We discuss the reasons why you might want to change your contract terms or agree to a change suggested by the other party and then consider the ways a contract can be varied.
When might you consider varying a contract?
Changing circumstances can mean the parties to an agreement want to change, or vary, the terms of their agreement.
Variations could be required if there are changes in costs, the goods or services required, the period for which the goods or services are required, or the ability of a party to pay or deliver. A variation may also be required to clarify existing clauses or update clauses that are no longer needed or no longer reflect the reality of the relationship between the parties.
There may be good reasons for a party to accept a proposed variation, even if that variation favours the other party. For example, where a party is struggling to comply with existing contractual obligations, a variation in its favour may allow it to continue to perform and save the other party from litigation, the risks associated with termination or the other party’s insolvency, or the costs and inconvenience of finding an alternative supplier.
How can a contract be varied?
Contracts can be varied in several ways. Before attempting to vary a contract, it is important to check if the contract specifies any requirements for a variation to be effective. Written contracts often specify that they can only be varied by written agreement between the parties or may set out a procedure to follow where a party wants to make changes.
Contracts that by law have to be in writing can usually only be varied in writing. A contract in the form of a deed does not necessarily need to be varied by another deed. However, if the law requires an agreement to be in the form of a deed, any variation should usually also be in this form.
Unless the variation is by deed, where no consideration is needed, a variation will usually need consideration, meaning the party benefiting from the change needs to give something in return. Sometimes nominal consideration, a promise to pay a pound say, can help, especially where the parties do not want to use a deed.
A contract can be varied by written agreement but can also be varied in other ways:
Unilateral variation: a party may have a right under the terms of the contract to vary certain terms, such as the price or the specification of the goods or services to be provided.
Variation by oral agreement: an oral variation can be difficult to prove and easy to agree, deliberately or unintentionally, say in a meeting or over the phone (and may not be effective if the contract requires variations to be in writing).
Waiver: if a party performs the contract in a way that is not consistent with its terms and the other party fails to object, the failure to object can result in a loss of that right, thus, in effect varying the contract (although, unlike a true variation, a waiver does not actually change the contract terms but merely prevents a party from relying on the relevant contract term). Nor does a waiver require any consideration. For example, where a contract states that invoices should be paid on the first of the month but the paying party has consistently paid on the fifteenth of the month without complaint from the recipient, that recipient may lose the right to insist on payment on the first of the month, even though there is no corresponding benefit to the recipient.
Variation: some practical points
When the contract is first negotiated, consider whether either party should have the right to vary any of the terms. Consider including a clause restricting any other variations to written ones.
If a variation is proposed, check the contract terms, if in writing, to see if there are any restrictions on variation or any provisions that allow a party to impose the proposed change on the other.
Confirm any oral variations in writing to reduce the scope for argument over what was agreed. Remember that conversations can have contractual force, although a clause requiring variations to be in writing can help protect against the risk of unintended or unclear oral modifications.
Promptly object in writing to conduct which, if accepted, might give rise to a waiver of rights, or, if you want to agree to that new conduct, then just as with an oral modification, you should set out the change as a formal variation in writing with the other party.
Check whether the contract gives rights to third parties. A variation of those third party rights may need the third party’s consent unless the contract excludes that requirement.
Is there a third party guarantee in place for a party’s obligations? If obligations are guaranteed by a third party, the guarantor’s liability can be discharged by a variation of a guaranteed obligation which is detrimental to the guarantor, unless the guarantor agrees to the change.
If you are drafting variation or change clauses in a contract, looking at varying an existing contract, or you have a dispute over a contract variation, Muckle LLP has legal experts who can help.