Contract Addendum Definition: Everything You Need to Know
A contract addendum definition is an attachment to the initial contract, spelling out any modifications or changes.3 min read
A contract addendum definition is an attachment to the initial contract, spelling out any modifications or changes.
Within the scope of the construction industry, an addendum may contain supplemental information, such as drawings or diagrams, which further identify the specifics of the job for which the contract exists. Regardless of the industry, it is customary that the addendum, just as with the original contract, obtain the signatures of all relevant parties for it be effectual.
Differences Between an Addendum and an Amendment
Despite their similarities and the terms often being used interchangeably, there are a few key differences between an addendum and an amendment.
- If the work (contract) was considered complete, and an addendum was added sometime later, then it is considered an amendment. The most regularly cited example is, of course, the United States Constitution. When drafted in the 1700s, it was viewed as a finalized document. It was not until years later that amendments were added, covering an array of issues, such as voting rights for women, marriage rights for same-sex couples, and desegregation.
- Meanwhile, addendums are considered as such, when attached to a work (or contract) that is still in process. An example of this could be actors working on a successful Broadway play that the producers have decided to extend; the actors may sign addendums to their original contracts, keeping them with the production beyond what had been the original closing date.
In Real Estate
One often sees contract addendums in the world of real estate. Reasons why a contract addendum may be used include:
- Modification of an original lease or rental agreement. For example, if you initially rent your apartment on your own, but later decide to have a roommate, your landlord may have all of you sign an addendum, stipulating any changes from the original rental agreement, such as an increase in rent.
- A Purchase and Sale Agreement may be used in the purchase of a home or piece of property. Such an addendum is used if there are changes to be made after drafting the original contract. For example, perhaps the potential home buyers wish the sellers to remove the swing set in the backyard, or perhaps the sellers are no longer including the chandelier in the dining room as part of the sale of the home.
- An addendum may also spell out various, “what if” scenarios. For example, the addendum will provide information regarding the seller's rights, should the prospective buyer not be able to obtain adequate financing by a certain date, or what the buyer's rights are if, after a home inspection, there are issues or problems found.
Addendums are frequently used in construction contracts, as they allow for changes to the initial contract without having to completely rewrite the document. For example, a contractor may add an addendum to a contract, upon breaking ground on a new development site, only to find that the ground is quite wet. This may require additional work to be done by the contractor to ensure that the foundation can be properly laid, so an addendum is added to the contract.
Things to Consider
When creating an addendum to your contract, there are a number of things you will want to keep in mind, to ensure that it is enforceable, down the road.
- All parties must agree to the terms of the addendum. This is one of the reasons as to why, much as with the initial contract, addendums must be signed by all relevant parties. If all parties do not agree and do not sign accordingly, then an addendum may not be able to be enforced.
- Discuss, in advance, anything to be included in the addendum. This will include all involved parties to ensure that everyone is in full agreement and understanding before new documents are created.
- What additional exchanges or promises will be made? This is customary in addendums, as often, the reasons they are needed may require additional work, which may result in additional payment. For example, to use the aforementioned situation of the contractor who needs to do additional work before laying the foundation of a new building, time equals money; what is the financial promise that the developer or property owner is going to offer for this additional work?
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