What Is an Addendum?

An addendum is an attachment to a contract that modifies the terms and conditions of the original contract. Addendums are used to efficiently update the terms or conditions of many types of contracts. The function of an addendum is to modify, clarify, or nullify a portion of the original document, which could be as simple as extending the dates for which the contract is valid or as complex as redefining the payment schedules and deliverables.

Key Takeaways

  • An addendum is an attachment to a contract that modifies the terms and conditions of the original contract.
  • Addendums are used to efficiently update the terms or conditions of many types of contracts. 
  • The function of an addendum is to modify, clarify, or nullify a portion of the original document, which could be as simple as extending the dates for which the contract is valid or as complex as redefining the payment schedules and deliverables.
  • As with other portions of the contract, addendums often require signatures for all parties involved in the negotiation.

How an Addendum Works

An addendum may include any written item added to an existing piece of writing. The addition often applies to supplemental documentation that changes the initial agreement which forms the original contract. In that context, the addition may also serve a purely informational purpose, such as a supplement to a book or documents that demonstrate a provision of the contract. In these cases, the information may also contain drawings or diagrams that clarify the details of an agreement.

As with other portions of the contract, addendums often require signatures for all parties involved in the negotiation. This process provides the acknowledgment that the parties have reviewed and accepted the new or additional information. The addendum becomes a binding part of the contract. The signing may require a witness to ensure validity.

Example of an Addendum

Real estate transactions will use addendums to modify an original lease or purchase agreement. Usually, an addendum is attached to the signed lease or purchase agreement and describes financing terms and property inspection requirements. 

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 not contained in the original draft. Addendums define information relevant when using contingencies, such as one relating to the buyer’s ability to obtain proper financing or a real estate-owned (REO) home sold as-is.

Addendums vs. Amendments

When an addendum alters a previously signed arrangement, it is known as an amendment. While both addendums and amendments provide for changes to already created documents, addendums are added to works in progress or contracts that are in the development phase and have not yet been executed. In contrast, amendments are used for documents that were previously considered complete, fully agreed upon by all parties, and executed in their original form. 

Amendments are frequent in construction contracts. Their function is to make contract changes without having to rewrite an entire contract. As an example, a company may contract to construct a new building, but as they begin to dig the footers, they find the underlying soil to be substandard and needing reinforcement. An addendum is useful to add the requirement to reinforce the soil without the need to recreate a new contract.