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Sometimes, you will need to update or change your live commercial contracts. For example, changes may be necessary if your customer updates the services they require or you mutually agree the contract should run for longer. You should document the approved changes in writing when you agree to vary a contract. Otherwise, agreeing to vary a contract orally comes with various risks. This article will explore why you should document contract changes in writing.
What is a Contract?
A commercial contract is a fundamental document for every business. A contract records the commercial terms on which you will do business. It can also help avoid disputes and prevent various risks in commercial projects.
Businesses should record any contract changes in writing. A written contract variation agreement provides clear evidence of the parties’ agreed terms and can help you enforce your legal rights. With a written variation agreement, your business can avoid various risks, including misunderstandings and mismatched customer expectations.
Is It Mandatory to Document Contract Changes in Writing?
Generally, you can vary most contracts in different ways. For example, common ways to vary a contract include:
- variation in writing;
- variation orally through verbal agreement; or
- through the parties’ conduct (i.e. the parties acting in a way which differs from what they originally agreed).
However, certain types of contracts must be varied in writing—for example, contracts relating to the sale of land.
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How Can Documenting Changes in Writing Prevent Risk?
Whilst verbal contract variation is possible, this approach comes with risk. A significant danger is if parties recall the new changes differently and, therefore, misunderstandings arise. In contrast, documenting changes in writing can protect your business from risk.
Documenting contract changes in writing can help prevent risk in the following ways.
Giving You Certainty on Agreed Terms
Written contract variations will help you have definitive evidence and record the variation terms you have agreed to. Accordingly, you can refer back to the contract variation agreement to see your obligations clearly and understand which terms of your original contract have changed.
You should also note that certain changes you agree to may have a knock-on effect on other terms in your contract. For example, changes to the length of your agreement may require consequential changes to other clauses in your agreement. Again, documenting changes in writing will give you the opportunity to ensure any other necessary amendments to your existing contract are made and documented clearly.
Serving as Evidence to Avoid Disputes
Having written contract variation terms can also help avoid disputes. Over time (particularly for more extended contracts), commercial parties could lose track of what terms they have agreed to vary. Parties could, therefore, innocently forget that they decided to vary specific key contract terms.
Likewise, if there are problems under the contract, one of the parties could cause trouble and disagree that they agreed to vary the contract terms. This could be due to dishonesty, particularly if the relationship becomes acrimonious. A lack of consensus over contract changes could escalate into misunderstandings and, in the worst case, disputes.
Unfortunately, an oral agreement increases the risk of misunderstanding or dispute arising. In the case of a dispute, you will need to prove that you entered a verbal agreement to vary the original contract. For example, you may need to rely upon various documentation like witness statements or email correspondence to prove the terms you agreed to vary. In comparison, it is easier to point to a single written agreement with the recorded changes. Consequently, it is easier to enforce the new contractual terms if you can point to their existence in a written document.
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Important Considerations
Always take active steps to avoid disputes regarding contract variation. Disputes in court can be costly, time-consuming and stressful. It is far better to agree on contract changes in writing rather than face a dispute in court over whether or not you validly changed your contract.
Further, ensuring you amend your contracts correctly ensures they are legally binding. Certain formalities also apply when varying a contract, and there may be different documents you can use to vary a contract (such as a simple contract or a deed). You can work with a commercial solicitor if you require advice or support with varying a live commercial agreement.
Key Takeaways
Whilst it is possible to vary a contract verbally, this method comes with various risks. For example, commercial parties could forget what terms they have varied in a contract or disagree on the variation terms. This could lead to mismatched expectations and disputes in the worst case.
By formally agreeing on contract changes in writing, you will have certainty about the amended terms of your agreement and be in a better position to fulfil your obligations and avoid disputes. You will also need to properly conduct contractual amendments for them to be legally binding. If you require support, you can work with a commercial lawyer to help you vary your contracts.
If you need help varying an existing contract, our experienced 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.
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