Understanding the Basics of Contract Extensions

In business, timelines don’t always line up the way you think they will. Shipments don’t come when they’re supposed to come. Things break during transit or construction. Design mistakes cause delays. While all of these situations are frustrating, you don’t need to let potential pain points be the end of a relationship with a good business partner. 

If a contract expires, it can be costly both in time and resources. Extensions are quicker, easier, and more efficient than a new document. As you’ll see here, they’re useful tools that can help you stay on track while maintaining good working relationships.

What is a contract extension?

A contract extension is a method of adding more time to an existing legal document. It’s sometimes referred to as an addendum or extension clause, depending on the circumstances and industry. In addition to lengthening the time frame, you can also use an extension when small changes need to be made to the document.

Keep in mind that an extension isn’t meant to drastically alter a document, but rather to give additional time to the terms and conditions already agreed upon by both parties. If you need to make a significant number of changes to the document, it may be best to draw up another addendum or to draw up an entirely new contract rather than extending the original. 

It’s important to note that once a contract has expired it cannot be extended. You would need a completely new contract.

Why would you need to extend a contract?

An extension is useful when you’re satisfied with the current agreement, but you need additional time. In real estate, for instance, extension addendums are used when the initially agreed-upon closing date is too soon for all the parties involved to complete their requirements. 

This usually only takes a few days; but that gives the bank, title company, sellers, and buyers the time they need to uphold their part of the deal. It encourages a positive working relationship because everyone has sufficient time to do their part, thus satisfying the terms in the contract. 

If you can stretch your expectations a little, it saves the time and expense of drawing up an entirely new document that all the parties will need to sign again. You can use an extension to make your contract more nimble as circumstances change, either by prolonging the original agreement or making other small additional changes.

What is the difference between a contract renewal and an extension?

Contract renewals and extensions share many similarities but are different in two important ways. A contract renewal is a completely new document separate from the original. All parties need to sign even if no changes were made. 

By contrast, an extension is a continuation in duration of the current contract. A second important difference is that renewals can sometimes occur on their own because neither party did anything, whereas an extension must be signed in order to be valid. They both assume that the relationship will continue to move forward and the work will be completed.

Best practices for contract extensions

You’ll want to be clear about your expectations for extending the contract. To get started, you can ask yourself some clarifying questions when deciding how you want to move forward.

• Are you happy with how the process is going, or is there something you’d like to change about your current agreement? 
• Do you have a good reason for extending the contract as opposed to drawing up a new one?
• How long does the extension need to be in order to accommodate the agreement? 

Make sure everyone involved has a clear understanding of why the contract is being lengthened, how much time has been added, and what the expectations are for this new deadline. Once all the parties have agreed on the terms, you can proceed to creating the extension. 

What does a contract extension look like?

An extension can sometimes be a standardized form, which is often the case with government-regulated industries. Standardized forms keep processes tight and consistent. In addition to forms, contract extension letters are also an effective way of making expectations clear. 

They contain all the pertinent information about the extension in a clear and concise manner. Whichever method you choose, your process should be streamlined to save time, resources, and prevent inconsistencies in your contracts. You may want an attorney to review your contract if you have any concerns and want some extra reassurance.    

Who can facilitate an extension on a contract?

Attorneys are particularly skilled at contract extensions, but they aren’t the only ones who can facilitate an extension. Contract employees, builders, and realtors all utilize extensions from time to time. 

You don’t need a legal professional to extend a contract, but you do want to make sure that the documents you’re using will hold all parties legally accountable. This is why many companies use management software. 

By using management software specifically designed to simplify and streamline contract planning, you can be sure you have legal standing without having to take each individual document to an attorney to be checked. 

Key points to consider around contract extensions

If you’re considering extending a contract to prolong your original agreement, make sure you’ve considered a few key points.

• How long does it need to be extended? Do any other changes need to be made?
• Is an extension the right decision as opposed to a new contract?
• Do all the parties involved agree to the terms?
• Is the extension legally binding?

Once you’ve answered those questions you’ll be on your way to creating and executing an effective contract extension, helping keep your project on track and business relationships intact. 

Always be aware of your contract deadlines, and remember that you can take advantage of contract management software to help you stay on top of your extensions as well as other important contract-related procedures. It’s one of the quickest, easiest ways to free up your valuable time and resources.  

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