DEFINITION of 'Addendum'

An addendum is an attachment to a document such as an insurance policy that changes the original policy conditions, either to include or exclude coverage. The addendum becomes part of the legal contract. In insurance, endorsement is an addendum attached to the original policy that alters or replaces the previous provisions, and in real estate purchase agreements, an addendum is a document containing any changes or modifications negotiated in the original lease.

BREAKING DOWN 'Addendum'

Usually, an addendum is attached to the signed lease, as a part of the lease, and describes financing terms and property inspection requirements. For contracts, if the addendum alters a contract that has already been signed by all parties, it is known as an amendment.

An addendum can include any written item that is added to an existing piece of writing. Its function is to modify, clarify or nullify a portion of the original document. This often applies to additional documentation used to change the original agreement that was reached during the creation of a contract. In that context, its function is to make contract changes without having to rewrite a contract in its entirety.

An addendum can also serve a purely informational purpose, such as a supplement to a book or documents that demonstrate a particular issue within a contract. In these cases, the information may also contain drawings or diagrams if the information is needed to clarify the particulars of an agreement.

As with other portions of the contract, addendums often require signatures for all parties involved in the negotiation. This process provides acknowledgement that the new information has been reviewed and accepted by the parties involved and becomes a binding part of the contract it may be associated with. The signing may require a witness to ensure validity.

Addendums and Amendments

While both addendums and amendments provide for changes to previously created documents, addendums are added to works in progress, or contacts that are in the development phase that have not yet been executed. In contrast, amendments are used on documents that were previously considered complete, fully agreed upon by all parties, and were executed in their original form.

Examples of Addendums in Use

Addendums are in frequent use within the real estate market. As a potential homebuyer and seller negotiate an agreement, often referred to as the Purchase and Sale Agreement, addendums provide information regarding issues and items that were not contained within the original draft. This is particularly relevant when using contingencies, such as one relating to the buyer’s ability to obtain proper financing, or a real estate-owned home (REO) being sold in as-is condition.

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