Creating a legally binding contract is difficult enough the first time around. Making changes to the initial document can feel like an impossible challenge.
Amendments and addendums are legal devices you can use to adjust and fine-tune contracts. When should you make an addendum to a contract, and when should you use an amendment to a contract?
The confusion about a contract amendment vs addendum is understandable. While both contract changes allow you to modify contracts, notable differences exist between the two. Let’s take a look at how to rework your original agreements with your clients.
What Is a Contract Amendment?
An amendment to a contract is what you use to alter or correct the terms in the original document. Sometimes, a contract amendment only alters a small portion of a contract. Other times, you change the entire agreement.
Looking for an example? Consider a contract between two business partners who agree to split business profits 50/50. Five years down the road, one partner decides to have a more hands-off approach to the business. Based on their oral agreements, they decide it now makes sense to split future profits 60/40.
This is when their legal team would make a contract amendment to outline this change in their partnership agreement.
What Is a Contract Addendum?
A contract addendum is an update to your initial contract. It adds information or stipulations to your contract without altering the original terms.
An example of an addendum to a contract would be if an original contract had said a contractor would fix the shingles on your house. Then you decide you want the contractor to fix the shingles on your garage, too. Nothing about the initial agreement is false or needs to be changed. Instead, the two parties are adding an addendum to a contract to clarify the contractor’s workload.
Sometimes, you can use contract addendums to provide additional information about procedures or policies. For example, in a real estate transaction, you can add environmental hazard disclosures as an addendum.
Key Differences Between Contract Amendment and Addendum to Contract
At this point, you’re starting to understand the terms contract amendment versus addendum. But how much do these differences really matter?
Generally, your contract addendum template will look different from your contract amendment template. Although, even beyond choosing the correct documentation, there are key differences between amendments and addendums.
Understanding the difference can help you prepare the right documentation. This tends to make title companies and legal teams happy.
The first major difference between an amendment contract and an addendum contract is its purpose.
The purpose of an amendment contract is to make a change to an existing contract. This can include:
- Correcting simple clerical errors
- Changing the parties subject to a contract, such as adding a tenant onto a lease
- Making major changes that adjust the entire scope of the initial contract
The purpose of an addendum contract, on the other hand, is to add to an existing contract. This can include:
- Contract extension addendums, which increase the timeframe of an existing contract
- Simple addendums, which add simple changes to a contract
- Additional documents with increased terms and separate signature blocks
Scope of Changes
The next big difference between contract amendments and addendums is the scope of the changes.
Although this isn’t a hard rule, contract addendums tend to have a smaller scope. Although a contract amendment can also have a small scope, large changes to contracts almost always come in the form of an amendment, not in the form of an addendum.
Approvals and Execution
Regardless of whether you’re doing a contract amendment or a contract addendum, every person required to sign the original document must agree to the update. Until you come to a unanimous agreement on changes, you cannot make an update to a signed document.
However, because amendments tend to be much larger in scope, you can bring in a legal team to execute an amendment. You can usually execute addendums with no outside moderation.
Integration With the Original Contract
By their very nature, contract amendments integrate completely with the original contracts. In general, an amended document, once signed, completely replaces the original document.
Addendums, on the other hand, usually come in the form of a separate document you include with the original document. If you’ve ever signed a secondary document for a company and watched them staple it to the original contract, you’ve probably seen an addendum in action.
Timing and Sequence
Regardless of the type of legal document, the timing of amendments and addendums is often very different.
Addendums are sometimes optional or secondary to the original agreement. For example, when signing your child up for school, there’s often a mandatory enrollment form, while a request to use your child’s picture is usually included as an addendum in a separate document. These types of addendums are often included when parties are signing the initial contract. However, they can be optional and able to be signed at any time while the rest of the contract is ongoing.
Other addendums — such as addendums that increase the length of a contract — you would schedule regularly. Consider lease agreements, which you need to sign each year; these changes are usually just to the effective date of the lease; you would call those an addendum.
Amendments, on the other hand, are nearly always made after you have signed and agreed to the contract.
Track and Manage Your Documents Hassle-Free
Now that you understand contract addendum meanings and contract amendment meanings, it’s easy to see how all these documents could pile up over time. Tracking each client’s documents, as well as all pertinent amendments and addendums, can be a headache. JSign can help. Sign up today to track and manage your documents without the stress.