Commercial contract variations - key points

Changing a contract

Contract variations are common and arise for many reasons. They can lead to disputes about whether a change was agreed and what effect it has. Alleged variations may also be raised as a defence to a claim, complicating proceedings and delaying resolution.

Is it legal to vary a contract?

Generally, a contract can be varied with the agreement of both parties, subject to any applicable contractual or statutory requirements. The original contract may specify how future changes can be made. For example, gym membership agreements may contain terms permitting future price increases, subject to the wording of the contract and applicable law.

Some contracts are subject to additional formalities. Variations to certain property agreements, including some leases, may need to be executed as a deed or comply with other statutory requirements.

What does the contract say about variations?

A contract may require variations to be made in a particular way, such as in writing or by deed. These clauses can help reduce uncertainty about whether a change has been agreed and whether it is binding.

If the contract is silent on variations, a party alleging a change must still establish that the other party agreed to it. However, informal communications or conduct may be relied on as evidence of agreement, depending on the circumstances. Where a contract specifies a formal variation procedure, failure to follow it may make it harder to establish that a change is binding.

Reasons for varying a contract

Commons reasons for varying a contract include:

• Changes in applicable laws or regulations
• Errors or ambiguity in the original agreement
• A party being unable to fulfil its original obligations
• Agreed extensions to deadlines for delivery, payment or giving notice.

Where a requested change arises from a breach or potential breach, a limited waiver of rights may be preferable to a permanent variation. The wording should make clear which rights are waived and which remain reserved.

Implied variations to contract

Where a contract does not prescribe a specific variation procedure, the parties’ communications or conduct may, in some circumstances, establish an agreed variation. This could involve a conversation, email, text message or letter, or conduct inconsistent with the original written terms.

For example, if a contract requires payment within 14 days of an invoice but the parties consistently operate on a 90-day payment cycle for several months, this conduct might be relied on as evidence of a variation. Whether a binding change has occurred will depend on the circumstances, including the parties’ intentions and the contract’s terms.

Can email exchanges vary a contract?

Yes. Emails can create a binding variation where the necessary requirements for agreement are satisfied. This can happen when employees discuss changes without appreciating the terms of the existing contract.

Clear variation clauses, staff training and restrictions on who can agree contractual changes can help reduce this risk. Staff should understand that informal communications may affect the business’s contractual rights and obligations.

Summary and tips to avoid disputes

Our recommendations include :-

• For high-value or important contracts, establish clear procedures to prevent unauthorised or accidental variations.
• Recognise that an alleged variation may be raised as a defence to a breach of contract or debt recovery claim.
• When agreeing a one-off change to an ongoing contract, make clear whether it affects future rights or obligations.
• Where a contract needs correcting or amending, use the appropriate formal process, including a deed where required.
• Ensure staff understand the terms of both your own standard contracts and important agreements drafted by other parties.
• Require variations to be documented in writing and ensure staff know who has authority to agree them.

We can help

We advise on drafting, reviewing and varying commercial contracts, helping businesses establish clear procedures and reduce the risk of disputes. We also advise on contract disputes, including cases where one party alleges that the original terms have been varied. Contact us to discuss your situation and how we can help.