What is a contract rider?
A contract rider is a separate document that is attached or added to the original contract. The rider modifies the main body of the contract. This additional document is used to include extra information that could not be included in the original agreement.
Although a rider’s purpose is to add specific information to an existing contract, it can also serve as a stand-alone contract with the additional legal clauses and documentations attached. In fact, riders are where the legal information is found . It includes all of the additional information that may not be included in the main contract for simplicity and clarity purposes.
Contract riders are common in partnerships or mergers between large organizations and businesses. It is through this document that modifications are made to the main agreement, which is often about the allocation of liability. It eliminates having to draft an entirely new contract, which can be time consuming and unnecessary.
Most of the time, riders are specific, designed for the exact situation and only added to this particular contract.
Typical types of contract riders
Several types of riders are commonly used on contracts to modify their terms, and these include:
Insurance Riders – Almost all businesses are required to maintain some minimum level of insurance for liability and business property. An insurance rider should specify the coverage amounts, deductibles, covered risks and the parties who will be responsible for payment of premiums.
Entertainment Riders – Entertainment riders are used by many performers to ensure that their needs are met in the event that they are scheduled to appear or perform. Some provisions that are often included in these riders are accommodations, travel, hospitality, security, transportation expenses, and technical requirements.
Finance Riders – Large financial agreements often use finance riders to eliminate the need to amend contract terms. These types of riders are most often used in commercial or real estate transactions. Information about payments, penalties, taxes, and default provisions are usually some of the most common financial matters addressed by riders.
Legally significant contract riders
The legal significance of Riders is that they are attached to a contract as a modification or addition to the original contract itself. In other words, a Rider is a separate but attached agreement or an additional provision of the original contract. Involved parties should become familiar with these documents, as they offer important protections that can impact the enforceability and interpretation of contracts.
In a dispute over the meaning or legal force of a Rider, parties will likely be in the position of having to argue over its enforceability. For example, if a business failed to include some language in a sales contract, and part of that language was later added to the contract by Rider, the resulting contract may not have been legally altered by the Rider. Yet parties who sign a Rider will seek to enforce the Rider unless they are challenged.
Why? Because the Rider may have important modifications to the existing contract. For example, the Rider may add a new contract provision that would allow one party to enforce an important element of the contract, such as a cancellation clause, that might otherwise be unenforceable if not included.
Keeping yourself protected from incurring liability under a Rider, or a series of them, often means working with long-term attorney members of your business team. If you are offered a contract that contains Rider agreements as part of its initial negotiation, consult with an attorney before signing anything. Otherwise, you may be bound to something that you never signed, or that was never agreed to.
How a rider is added to a contract
A rider is an addition to an existing contract. It can be added to a purchase agreement, lease, employment agreement, or any legal contract. The process for including a contract rider is typically straightforward. However, there are a few things to keep in mind.
First, if you want to add a rider to a contract, you should reach out to the other party or parties to discuss the fact that you want an amendment to the contract. The best way to go about adding a rider to a contract is to present it as something that benefits the other party and not just something that’s for your benefit. Additionally, you want to consider timing. Depending on the circumstances of your contract, your negotiation may benefit from waiting until certain events have occurred. For instance, if the subject of your contract is a house that was sold on a note, you may want to wait until there’s a late payment to discuss the desire to create a rider to the contract.
Second, your potential rider needs to be something that the other party wants as well as you. You can’t unilaterally force a change onto a contract. However, if you’re purchasing a business, for example, the rider may benefit the other party as much as you. As such, you may want to present it as a standard part of the purchase process. Then , after the sale has gone through (with the original contract having been signed), you can add the rider when you’re negotiating the new owner’s relationship to the business.
Third, you want to be clear about what exactly the rider does. Remember, a rider may involve minor things like spelling out details about payment. Perhaps you’re constructing payment terms or discussing when a product may ship. In other cases, the rider involves more major details. For example, you may be sharing information about updates to workplace policy as a rider to an employment agreement. Always, you and the other party need to be in agreement that these details matter.
Fourth, you need to be clear about who is involved in the rider. Is everyone from the original contract included in the contract rider? Who signs it? Keeping everything above-board helps you later on.
Last, include language about the fact that the rider is a part of the full contract. Include the date on which it was executed and warn that any revisions must be completed in writing. If you do not have well-written amendments, you may fall into a situation in which you do not like any of the amendments that were made because they were verbal and therefore not a part of the contract itself.
Fifth, get the signatures.
Contract rider examples from various industries
Riders aren’t just used in entertainment, and are often included in contracts or agreements in the real estate, employment, and insurance industries, to name a few. In each case, the rider serves to add or change a portion of the contract or agreement.
While it may seem not to have issue with whether to include riders in contracts, it’s an entirely different story when they’re left out. The result can be disastrous for a party to realize too late that something they thought was clearly a part of the contract isn’t, due to a missing rider.
To prevent such a situation and insure that everyone is on the same page, a planning meeting for what needs to be covered in the contract should be held. This handy reference covers various use cases for riders in contracts.
Riders in Entertainment Contracts A fairly common use for a rider is in the entertainment industry, often at the request of the artist. The purpose is to establish the level of comfort and support they’ll have while performing and make clear the expectations for the audience and promoter.
Riders may stipulate such things as:
In this context, a rider can be a part of a contract or be the contract itself. Sometimes the rider may be a part of a rider, which is referred to as a rider within a rider.
Riders in Real Estate Contracts In the real estate industry, a rider may be added to a lease, purchase agreement, or mortgage agreement. A mortgage rider may be used when one type of mortgage is not the best option for purchase of a residential property. A rider may also be used when multiple lenders are providing financing for the purchase of a commercial property, allowing them to add their own terms for financing.
Riders may add a variety of terms, such as items being left in or excluded from a home or building when it’s sold, such as a stove, refrigerator, or furniture. Sometimes, a seller may offer a buyer a concession, such as a certain amount off closing costs or a reduced price. A change in the amount of interest a lender charges may also be covered with a rider.
Riders in Employment Contracts Riders in employment contracts are fairly common and can cover a wide range of topics. Any number of riders can be added to clarify or change an employee’s compensation, schedule, or benefits, for instance. Employees must carefully review any contractual terms before signing it, particularly a rider that details the length of their employment. If the term in the contract is unclear, an unfavorable outcome for the employee can result.
Riders in Insurance Contracts Insurance providers generally include riders in order to modify certain parts of the contract, typically to expand or limit coverage. It’s important for the contract holder to understand exactly which items are covered and which exclusions are made.
Risks and challenges associated with the use of a contract rider
When executed correctly with well-drafted language, riders can enhance a contract. With all the good that can come from using a rider, however, there are also potential pitfalls that could lead to misinterpretations or worse, disputes between the parties post-execution. One risk involves other agreements that the parties may have entered into after executing the contract. For instance, if one party has entered into an agreement with a third party, and that third party later claims rights under the subject contract, while alleging that the rider agreement resulted in a breach of its agreement with the other party, that additional agreement, which was not originally considered may undermine the integrity of the contract . Careful drafting may prevent the confusion, by restricting further assignments or by requiring notice of assignment be given to all parties to the contract. An incomplete transaction document can also result in parts missing from the scope of work that were not accounted for at the time of its execution. The scope of work should identify any excluded work so that it can be clearly understood what has not been included. Ambiguous terms can also hurt enforceability. Language in one part of the rider could negate language contained in another part of the rider or the original contract. Thus, careful attention must be paid to enforcement issues and conflicts should be minimized by correct construction and interpretation.
