What is a contract extension?

Explainer
June 21, 2022
min

Contracts don’t last forever. There will come a time when your contract’s end date is nearing and you’ll need to start wrapping things up. 

But what if you need more time to fulfil a contract’s objectives? Or, what if you want to continue the relationship for longer? Can you extend it? 

Absolutely. This is called a contract extension, and we’ll cover it in detail in this guide. 

What is a contract extension?

A contract extension is an agreement amongst parties to extend the period of time that an existing contract is active for

The contract extension can be confirmed either in the creation of a new contract, or by amending the old one. Either way, the agreement will outline the exact period that the contract will be extended for, and what the new date of termination will be. 

Why would you extend a contract?

But why would parties want to extend the contract in the first place? Well, there are a number of reasons why a contract extension may be useful. 

One of the most common reasons to extend a contract is that the commercial relationship is working effectively, and both parties are satisfied with the terms it involves. Instead of renewing the contract for a long period of time, the parties may prefer to extend the relationship for a shorter duration, and this can be achieved using a contract extension. 

But contract extensions can also be useful when a commercial relationship isn’t running too smoothly. For example, if a party has been unable to fulfil their obligations and deliverables within the contract’s original duration, then it’s likely that they will need to request a contract extension to fulfil their promises and avoid breaching the contract.

Want a quick and easy way to keep track of upcoming contract deadlines? Juro's contract renewal reminders help businesses monitor which contracts are up for renewal, and which contracts need to be extended. Hit the button below to find out more.

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How to ask for a contract extension

However, it’s important to remember that the decision to extend a contract is one that must be taken by all contracting parties. That means that if you’re electing to extend a contract, you’ll need to ask the counterparty for their permission first. After all, any extension will need to be signed off by all parties, either electronically or using wet ink.

Although it may differ based on what kind of contract you’re seeking to extend and on what basis, the most common way to ask for a contract extension is to write an email, or extension letter. We’ve listed a few things that these contract extension request letters should do below. 

1. Address the stakeholders 

As with any letter or email, you’ll want to make it clear who you’re addressing with your request. When asking for a contract extension, be sure to address the stakeholders with the authority to agree and sign off on an extension, as addressing more junior stakeholders may result in pushback or delays. 

2. Review the relations so far

Before diving straight in with your request, it’s good practice to draw upon the benefits both parties have received from the existing relationship in this letter, and thank them for their custom or performance so far. This helps parties to recognize the value of the relationship, and will hopefully encourage them to extend it. 

3. Express your wishes to extend it 

Next, you’ll want to explain clearly that you’d like to extend the existing contract and what this would entail. It’s common for there to be slightly different terms introduced or for there to be amendments to a contract in the event of an extension, so you should also capture these early on to be transparent about your expectations of the contract extension.

4. Propose an extension date

You’ll also want to propose the new date you’d like the contract to be extended until. This should be fair, specific and reasonable to improve your chances of receiving an extension. If you’re seeking to extend a contract for an unreasonable length of time, this may be too much commitment for the counterparty, and your request will get rejected altogether. 

The date you propose won’t necessarily be the final extension date, but it’s a great starting point and can always be negotiated between the parties.

5. Thank them and outline next steps

Finally, once you’ve established the proposed terms of the contract extension, you should thank them for their time and consideration. You should also outline some next steps that the contract parties can take to actually extend the contract.

Don’t worry, we’ll cover that in the next section. 

How to extend a contract

So long as both parties are willing, extending a contract is simple. All parties need to do is create an extension agreement. This serves as an amendment to the existing contract.

This agreement will be supplementary to the existing contract, so prevents the need to write a whole new contract to extend the duration of it. Instead, parties just need to express their desire to extend the existing contract. This should contain:

  • The details of both contracting parties (e.g names, addresses) 
  • The title of the existing contract
  • The original start and end dates of the existing contract
  • The end date of the contract extension period (e.g when the extension ends) 
  • Any new terms and any details of changes made to existing terms
  • Signatures from the signatories (check that they’re authorised signatories)

By creating and signing this additional agreement, parties are consenting to the extension of the contract and are legally bound by this extension - as with any contract. 

Frequently asked questions

Can you extend a fixed term contract?

Yes, it is possible to extend a fixed term contract. In fact, fixed term contracts are among the most popular types of contract to extend.

How do you extend a contract that has expired?

Unfortunately, it is not possible to extend a contract that has expired. Instead, you’ll need to create a new contract, since the previous contract no longer exists. 

Need help managing contracts?

If keeping track of contract obligations and deadlines is a pain point for your business, you may benefit from a contract platform like Juro. Juro  is an all-in-one contract automation platform that helps visionary legal counsel and the teams they enable to agree and manage contracts in one unified workspace. Fill in the form below to find out more.

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