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Your business contracts will not always last forever; at some point, they may come to an end. However, there are some situations where your business will need a written agreement to continue but with some updates. This is where using an amendment deed or an amendment and restatement deed can be helpful to your company. Both types of deeds help amend an agreement, but they do so in different ways. Therefore, it is essential that you, as a business owner, understand how these deeds work so that you know which to use when updating your contracts.
This article will explain the main differences between an amendment deed and an amendment and restatement deed to ensure your business uses the correct form to update contracts.
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Why Update the Wording of a Contract?
It is usual for an existing contract to become out of date and, therefore, require updates such as new terms rather than creating a new contract. Some common reasons for this include:
- updating the end date of a written agreement if the parties wish it to continue;
- amending the purchase price of goods within a contract if the price has increased due to inflation;
- making minor changes to the original terms to ensure accuracy, for example, where the parties wish to double the number of goods delivered per month; and
- making critical changes that prevent one or both parties from breaching the contract in the future.
While either form of amendment agreement acts to update an existing contract, they do so in different ways. They also suit different situations.
What is an Amendment Deed?
An amendment deed alters the content of the existing contract by changing its wording. It is the legal equivalent of striking out incorrect words and writing the correct ones next to them. Therefore, the main aim of an amendment deed is to clarify and correct the original language rather than introducing any additional terms. They, therefore, tend to be used to reflect simple, quick changes rather than complex renegotiations.
An Example
Suppose your company enters a loan agreement with a lender to invest in machinery to meet increased demand. Your agreement states that you should repay the whole loan within 24 months. However, it does not specify that your company must meet set monthly repayments.
Likewise, your business begins to experience decreased demand and limited cash flow following the Covid-19 pandemic. Fortunately, your lender allows you to extend the loan for a further year, converting the 24-month repayment period into 36 months.
To effect this change, using an amendment deed would be beneficial. Both parties can confirm that the words ‘24 months’ should be read as ‘36 months from the original agreement date. Using an amendment deed is simpler than negotiating, drafting and agreeing to a new contract.
If your company enters a loan agreement with a lender to invest in machinery to meet increased demand, the agreement will state that the amount of money lent should be fully repaid within 24 months. However, it fails to state that set monthly repayments are required. As the Covid-19 pandemic hit the UK, the market dropped below previous levels rather than seeing an increase in demand. Therefore, your business has limited cash to repay the loan. Fortunately, your lender is reasonable and allows you to extend the loan for a further year, converting the 24-month repayment period into 36 months.
In this situation, an amended deed could be used. It can simply confirm that the words ’24 months’ should now be read as ’36 months’ from the original agreement date. This is simpler than agreeing to a new contract.
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What is an Amendment and Restatement Deed?
An amendment and restatement deed is similar to an amendment deed. It suits situations where you require changes to the original document that are more complex and wide-ranging. They are often used for credit agreements.
In the context of the loan agreement example detailed above, an amendment and restatement deed would be suitable where you and your lender agree to changes in the loan agreement that:
- extend the period of the loan repayments;
- introduce a system of set monthly repayments; and
- agree to more comprehensive restrictions on your company’s abilities to sell assets.
Rather than swapping old wording for new wording in the way an amendment deed does, an amendment and restatement deed introduces additional obligations. Here it helps introduce a system of set monthly repayments that did not exist in the initial written agreement. An amendment and reinstatement deed restates the contract rather than just changing the words to mean something else.
Key Takeaways
Amendment deeds and amendment and restatement deeds are different ways of making changes to existing contracts. An amendment and restatement deed adds information and detail to an entire agreement. Yet, an amendment deed simply amends the existing content. Amendment deeds can change, for example, the number of units delivered each month under a contract, yet an amendment and restatement deed can add the details of the exact units where none previously existed within the original contract.
They have different purposes to suit different situations, so you must use the right one when making changes to your business contracts.
If you need help with contract amendment by way of amendment deed or amendment and restatement deed, our experienced commercial contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Amendment and reinstatement deeds are often used for credit agreements. This is because the repayment of loans can be affected by external factors, leading to the need for restated agreements.
If parties agree to a new contract, there can be risks involved. An amendment deed is a more straightforward way of agreeing to a new contract but without the major risks of trying to do so.
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