Addendum – Definition, Example and Benefits

Definition: Addendum is the practice of adding terms and conditions to a contract or other legally binding document after it has been signed. It’s used by businesses that want to change their terms and conditions after being purchased and accepted by a customer.

For example, an addendum can be included in a purchase order (such as an invoice or a credit card statement), in customer charter documents when the company is in the business of selling to customers, or even on the website that customers visit when they search for options about contracts or products.

Examples of addendum in a Sentence

  1. The letter was accompanied by an addendum detailing some of the changes.
  2. The judge demanded an addendum to the contract.

The first known use of an addendum

The earliest known usage of the word “addendum” was in 1664.

What Is an Addendum?

An addendum is a modification to a standard contract that creates a new obligation on the part of one party (the so-called obligor). Typically, an addendum provides additional notice to the other party (the obligee) before executing the original contract. Such notices often include proposed changes in diameter or material or additional terms and conditions.

An addendum is a legally binding statement added to the original contract to: 

  1. extend the time for performance or completion of an obligation; 
  2. provide for payment later than scheduled if and only if the performance or completion of the obligation was incomplete at the time of hire, or 
  3. modify or change the scope of work if and only if the scope of work presently performed constitutes the only work currently achievable under the terms of the original contract. An addendum doesn’t have the force of law; it’s just a legal document substituted for the original contract.

How an Addendum Works?

An addendum is a supplementary document that provides additional information or information that demonstrates or proves an existing agreement. In most cases, the contract will have a provision for any addenda. There are many ways to add something to an agreement—a change, a supplement, or more data. Addendums generally contain diagrams that clarify the text.

An addendum is attached to the contract with additional information that all parties agree to. It may require signatures or witnesses to ensure the accuracy and execution of the collective agreements.

Example of an Addendum?

Many addendums can be attached to the original document when signing a lease or purchase agreement for a residential property. If you are financing from your pocket, you may be required to purchase security insurance and furnishings. If the property takes fire or flood damage, an addendum will be required from the original lender. This document explains the additional costs that the buyer will bear. It also serves as an apology should something go wrong during your transaction.

Addendums vs. Amendments

The differences between an addendum and an amendment may seem subtle.

 Addendums are independent legal documents that replace or supplement previously signed documents. However, amending a contract fundamentally alters the nature and terms of the agreement between you and the party you have contracted with. 

An addendum often provides important information regarding the effects of the proposed change on existing obligations, nor may it be limited to addressing existing issues but may extend significantly to new issues.

A lawyer typically introduces an addendum to a contract, wherein the lawyer makes a specific change to the original contract, then signs it. On the other hand, both parties typically propose an amendment together before signing the original contract.

Benefits of Addendum

  • Addendum contracts are quick and easy to write.
  • An addendum is more likely to achieve the intended purpose of preventing the renewal of the contract. 
  • Addendum can save you time and effort while also improving the quality of your result. For example, instead of using a lawyer to negotiate a better contract for you, why not work directly with the client to write out your terms? Such contracts eliminate much of the paperwork and repetitive work that go into also creating legal contracts. 
  • An addendum is an alternative dispute resolution process.
  • Addendums help clarify issues and remove doubt, either between the parties or in the minds of third parties, that might otherwise arise because of unclear language in an initial document or during dispute-resolution procedures.