Addendum

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.
  • Addendums are commonly found in wills, leases, home purchase contracts, and insurance policies.

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 that 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.

Types of Addendums

As an addendum is an attachment to a contract, there are many different types of addendums. For example, if you have written a will but don't want to redo the will but only change certain parts, you can make an addendum to the will. The addendum could change your list of heirs, the amounts to be distributed, or any other provisions you would like to change.

A real estate addendum modifies an original lease or purchase agreement. Items in the addendum could reflect a change in the agreed-upon price, what is included in the transfer of property, what improvements must be made before the home is paid for, or any other agreed-upon requests or responsibilities.

As long as both parties sign an addendum it is legally binding, however, it is worth having a lawyer look over an addendum to make sure it is in order before signing to avoid confusion in the future.

An insurance addendum would add or remove what is included in the coverage of an insurance policy. An insurance addendum may result in the insurance premiums being altered. Insurance addendums are common because most insurance policies are standard but the standard policies may not work well for every individual. An insurance addendum allows a standard insurance policy to be tailored to a specific person.

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 home buyer 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.

The terms "rider" and "addendum" are often used interchangeably, particularly in insurance contracts.

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 in need of reinforcement. An addendum is useful to add the requirement to reinforce the soil without the need to recreate a new contract.

What Is a Lease Addendum?

A lease addendum is a change to an original lease contract that is agreed upon and signed by both the lessor and the lessee. A lease addendum can include a change in the length of the lease, the payment amount, the payment schedule, as well as any other terms and conditions that both parties agree to.

What Is a Pet Addendum?

A pet addendum relates to a lease agreement where the landlord can include or alter terms and conditions related to having a pet on the premises. The pet addendum can allow for keeping a pet on the property, clauses related to any damages caused by the pet, as well as any other responsibilities and requirements that are specific to the pet.

What Is a Law School Addendum?

A law school addendum is a statement that a law school applicant can provide along with their application that would provide additional color on any aspect of their application, such as work experience, academic records, legal standing, or irregularities.

What Is a GAP Addendum?

"GAP" stands for guaranteed asset protection and is a statement that alters an existing financing agreement or insurance policy. This is typically in relation to an automobile insurance policy that is meant to cover the gap between the cost of your car being stolen or destroyed and the amount that your insurance covers.

The Bottom Line

Addendums are attachments to original contracts that alter the original terms and conditions of the contract. Addendums can be used to alter standard contracts, make adjustments if situations have changed since the original contract was signed, or if the original signers come to a different arrangement. Once an addendum is signed and certified it negates the original terms and conditions.