What are amendments?

Let’s start with the basics. A contract can run for a longer or shorter time, or it can be a one-off transaction. In all of these cases, but in particular when the contract has a longer duration, can there be situations where one or both of the parties want to change one or more terms and conditions due to changed circumstances not considered when the parties drafted the original agreement.

However, given that the contract, in its signed form, will be binding for the parties, they would then need to amend the agreement formally in order to protect themselves legally from disputes and claims relating to breach of contract.

An amendment is a formal change made to an existing agreement. It means that you do not have to engage in the more comprehensive task of changing the whole agreement, rewriting it, but instead you tackle the specific issues that you want to change.

For example:

• Changing payment terms in a service agreement.

• Updating project deadlines in a construction contract.

• Adding new deliverables to a marketing contract.

• Adding a new class of preferntial righs in a shareholders´ agreement.

• Changing the scope of work for a long-term consultancy agreement.

  
  

Amendments allow contracts to evolve as circumstances change. But—and this is a big ‘but’—not all amendments are created equal. If they’re poorly drafted or undocumented, you may be subject to a significant legal risk.

Why you need a good amendment clause

An amendment clause specifies how changes to the agreement should be made. Most contracts will, for the mutual protection of the parties, have such a clause addressing how any future changes to the contract should be made.

Without one, things can get messy fast. Here’s why:

• Informal changes are risky:

  Imagine you and the other party agree to modify a contract verbally or through an email chain. Later, someone disputes the terms. Without a formal amendment, it’s your word against theirs—and courts don’t like ambiguity. If you advocate that a change has been made and that the written contract should not apply to the issue, you have an uphill battle trying to win the dispute. If the contract explicitly state that no changes are valid unless they’re in writing and signed by both parties and you skip this step, the amendment might not hold up in court.

  
  

• Lack of clarity:

  A poorly drafted amendment can lead to conflicting interpretations of the original agreement and the new terms, creating confusion and potential litigation.

  
  

• If you have multiple parties:

  As it typically the case with shareholders´ agreements, there can be multiple parties to a contract. In such instances, it might be crippling - or even impossible to make a needed change to the agreement - if all (small) parties have a right to hinder an amendment of the agreement if you don´t have an amendment clause in the original SHA.

  
  

Without a written amendment clause, disputes can derail your business.

How a solid amendment clause should look

So, what does a good amendment clause look like?

• Clear requirement for written changes:

  Include language like: ‘No amendment to this Agreement shall be effective unless it is in writing and signed by both parties.’

• Authorized signatures:

  Specify who has the authority to approve amendments. For example, the company CEO or legal counsel.

• Scope of changes:

  Clarify that amendments can modify, delete, or add to existing terms but do not invalidate the rest of the agreement.

• If you have multiple parties:

  In cases with many parties - such as shareholders´agreements - it is advisable to have an amendement clause alowing a qualified majority to decide if an amendment should be made. The amendment clause can then state that e.g. 75 % of the shareholders and/or 75% of the votes in the company need to support the change in order for it to be enforcable on all parties.

  
  

Here’s an example:

"This Agreement may only be amended by a written document signed by authorized representatives of both parties. All other terms of the Agreement shall remain in full force and effect."

Simple, clean, and enforceable. That’s what you’re aiming for.

When do you need an amendment?

Here are some common scenarios where you’ll likely need an amendment:

1. Changing payment terms:

   • Your client wants to switch from monthly payments to quarterly payments. Formalize this change with an amendment.

2. Adding or removing parties:

   • Let’s say you’re bringing in a subcontractor or transferring responsibilities to a new company. This requires a formal update.

3. Extending deadlines:

   • A project is delayed due to unforeseen circumstances. Amend the contract to reflect the new timeline.

4. Updating regulatory requirements:

   • New laws might require changes to compliance terms in the agreement.

In each of these cases, the amendment ensures that everyone is on the same page and that the contract reflects the current situation.

Risks of not having a good amendment process

What happens if you don’t have a solid amendment clause or fail to document changes properly? Here’s what you’re risking:

1. Disputes Over Terms:

   • Verbal agreements or informal updates can lead to misunderstandings or outright disputes.

2. Contract invalidity:

   • If the amendment isn’t properly executed, the changes may be interpreted as if the contract as a whole shall not apply anymore to your business relationship. In such a case you might not be able to enforce your other rights under the contract.

3. Financial losses:

   • Misaligned expectations or unclear terms can result in missed deadlines, lost revenue, or penalties. You might not be able to claim your right under the agreement and/or in relation to the agreed undocumented changes to the agreement that was made.

4. Reputational damage:

   • Disputes over poorly managed contracts can hurt your reputation with clients and/or partners.

     
     

Tips for managing amendments

1. Always put it in writing:

   • Whether it’s a minor change or a major update, document it formally.

2. Keep the language clear:

   • Use plain language to avoid ambiguity. Everyone involved should understand the updated terms.

3. Track changes over time:

   • Keep a clear record of all amendments. A chronological list or appendix can help.

4. Consult legal counsel:

   • If the amendment is complex or involves high stakes, get a lawyer to review it.

   
   

Conclusion

Changes and amendments are the lifeline of any dynamic business relationship and hence any well drafted agreement. A strong amendment clause ensures that your contracts stay relevant, enforceable, and dispute-free. By understanding how to draft, negotiate, and document amendments, you’re not just protecting your business—you’re setting yourself up for success

London, 2025-02-12

Author: Kat Strandberg

Email: Kat@stgcommerciallaw.com