Amendment agreement – when does an agreement need to be supplemented?

Businesses and commercial relationships change over time – prices are adjusted, new services are added and collaborations evolve. Changes are often made by email or recorded in meeting notes, but the legal basis remains the original agreement. In such cases, a well-considered amendment agreement can be decisive in avoiding future disputes. In more complex business relationships, it may be advisable to engage an experienced business and contract lawyer to ensure that the changes are properly regulated.

What is an amendment agreement?

An amendment agreement is a written agreement under which the parties agree to supplement or amend an existing agreement. Under contract law, the general principle is freedom of contract, meaning that the parties may amend their agreements provided that both parties agree and have authority to represent their respective companies.

An amendment agreement does not normally replace the entire principal agreement. Instead, it clearly specifies which clauses or appendices are being amended and what otherwise remains unchanged. The amendment agreement may also include a precedence clause, for example stating that the amendment agreement shall prevail over the principal agreement in the event of conflicting provisions.

Typical situations where amendment agreements are appropriate

Amendment agreements are used in many different types of commercial relationships. Common examples include:

• Where pricing or payment terms in an ongoing customer agreement need to be adjusted.
• Where the contract term is to be extended without renegotiating the entire agreement from the outset.
• Where a cooperation or joint venture agreement is expanded to include additional services, markets or parties.
• Where an agreement is to be taken over by another company and a formal assignment of the agreement is required.
• Where the parties wish to strengthen the level of confidentiality compared with the existing NDA, for example before additional trade secrets are shared.

In all of these situations, it is theoretically possible to rely on email correspondence, but from an evidential and risk perspective, a formal amendment agreement is usually the better solution.

Legal starting points under contract law

Under contract law, agreements may be amended both orally and in writing if the parties agree. In practice, however, oral changes and informal arrangements create significant evidential difficulties. If the principal agreement also contains an amendment clause – for example, that “amendments and additions must be made in writing and signed by authorised representatives” – the parties should comply with it to reduce the risk of uncertainty.

When preparing an amendment agreement, consideration should also be given to:

• Company signatory rights and the authority of the person signing.
• Any formal requirements in the principal agreement, such as written form or specific signing requirements.
• How the amendment agreement affects the parties’ risk allocation, liability and any limitations of liability.

The assessment of how a specific amendment agreement should be drafted often depends on the type of agreement. A simple customer agreement rarely requires the same level of detail as an extensive cooperation or investment agreement.

What should an amendment agreement contain?

There is no standard solution that fits every situation, but a well-prepared amendment agreement will usually include at least the following elements:

• A clear reference to the principal agreement, including the parties, date and any agreement number.
• A brief background explaining why the agreement needs to be supplemented or amended.
• A structured review of which provisions are being amended and the new wording.
• Any new or updated appendices, such as a price appendix or service description.
• A provision governing the relationship between the principal agreement and the amendment agreement, for example that the principal agreement otherwise remains unchanged.
• The effective date and how the amendments are to apply, whether prospectively or also retrospectively.
• Signatures from authorised representatives of all parties.

Maintaining a consistent structure also makes it easier to keep an overview of the contractual relationship over time, particularly where several amendment agreements have been entered into.

Practical advice for companies preparing amendment agreements

To work more systematically with amendment agreements, companies can benefit from introducing a few straightforward procedures:

• Specify in contract procedures that material changes must always be made by amendment agreement, not merely by email.
• Use well-considered templates and adapt them to the type of agreement – customer agreements, cooperation arrangements, confidentiality agreements and similar documents.
• Ensure that the right people sign, particularly in corporate groups with several companies and complex signatory arrangements.
• Keep track of agreement versions and amendments, for example in a contract register or contract management system.
• Review the entire contract structure when major changes are being made, so that the amendment agreement does not create inconsistencies with other agreements.

In more extensive commercial relationships, for example long-term collaborations, joint venture structures or larger transfers of customer relationships, it may be advisable to have a business law-focused lawyer quality-assure the amendment agreements. At Morling Consulting, our contract lawyers help companies structure, review and negotiate both principal agreements and amendment agreements, ensuring that risks are addressed before they lead to operational issues. You can read more here about how our lawyers and legal consultants can support your company’s ongoing contract work across Europe.