This question has stood the test of time for many years and continues to be a source of confusion for many real estate professionals. The simple fact that both options exist is a clear indicator they serve different functions and lead to a hunger for clarity between them. Let’s take a few moments to peel back the differences and ensure the right form is used in the right way.
Addendum
There is a hint in the name when it begins with ‘ADD’. The addendum is intended to add something to a contract. There we are, moving on… not so fast! There is a bit more to the story on addendums because an addendum is intended to add something to a contract that does not alter the terms or intentions of the contract. This means that the ideal intended use of an addendum is to add something to a contract before the contract is finalized between the parties. In practice, this would look like adding a list of farm implements included in a transaction that there is simply no room for in the original agreement. An addendum can also handle complex situations such as agreements between buyer and seller that require significant explanation or clarification not scalable to fit in the core paperwork. When this is done before the agreement is formed, and noted in the ‘other documents’ section, it forms part of the agreement rather than attempting to alter the agreement after the fact.
Amendment
Similarly, the word itself gives a hint when it begins with ‘AMEND’. To amend something is to fix or alter it. So, if the terms, conditions, chattels, dates, names, or really anything in a contract needs to be changed after it has been signed, you would use an amendment to do that. Once a contract has been signed, all changes initialled and communicated to the parties, it is as if the contract is made with stone and chisel and cannot be altered on its face. Only an amendment can make changes at that point and that is generally by inserting something that wasn’t there before, deleting something that was agreed to but will no longer be part of the agreement, or both inserting and deleting using the same amendment. To be clear, an amendment does not comment on or suggest new information but actually changes the agreement in full. For example, if amending the condition date on a contract, the amendment would not be properly completed if it said: “the condition day for financing is changed to May 12”. Instead, the amendment should delete the old condition in its entirety, and insert the new condition with a new date.
Adding to a contract after it is signed and communicated
So, the seller and buyer have come to an agreement that all the itemized garden tools in the shed will stay with the property after the buyer saw them during the inspection and wanted them. Because we are adding to the contract is it an addendum? No, as mentioned earlier, an addendum is best used before the contract is formed so in this case an amendment would be used to add the itemized list of garden tools to the unattached goods section of the contract by writing the items into the insert section of the amendment and then having both parties sign in agreement. If the seller was an award-winning gardener and had more tools than could fit on an amendment form, the best way to manage this would be to write the extended list on an addendum form (or a separate multi-page document that you title as an addendum or schedule) and then create an amendment that inserts that document in the ‘other documents’ section of the contract. In this scenario, both buyer and seller would sign 2 documents, the addendum which forms the list of garden tools agreed to, and the amendment which inserts it as part of the contract in question.
By carefully thinking through the use of these two separate and commonly used documents, you will ensure clarity in the contract itself and the enforceability of the agreement made by the parties. It is said that high fences make good neighbours, but in real estate, good contracts make happy clients.