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What are the rules for varying a commercial contract?

As a general rule, in order to vary a contract, both parties need to agree to this prior to the changes taking effect, preferably in writing. Unilateral variation (ie where only one party can make a change) is only valid under specific circumstances if this has been agreed in advance. Conduct or sustained minor breaches (ie one party has breached the contract several times) can potentially lead to an implied change of contract.

What are the methods of varying a contract?

Written variation

This is the most commonly accepted way to effectively change the terms of a commercial contract. The original contract will often contain a term (known as a 'no oral modification' clause) that specifically states that the only way to vary the contract is in writing with acceptance by both parties.

Oral variation

Contracts can be both created and changed through verbal agreement. But it can be difficult to enforce a contractual term that has been agreed by a conversation and shake-of-hands alone - because there is usually no record of what was said during the exchange. Making a recording of the oral variation - or having witnesses - can help to prove it in the case of a dispute, but normally a verbal agreement will take place precisely because of its less formal nature.

Unilateral variation

In general, contracts cannot be changed unless both parties agree to the specific changes. However, there is an exception to this rule, if both parties agree in advance to the possibility of unilateral variation. This will normally only apply to certain specified terms in a contract and the changes permitted will often be limited in their scope. This may be commonly found in employment contracts where the employer can change minor terms of the employment unilaterally, such as staff uniform.

Variation by conduct

This normally applies to construction contracts or where a contractor has specific deadlines to meet. If one party does or doesn't do something which impacts the other party to meet the deadlines, then an implied term can be created to extend the deadline by a reasonable period.

What is a waiver and sustained minor breach?

One party may decide to waive (ie give up) certain rights under a contract for a certain period of time. Once they have agreed to do so (whether in writing or orally), they may be bound by this waiver even if they change their minds.

Similar to a waiver, if one party has consistently accepted minor contractual breaches from the other party, and a dispute later arises in relation to this particular form of minor breach, previous acceptance of the same breach will be taken into account by the court. For example, if a contract had a payment date for the first of every month, but the other party consistently paid their invoice in the middle of the month. If the first party consistently accepted this, then it might be implied that the new payment date is the middle of the month instead of the first day of the month.

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