When executing a contract, the parties will hopefully have reached an agreement on all of the commercial and legal terms of the contract. However, there are circumstances where parties may wish to amend or change a contract. It may be the case that the original contract terms no longer reflect the agreed position between the parties. In such situations, you must make the contract changes in a manner that is:
- legal;
- valid; and
- binding.
This article explains the various ways in which you can amend or change a written contract legally.
Understanding the Need for the Amendment
Before amending a contract, you and the other party must agree on why you are amending the contract. There are several reasons why you may need to amend an existing contract, including to:
- fix a mistake, like a spelling error or incorrect figure;
- delete a provision that is no longer relevant;
- delete and replace a provision where circumstances have changed;
- increase, decrease or otherwise amend the scope of a contract (including the scope of goods or services provided under the contract); or
- include an entirely new provision that was not relevant or known at the time of executing the contract.
Amendments to Contracts Before Execution
Sometimes, in the rush of preparing a contract, you might find minor errors in a hard copy. Ideally, you should correct the contract electronically before the parties execute it.
However, this is not always practical, especially when parties are meeting in person to sign the hard copy. In these circumstances, the error can be rectified by hand:
- by striking or crossing out the error;
- inserting the amendment; and
- ensuring both parties write their initials next to the amendment.
Method of Amendment After Execution of a Contract
It is crucial to read the terms of the contract to understand the process of making amendments. Indeed, a contract will typically include a provision that requires you to make amendments in writing. Sometimes, the contract will require you to make these amendments by executing a deed.
We recommend preparing a deed of variation, especially when the contract is of high value or the proposed changes are significant or substantial. For example, a deed of variation will usually:
- record the parties’ intention to amend the contract;
- refer to the clause in the contract allowing for the amendment;
- clearly set out the amendments to the contract; and
- include an execution block, to be signed by the parties, and contain the words “signed, sealed and delivered as a deed.”
How to Amend an Existing Contract
You can amend the original contract in many ways and include these changes in the deed of variation. They are:
| Method | Clause |
| Using Strikethrough | “1(a) The Parties agree that the Contract Sum is $5,000,000 5,500,000 (inclusive of GST).” |
| Replacing the Clause | “Clause 1(a) is deleted and replaced with the following clause:“The Parties agree that the Contract Sum is 5,500,000 (inclusive of GST).” |
| Describing the Amendment | “Clause 1(a) is amended by deleting ‘5,000,000’ and replacing it with ‘5,500,000.’ |
The preferred method will likely depend on how many amendments you are making to a clause.
Changing Parties to a Contract
A simple contract amendment will not allow you to change parties to a contract. This requires assignment or novation.
Assignment
An assignment enables you to assign the benefit under a contract from one party to another using an assignment clause. Notably, an assignment will not transfer any obligations, burdens or liabilities – and the original party remains responsible for these. The assignee, however, does not become a party to the original contract but can enforce the right to receive the benefit the assignor assigned.
Novation
On the contrary, when signed by both parties, a deed of novation allows a new party to step into the shoes of the original party, transferring their interests and obligations under the contract. In effect, novation equates to exchanging one party for another.
To illustrate the difference, a lender will lend money to the borrower when working with a loan agreement. If there is an assignment clause, the lender may be able to assign the benefit of repayment to a third party without the borrower’s consent. If a valid assignment occurs, the borrower must repay the third-party assignee rather than the lender. However, the borrower cannot assign its obligation to repay the third party. To do this, they would need a novation agreement.
What Happens if My Contract Has Expired?
Parties often continue their business relationship even after a contract has expired. Following an expiry of a contract, you can choose to extend the contract, enter into a new arrangement or terminate the contract. If you have continued performing your contract obligations after it expired, and you now want to make changes to the contract, you should propose your amendments and either sign a renewal contract or replace the expired contract. Proceeding without a formal contract can create several issues.
What Happens to an Expired Contract?
Once a contract expires, it is generally no longer legally binding. Therefore, parties should choose to extend the contract or enter into a new arrangement if they intend to continue the business relationship.
Operating under an expired contract can expose both parties to significant risks, including:
- loss of legal protections;
- uncertainty regarding terms and conditions, including payment obligations; and
- potential disputes over obligations and rights.
Download this free Commercial Contracts Checklist to ensure your contracts will meet your business’ needs.
To mitigate the risks of performing under an expired contract, you can also consider the following:
- implementing a contract management system to track expiration dates;
- initiating renewal discussions before the expiration date;
- executing a short-term extension if more time is needed for negotiations; and
- documenting any post-expiration arrangements in writing.
Key Takeaways
Businesses and individuals sometimes need to change a contract. You must ensure that you:
- understand the amendment and the need for the amendment itself;
- check the terms of the contract to see how to make an amendment;
- record the amendments to the contract in a clear manner (to avoid uncertainty or confusion);
- have both parties execute the deed containing the amendments to the contract; and
- check the expiry of your contract so that you can take the proper steps for your desired amendments.
If you have any questions or would like legal advice or assistance when amending a contract, our experienced contracts lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Amending a contract is a good remedy to fix minor mistakes. For example, this could include a spelling error or incorrect figure, a provision that is no longer relevant, or a provision where circumstances have changed. Furthermore, you can also amend a contract to increase, decrease or otherwise amend the scope of a contract. For example, this may include the scope of goods or services provided under the contract. Finally, you can amend a contract to include an entirely new provision that was irrelevant or unknown at the time of execution.
If minor errors are found in a hard copy contract, the contract can be corrected electronically before the parties execute it. When parties meet in person to sign the hard copy, the error can be rectified by hand.
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