Varying a contract requires planning and needs to be
tailored to the particular circumstances.
It's not unusual for parties to want to vary the terms of an
existing contract. There is not one single way to vary a contract
that will work in all circumstances. Letter agreements won't
always work. Deeds are not always required. Sometimes, a handshake
Varying a contract takes a little effort to make sure you get it
right. By failing to get it right, the variation may be ineffective
and the original terms of the contract could continue to apply,
potentially with unwanted effects. A variation is, at law, a
contract in itself. It must therefore meet all the requirements of
This article sets out some useful tips designed to help ensure
that variations made to a contract are effective and binding.
Tip 1: Is The Proposed Variation A Lawful Variation?
Not every problem in a contract can be cured by a variation. For
example, changing a party to a contract is not properly the subject
of a variation. Make sure that what is intended can be achieved by
way of a variation.
Tip 2: Do What The Contract Says
Contracts will often contain a clause setting out form and
substance requirements for how the contract may be varied. A common
example is a requirement that a variation be in writing signed by
the parties. These requirements will need to be followed.
Parties should carefully check a contract for any provisions
directing how variations are to be made, and ensure such directions
are complied with.
Tip 3: Confirm Who Should Agree To The Variations And Who Can
Sign A Variation
Contracts very rarely permit one party to unilaterally make
variations (ie. without the other party's consent). All current
parties to the contract will normally have to agree to any changes,
whether they are affected by the changes or not.
Also, having the right person sign a variation is essential to
ensure its validity and enforceability. A person responsible for
the day-to-day management of a contract may not necessarily have
authority to agree to variations. For example, sometimes director
approval may be needed.
Tip 4: Consider If A Deed Should Be Used
As a variation is a contract in itself, either consideration is
required for the variation to be effective or the variation must be
by way of a deed. Also, contracts (or variations) relating to the
sale of land will need to be done by a deed.
In a recent Supreme Court decision1, when one party
asserted that an agency agreement had been varied so the
agent's commission was reduced from 60% to 40%, one of the
reasons the court refused to uphold the alleged variation was that
the agent received no consideration for the reduction in
Tip 5: Make Sure The Contract Is Still Alive
A common mistake is for parties to attempt to vary a contract
when it has already expired. This can arise when a contract has a
fixed expiration date, however the tasks to be completed under the
contract run over schedule.
Often parties will attempt to vary the contract by inserting a
new expiration date in order to keep the original contract on foot.
While this may seem to be the most convenient method, it is
unlikely to work.
Once a contract has expired, it cannot then be varied. In these
circumstances, a new contract is required.
Tip 6: Make Sure That The Contract As Varied Is Internally
Any variation should be certain on its terms and should fit
seamlessly with the remainder of the contract. Avoid sweeping
expressions. Descending to detail in the terms of the variation can
remove the uncertainty of reconciling inconsistent terms at a later
To Sum Up ...
There can be serious consequences for parties attempting to vary
a contract if they do not carefully consider exactly how such
variations should be implemented.
All variations should be in writing and agreed to by every party
to the contract. Parties should comply with any relevant directions
given in the contract, and consider whether any consent or approval
is required from third parties.
Having the parties execute a deed of amendment or variation is
often the best option. Not only is this more appropriate when no
consideration is involved, it offers a lot more certainty about
what changes were made and which parties have agreed to them.
Taking the extra time to consider these issues can help prevent
future challenges to or questions about the enforceability of
variations to a contract.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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