A Brief Introduction About the Contract Rider
When the two parties to an agreement decide to add some additional information to make an existing contract more flexible or comprehensive, a rider to a contract is required.
When it comes to the difference between a rider vs. addendum, the rider can be used for addition or changing of details while an addendum is adding some information to an existing text. If we look at the contract rider definition, then it is an additional provision to a current contract like an insurance policy where another request or demand is made.
What Is a Rider in a Contract?
A rider in a contract is a schedule or an amendment to an insurance policy or any other type of contract which modifies the original contract.
What Is a Rider in Real Estate?
A rider in real estate covers what is not included in the standard purchase and sale agreement in real estate like hazardous waste, tenant status, or additional agreements.
Who Takes the Contract Rider – People Involved
The two parties to the original agreement are involved in the contract rider, as well. It could be buyer and seller in a real estate agreement who feel that a rider or additional clause should be incorporated to improve the protection provided by the additional contract to the parties to the contract.
Purpose of the Contract Rider – Why Do You Need It
The reason a rider contract is drafted is that the original contract may have certain deficiencies or could require some amendments due to some new development that has taken place since the original contract was signed.
If there has been some change in the financial situation of either party to the contract, then they may require an extension of the payment schedule or delivery schedule. Without a rider in a contract, the entire contract needs to be terminated and a fresh contract drawn. This would be time consuming and expensive. This would also help the parties avoid taking the defaulting party to court and bearing the cost of expensive litigation. Instead, if there is a rider added to the original contract regarding this, then the extension can be made without much hassle.
There could be an additional product being supplied by the seller which the buyer would also like to purchase without drawing up a new contract. This could also be achieved by adding a rider to the existing contract, and a new line of business could be started without paying high fees for another contract. The terms and conditions of an existing contract can be easily modified to suit the requirements of the parties to the agreement with a rider to the original contract. It is more economical and less time-consuming.
Contents of the Contract Rider – Inclusions
When it comes to these contracts, the modifications which are required to the original contract should be incorporated.
Here is the information that should be included in such contracts:
- Parties to the contract: The names of the parties to the existing contract
- Original contract date: The date since which the original contract has been effective
- Rider contract date: The date from which the rider is effective
- Description of rider: The rider has to be clearly described in terms of how it affects the existing rights and obligations of both parties to the contract
- Other provisions of the contract: The other terms and conditions of the contract remain the same apart from the clause that is amended
- The consideration payable: If there is any additional consideration payable to any party due to this rider or is the existing consideration being reduced
- Product or service: The new product or service being introduced through this rider and the quantity to be supplied
- Payment terms: Modification of payment schedule, if any
- Governing law: The rider should also conform to the applicable laws of the state where this agreement is being drafted
- Reason for modification: The reason why the modification to the agreement has been made through the rider.
- Detailed terms: While the main contract may contain the general terms and conditions between both parties, the rider is used to provide the specific requirements of the parties which need to be fulfilled as part of the contract. In the case of a music agency, there could be a standard contract with certain terms and conditions for all artists and the special provisions that the artists require could be drafted through a contract rider.
How to Draft the Contract Rider
Points to Consider While Preparing the Agreement
You can refer to a contract rider template while drafting this agreement.
Here are the points to be remembered while drafting:
- The decision of parties: The parties to the contract need to agree to the changes being made. Discuss these changes and draft something that both parties give their consent to
- Document the changes: The changes that are proposed to the existing contract should be written down after being discussed with both parties to the contract.
- Get the changes reviewed: The change that you have documented should be reviewed by both parties to the agreement. Once they have approved of the change, the rider is then finalized
- Inserting the rider: The rider could be added to the relevant clause in the existing contract or after all the terms and conditions
- Signature for acceptance: To signify that the rider has been accepted, both parties to the agreement need to sign below the rider.
- Governing law: Ensure that whatever changes are being proposed are by the laws of the state under whose jurisdiction this contract has been drafted
- Rider date: The date on which the rider has been incorporated has to be included. This is the date from which the rider will be effective and binding on both parties
Negotiation Strategy
Just as when the original contract is drafted, the terms and conditions should be presented by one party to the other for review and counteroffer, the contract rider should also be offered to the other party for their opinion. The other party can then come up with a counteroffer, and then both parties can agree.
Benefits & Drawbacks of the Contract Rider
Benefits:
- Protection of interest: The rider provides additional protection to the interests of both parties to the contract. It could be an extension of the payment or delivery schedule or any other provision
- Convenience: A rider helps you make changes in a much simpler way. Otherwise, if both parties wanted to make any amendments to their contracts, a new contract would have to be made.
- Less expensive: Drawing up a fresh contract would mean higher expenses
- More flexibility: There is higher flexibility with a rider and lesser need to take legal action to resolve an issue
Drawbacks:
- Fresh contract: If there is no contract rider, then the entire agreement will have to redrafted to incorporate any changes which the parties to the contract want
- Cost factor: When a new agreement has to be drafted, the costs will be much higher as opposed to inserting a rider to modify the existing contract
- Legal action: There are higher chances of disagreements leading to legal action by the injured party. This would prove to be expensive for both parties
- Time-consuming: Making any changes would be time-consuming as making a new contract requires a lot more time than adding a rider to an existing one
What Happens in Case of Violation of Contract Rider?
When there is a violation of a rider to a contract, there are certain legal remedies available to both parties:
- Money damages: The injured party is compensated for financial losses due to the violation. The type of breach decides the compensation to be paid. In case of a total breach, the injured party will get the total sum due as per the terms of the contract as well as lost profits. In case of a partial breach, it would be the cost of replacing the other party
- Restitution: The injured party is restored to the position that they had before entering the contract. There is no compensation involved. The property or money belonging to the injured party is returned. The reason could be the incompetence of the other party to fulfill the contract
- Rescission: When either party to the contract enters the contract through some fraud or undue influence, this is the remedy. The contractual responsibilities of both parties are terminated.
- Reformation: This remedy is used when there is some inequity in the contract the court feels that the contract needs to be drafted to ensure it is fair to both parties
- Specific performance: The injured party compels the other party to fulfill or perform the duties mentioned in the agreement.
This should be drafted in the same manner as the original contract. Before the rider is finalized, the parties to the agreement should examine it thoroughly to ensure that it serves the purpose of both.
The rider is supposed to modify a specific clause in the contract and it should be drafted accordingly. The parties to the contract insert this rider so that the contract becomes more flexible. Just like any other clause in the contract, the rider should also be prepared by the laws of the state. It should also be noted that the rider does not provide any undue advantage to any party in the contract. The benefits or advantages of both parties should be the same.
The non-disclosure clause in the original contract also applies to the rider. Neither party to the contract should disclose confidential data related to the agreement to a third party. The rights and responsibilities of both parties are modified to the extent of the rider once it is effective. Both parties should read the rider carefully before signing it.