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Contracts are generally agreed upon for a fixed term, and as such, when the validity of the contract nears its expiry, one of two things usually happens: One, the contract reaches the end of its term and ceases to exist; Two, a brand new contract is agreed upon once the term expires. However, there is a third option as well. A contract may also be extended. In this case, a new contract needn’t be created. The date of termination of the contract is simply pushed further. This option is usually favorable in a situation where a contract has been agreed upon, but both parties are unable to carry out their performance obligations within the stipulated time period.

  • Uses of a Contract Extension Agreement
  • Points To Bear In Mind
  • Uses of a Contract Extension Agreement

    The extension of a contract can be done immediately after a contract expires, or as soon as the parties feel the need to extend the contract.

    • Continue a good working relationship

    Often, when two parties enter into a contract, a working relationship begins to grow between them and where the result is a positive one, a personal bond is formed between the two parties, a sense of trust and familiarity. As the business world is extremely cutthroat and unpredictable, it makes all the more sense to go with someone who you have a good working relationship with.

    This is how a business relationship grows from strength to strength and opens up a wide array of possibilities for future prospects. From a work point of view, tasks and targets are achieved quicker when you are familiar with what the other party/person brings to the table.

    • Lack of time to carry out the tasks

    Uncertainties are a dime a dozen in the world of business. There are various external forces at play that can wreak havoc to any sort of plan or projection set in place. The timelines set for achieving certain targets and milestones may become unachievable, performance obligations may not be in a position of being fulfilled within the previously agreed upon timeframe.

    Additionally, obtaining the various licenses and permits for various projects usually involves a lot of running around in circles before any significant progress is made in that regard. Amidst all this hustle-bustle and the innumerable uncertainties that pile up, parties to a contract often find themselves running out of time in terms of the contract. Therefore, it reaches a point where the best solution would be to extend the term period of the contract so as to ensure its fulfillment.

    • Moving on to a new project

    Sometimes, businesses strike partnerships for a particular time period or a particular project. Where the parties find a need to extend the contract term period, they will move to make that happen. It may so happen that the next project in line is an extension of the current one, and hence, makes more sense for a party that’s familiar with it to continue, provided both parties have a good working relationship.

    Points To Bear In Mind

    • Pre-decide the objectives of the extension

    The answer to the following questions must be clearly defined before the extension is written out:
    a) What should be the extended time period?
    b) Are there any new performance obligations to be added?
    c) Is there sufficient clarity regarding the reason for the extension?
    d) Will the extended time period be a fixed one or will it continue indefinitely?
    e) Are there new milestones/targets to be achieved?
    f) Are there any other revisions to be made to the previously agreed upon terms?
    g) Are there any inconsistencies/invalidations between the extension agreement and the original terms of the contract?

    • Allow sufficient time for review

    When the parties are conducting a review of the extension agreement, it is always advisable to refer to the original agreement as well so as to rule out any inconsistencies that may have been overlooked or escaped the eye of the person who drafted the agreement. Additionally, if any clarity is needed on the new terms, the same can be clarified at the time of the review so as to avoid any sort of conflict moving forward. Once the agreement is signed, one cannot get away with the reason that the terms of the contract were not understood/were perceived differently.

    • Always better to be more detailed

    The more details covered in the extension agreement, the less problems that stem out of it. During the review, a careful study of the entire document should be made, so as to ensure all the necessary points regarding the deal are covered extensively, thereby leaving no room for any kind of assumptions. Assumptions generally tend to give birth to a number of problems with regard to the understanding and interpretation of the document. Therefore, ensuring their non-existence becomes vital.

    • Awareness regarding the original contract

    Both parties must ensure that they are aware of the fact that the extension does not relieve them of their previously agreed upon terms of performance or any such obligations that are due to be performed by them, in any given case.

    • Keep extra copies handy

    It is always good sense to have more than one valid copy of any document, for that matter, and this case is no different. It is advisable to have at least two signed copies of the agreement, one for each party so that they can be referred to on demand. Additionally, once these copies are signed upon, they form part of the original agreement and must be treated in accordance with the same.

    • Consider the advantage of having it notarised

    Notarising a document is always a good idea, so that the parties cannot challenge the authenticity of any of the signatures at a later stage. Aside from having it notarised, the option of having witnesses signatures is also a relatively good back-up.

    • Take the advice of an attorney, if necessary

    Generally, the drafting of an agreement, be it an extension or the original agreement is not as simple as it seems. Most times, it is always advisable to acquire the services of a professional such as an attorney, so that the appropriate legal jargon is inserted and the writing up of the contract is professional and devoid of any basic errors. Having an attorney draft/write up the agreement also speeds up things enormously, which in turn helps businesses function efficiently, saving time.

    Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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