What is an Amendment Clause?

Patrick Shaunessy • January 12, 2023 • 9 minute read

What is an amendment clause?

When parties enter into a contract, they are legally required to abide by its terms. But a lot can change over the course of the contract’s term - especially if it spans several years - and parties may find that what they agreed to initially doesn’t keep pace with these developments. Changes in prevailing economic conditions - such as the rate of inflation - may, for instance, cause input costs to rise, and the parties may need to revisit the contract’s pricing terms; or the parties may simply want to extend the contract’s term beyond its current end date; or there could be a change in law that requires certain contractual language to be updated or added for compliance purposes. All of these are examples of situations where an amendment may be necessary. Although parties can amend contracts that don’t have an amendment clause, having one helps clarify the manner in which modifications are to be made. The purpose of this clause, therefore, is not to establish the parties’ right to amend the contract but rather to establish the procedure they should follow to make any such change. These clauses are very common and can be found in virtually any kind of agreement.

Why does the amendment clause matter?

In the ordinary course of business, most companies can manage the process of amending their agreements as and when needed without much disruption to their operations. Identifying the contracts that require amending is generally straightforward, and the number of affected contracts at any given time is typically small (relatively speaking). However, events like the LIBOR cessation or a change in applicable law, which may require companies to amend their contracts en masse, can be a challenge for even large, sophisticated companies. In responding to these extraordinary developments, not only do companies need to identify all affected contracts, they also need to confirm the agreed process for making any required changes to them. Being able to access the relevant terms of affected contracts, including amendment clauses, quickly and efficiently can be critical in such circumstances.

How do you review the amendment clause in contracts?

Where an amendment clause is indicated by a section heading that includes the word “amendment”, “modification”, etc., it is generally easy to find. However, as the examples below illustrate, sometimes it won’t be clearly labelled or it may be included as part of another clause, such as the entire agreement clause, requiring careful review to spot.

After locating all the amendment language in each agreement, some key things to focus on when reviewing these provisions include:

Manner of amendment. Amendment clauses will almost always require that amendments be made in writing. Parties often have some discretion as to the exact form of this written amendment, but the key is that it be in writing. For greater certainty, the clause may also include language to indicate that the agreement cannot be amended orally or through any other course of dealing (see, for instance, examples 1, 9 and 10 below).
Whether amendments can be made unilaterally. As the examples below illustrate, amendment clauses often require changes or additions to the contract to be agreed by all parties or at least by the affected parties. In cases like example 4 below, however, one party may have the right to make changes unilaterally simply by providing notice to that effect to the other party. Parties whose contracts can be amended without their consent should consider what options, if any, they may have if they are not happy with the changes - e.g., in example 4 below, the “you” party’s only recourse is to terminate the agreement. Furthermore, they may also want to check whether applicable law provides any other avenues of relief from or further guidance on the enforceability of amendment clauses that grant one party unilateral amendment rights.
Consent requirements. Consent is typically provided by signing the written amendment, but it is important to note whose consent is required. It may be all parties (see examples 1 and 2 below) or only those parties affected by the amendment (see example 5 below). Furthermore, the clause may specify that a particular person, such as a party’s “authorized representative” (see example 7 below) or “director” (see example 8 below), must sign. Having a firm grasp on all such consent requirements will help ensure that any amendments to the agreement will be effective.

As with the review of any contractual provision, it’s also important to be aware of other provisions that may affect the interpretation of amendment clauses. The notice section details how and to whom notice needs to be given for it to be effective for the purposes of the agreement, which may be helpful in cases like example 4 above where notice is a requirement of the amendment clause. There may also be important information in the termination section about obligations that either arise on or survive the termination of the contract should a party decide to terminate the agreement rather than accept a proposed amendment.

Software that uses AI to identify and extract amendment clauses (as well as other terms that may affect their interpretation) can accelerate the work of finding these provisions and enable a more comprehensive review than can otherwise be done manually.

Examples of the amendment clause

Below are some examples of amendment clauses from different kinds of agreements. While these examples do not necessarily cover the full range of amendment clauses one may encounter, they are meant to illustrate the degree to which these provisions can vary from contract to contract. Where an example includes broader contextual language, the amendment clause is highlighted in bold.

