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According to Greek philosopher Heraclitus, Change is the only constant. We tend to think of the modern technological world as one in which things change and evolve far more rapidly than they used to. However, given that Heraclitus made that observation some 2,500 years ago, perhaps change is not such a modern-day invention after all.
One thing Heraclitus did not have to worry about was how changing circumstances might affect the contractual relationship with business partners. However, this is a question that is increasingly common among businesses.
In the case that one or both parties to an existing want to make some change to the agreed terms, there are two ways of going about it. One possibility is that they can agree to terminate the original contract and draw up a replacement one. The alternative is for them to create a variation or amendment, which keeps the original contract in place but only changes specific terms.
Drawing up a new contract
Where the changes are fundamental and widespread, that is to say if they involve modifying large amounts of the existing contractual terms, then most likely makes sense to tear up the old contract and start afresh.
However, if the contract is lengthy and complex, then redrafting it from scratch is something both parties will be eager to avoid if at all possible. This is when a formal amendment or a Variation Agreement can make far more sense.
Amending the terms
It is permissible under common law for changes to be made to a written contract, provided both parties agree to those changes. However, just to avoid any disputes, it is common practice that commercial contracts will include a variation clause which just serves to clarify that changes are only effective if they are set out in writing and signed off by both parties.
While not strictly necessary, as it is simply stating what is already a matter of law, the inclusion of this clause prevents either party from attempting any variations without the express agreement of the other.
In order for a contract amendment to be effective, the parties must draw up a valid agreement – note that it is not sufficient for one party to simply notify the other. There also needs to be some type of consideration that supports the agreement, for example the mutual abandonment of pre-existing rights, new benefits being granted between the parties or the assumption or release of specific obligations.
Usually, a Variation Agreement or Contract Amendment will be drafted in accordance with those terms found in the underlying contract. This means that if, for example, there are third party rights or interests in the original contract, or if there is a guarantor involved, then that party will also need to sign up to the amendment – even if the terms being changed do not have any obvious impact on their interests or obligations.
Finally, note that a standard Amendment should only be used when you wish to change the terms within an existing contract between certain parties. It cannot be used to make changes to the parties themselves. If this is your intention, you will need to instead draw up a Novation Agreement.
