the same lessor. Rather than attempt to amend the existing contract, it may be easier for all parties to simply create a new contract.

What Should a Contract Addendum Include?

Contract addendums should include the following:

  • Names of all parties associated with the original contract.
    • Organization.
    • Corporation.
    • Individual.
  • Same font size, margins, and typeface of original agreement.
    • Helps to illustrate to all parties that the updates are deliberate.
  • Date that contract addendum is signed by all parties.

A description of the purpose of the original contract should also be included in the contract addendum, including the date that the contract was signed.

The Importance of Drafting an Addendum

In order to be valid, it is perceived by many that addenda should be done in the form of the main contract. This provision ensures that both parties are notified and aware of all changes made to the original contract. A commonly adopted provision to address this circumstance is, "All modifications made to this contract may only be made when all parties have signed-off the known changes;" "Modifications to the original contract must be approved in writing by all parties." An addendum's purpose is to modify or clarify a section of a contract. In other words, it's a way to eradicate the possibility of any future dispute or confusion.

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