Example 1: From a Throughput and Deficiency Agreement

23.5 Entirety of Agreement. This Agreement, including any exhibits hereto, constitutes the sole and entire agreement among the Parties with respect to its subject matter and all other matters contained herein, superseding all prior negotiations, statements, representations, correspondence, offers, discussions, agreements, and understandings relating to this transaction. This Agreement may not be modified or altered orally or in any manner other than by an express agreement in writing signed by all persons or entities that are Parties to this Agreement at that time. This Agreement and the terms and conditions contained herein shall apply to and are binding upon the legal representatives, successors, and assigns of the Parties.

Example 2: From a Purchase and Sale Agreement

Modifications. This Agreement may only be modified, amended or supplemented by an agreement in writing signed by Seller and Buyer.

Example 3: From an Agency Agreement

16.4 Amendments. This Agreement may not be modified except in a written instrument executed by each of the parties hereto.

Example 4: From an Affiliate Agreement

MODIFICATION. We may modify any of the terms and conditions within this Agreement at any time and at our sole discretion by giving 15 days written notice. These modifications may include, but not limited to changes in the scope of available referral fees, fee schedules, payment procedures and Program rules. If any of the modifications are UNACCEPTABLE TO YOU, your only recourse is to terminate this Agreement. If you CONTINUE PARTICIPATION IN THE PROGRAM following the posting of a WRITTEN Change Notice or new agreement, it will be considered as your acceptance of the change.

Example 5: From a Distribution Services Agreement

Amendments. This Agreement may not be amended, nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing executed by or on behalf of the party against whom enforcement of any such amendment, waiver, change, modification, consent or discharge is sought.

Example 6: From an Employment Agreement

(b) Consent to Amendments. No modification, amendment or waiver of any provision of this Agreement will be effective against any party hereto unless such modification, amendment or waiver is approved in writing by such party.

Example 7: From a Trademark License Agreement

9.09 Amendments. No amendment to, or change, waiver or discharge of, any provision of this Agreement shall be valid unless in writing and signed by an authorized representative of each of the parties.

Example 8: From an International Representation Agreement

11.2 No other variation or amendment of this Agreement or oral promise or commitment related to it shall be valid unless committed to in writing and signed by a director of Company and Agent.

Example 9: From an Asset Purchase Agreement

Amendment. This Agreement may be amended, or any provision of this Agreement may be waived, provided that any such amendment or waiver is set forth in a writing executed by Seller and Buyer or their assigns or respective successors in interest. No course of dealing between or among any persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement.

Example 10: From a Lease Agreement

Waiver and Amendment. This Lease may be amended, or any provision of this Lease may be waived; provided, that any such amendment or waiver shall be binding upon any Party only if set forth in a writing executed by such Party and referring specifically to the provision alleged to have been amended or waived. No course of dealing between the Parties shall be deemed effective to modify, amend or discharge any part of this Lease or any rights or obligations of any person under or by reason of this Lease.

Example 11: From a Contractor Agreement

(h) This Agreement cannot be amended except in accordance with a writing signed by both parties.

Example 12: From a Receivables Sale Agreement

SECTION 7.01. Amendments, Etc.
No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller or the Buyer therefrom shall be effective unless in a writing and signed by the Agent pursuant to the terms of the Receivables Purchase Agreement and, in the case of any such waiver or consent, the party against which the waiver or consent is to be enforced or, in the case of any such amendment, the Buyer and the Seller. No failure on the part of the Buyer, any Owner or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

Example 13: From a Security Agreement

Amendments in Writing. No modification, termination or waiver of any provision of this Agreement or any consent to any departure by the Grantors or any other Person therefrom, shall in any event be effective without the written concurrence of the Collateral Agent and each Grantor.

Example 14: From an Executive Employment Agreement

AMENDMENT. This Agreement may be amended or cancelled only by mutual agreement of the parties in writing.

Example 15: From a Services Agreement

20.6 Entire Agreement and Modifications
This Agreement constitutes the entire understanding between the Parties, and supersedes all prior and contemporaneous discussions between the Parties with respect to the subject matter of this Agreement. Neither Party shall be bound by the conditions, warranties, definitions, statements, or documents previous to the execution of this Agreement, unless this Agreement makes express reference thereto. Any actions subsequent to the execution of this Agreement undertaken pursuant to an agreement shall be in writing and signed by duly authorized representatives of each of the Parties, which agreement shall expressly state that it is an amendment to this Agreement.