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What is a supplemental agreement?

Contracts are designed to capture and protect the intentions of both parties. But what happens when they change over time? Do you need a whole new contract? 

Fortunately not. You can build upon an existing contract’s terms using a supplemental agreement instead. 

But what actually is a supplemental agreement, when can you use one, and are they legally binding? Let’s find out.

What is a supplemental agreement?

A supplemental agreement is a legal document used by parties to alter or amend an existing contract, usually with the intention of adding or removing certain obligations.

Supplemental agreements are recognized in conjunction with an existing agreement, and they enable the parties to amend the terms of an existing agreement without needing to draft an entirely new one. That’s why supplemental agreements are a form of secondary agreement. Meanwhile, the original contract is known as the primary agreement. 

When are supplemental agreements used?

Supplemental agreements are typically created between a contract’s effective date and end date, as it’s common for parties to want to amend the terms of their relationship during this time. 

More specifically, a supplemental agreement is commonly used to add certain conditions to a contractual relationship. For example, a supplemental agreement might be created to include the completion of additional work, or the receipt of additional goods, to an existing contract. 

Supplemental agreements can also provide additional clarity to an existing contract. A common example of this is the use of a supplemental agreement to provide more detail about what information falls within the scope of an existing non-disclosure agreement

Benefits of using a supplemental agreement

One of the most obvious benefits of using a supplemental agreement is that it requires minimal effort from both parties. Rather than having to draft a contract from scratch again, creating a supplemental agreement enables parties to create a much shorter agreement. This requires less time and fewer resources. 

Supplemental agreements also provide greater flexibility to contracting parties. This is because they enable them to add to or alter the terms at a later date if all parties consent. Although one of the main purposes of a contract is to provide certainty and security, the flexibility provided by a supplemental agreement can be useful where the needs of both parties change over time. 

A supplemental agreement is also an effective way of ensuring that small changes to an existing contract’s terms are captured securely. While it’s tempting to make minor amendments to a contract verbally, using a supplemental agreement to clearly outline these changes is a far more effective and reliable way to add or remove terms from an agreement. 

Drawbacks of using a supplemental agreement

However, it’s worth noting that supplemental agreements have their weaknesses, too. 

A supplemental agreement can create confusion between parties by introducing the possibility of adding to an existing agreement at a later date. 

This is because a supplemental agreement may often appear to contradict some of the terms included within the original agreement. 

It’s also not always possible to create a supplemental agreement, since not all parties to the original contract will be in favour of one. This is a common dilemma in situations where the original contract has a lot of parties and stakeholders involved. 

Are supplemental agreements legally binding?

As long as the standard contractual requirements have been met, supplemental agreements are capable of being legally binding and fully enforceable, just like other contracts. This means that if the supplemental agreement has changed the original terms of a contract slightly, these amendments will be binding on the parties that agree to it. 

Like other types of agreements, a supplemental agreement will need to include an offer, acceptance, consideration, and contractual capacity

Need help managing contracts? 

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