At the time of executing a contract, the parties will hopefully have reached 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 important terms of the original contract no longer reflect the agreed position between the parties. In such situations, the contract changes must be made in a manner that is: 

  • legal; 
  • valid; and
  • binding.

This article explains the various ways in which you can amend a written contract legally.

Understanding The Need For The Amendment

It is essential before contract amendment that you and the other party are in agreement 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 which is no longer relevant; 
  • delete and replace a provision where circumstances have changed;
  • increase, decrease or otherwise amend the scope a contract (including the scope of goods or services provided under the contract); or
  • include an entirely new provision, which was not relevant or known at the time of executing the contract.

If it is the case that there are a substantial number of mutually agreed changes to a contract, you and the other party can agree to duplicate the contract, restate its terms, and re-execute the contract. 

Amendments to Contracts Before Execution

Sometimes, in the midst of the rush of preparing a contract, minor errors can be found in a hard copy contract. Ideally, the contract would be corrected 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.

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Method of Amendment After Execution of a Contract

It is crucial to read the terms of the contract to see what the process of making amendments is. 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.

Preparing a deed of variation is recommended, especially where 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

There are a number of ways in which you can actually make the required amendments to the original contract (which can be included 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 are being made to a clause. 

For example, if a long clause is only being amended by replacing one word, it may make more sense to use the third option above and describe the amendment. Alternatively, if a clause is being substantially amended, using the second or third options above may be confusing and it may be preferred to replace the clause entirely with new terms to avoid confusion and keep the document clean.

Can I Change The Party To The Contract?

A simple contract amendment will not allow you to change parties to a contract. This requires assignment or novation.

Assignment

Assignment enables you to assign the rights, benefits and obligations under a contract from one party to another using an assignment clause. Notably, an assignment will not transfer any 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 their right to receive the benefit that the assignor assigned to them.

Novation

On the contrary, a deed of novation, when signed by both parties, 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 an exchange of one party for another party.

To illustrate the difference, when working with a loan agreement a lender will lend money to the borrower. If there is an assignment clause, the lender can assign the benefit of being repaid to a third party without the borrower's consent. Therefore, the borrower needs to repay a third party rather than the lender. However, the borrower cannot assign its obligation to repay the third party. In order to do this, they would need a novation agreement.

Key Takeaways

Businesses and individuals sometimes need to change a contract. It's important that you ensure that you:

  1. understand the amendment and the need for the amendment itself;
  2. check the terms of the contract to see how an amendment needs to be made;
  3. make the amendments to the contract are recorded in a clear manner (to avoid uncertainty or confusion); and
  4. have both parties execute the deed containing the amendments to the contract.