What Is a Contract Rider?
A contract rider is a provision or attachment to an existing contract that establishes new conditions of the original agreement. Riders add to or make changes to one or a number of sections of the original contract. These changes typically include additional terms and clauses that describe the responsibilities of each party, such as what happens if a party fails to fulfill their obligations under the contract or how disputes should be handled if they arise .
Riders are commonly used in various types of contracts, including lease agreements, novel publishing contracts, insurance policies and sales contracts. They are most useful when a contract is lengthy and the changes do not affect all parts of it; to add a rider would only require an addendum to the original contract. This section of the contract is most often the best way to make changes to a lengthy contract because of the efficiency it offers.
How Do Riders Change Agreements?
Contract riders are an additional page or pages added to the main agreement. The rider is referenced in the contract and at the end the phrase "See Rider." The exact reference is spelled out so there is no confusion. It may say something like "Find specifics in section 4 of the Rider" or "For further information see section 3 of the Rider on page 14 of this document." The rider is typically referenced in the definition section of the agreement "Defined terms: The following words have the following meanings:…" A specific definition might say something like "The Contractor has the meaning assigned to it in section 26 of the Rider."
Riders can be used to include or modify specific terms and conditions of the main agreement without adding all the new clauses directly into the contract. It may be a clause that is only needed by one party or is negotiable. Think of it as an appendix with detailed information about something that is only of interest to one party or is part of a negotiation. A rider can be used to add specific details about the price of a contract, payment schedules, responsibilities of either party, or any other specific detail that the parties want to include in the contract.
The rider may reference another document that is attached to the contract and is incorporated by reference. This is an often-used method to incorporate by reference a comprehensive list of items. Think of it as a table of contents for the entire agreement. A common usage might be for a payment schedule that lists all the specific dates, and payment amounts, for short-term contracts. Instead of inserting into the main body of the agreement a reference to specific payment amounts for each day of the year, an attachment such as Appendix A – Payment Schedule, can be created that is referenced in the body of the contract and states which dates are associated with which payments.
A third type of rider might be used when the parties want to leave an item up to resolution later. For example, the parties may agree for a type of contract but not be able to agree upon the exact price. The parties might sign the contract but include a rider that states "price to be determined by X date."
Types of Riders
In addition to the common considerations of exclusive jurisdiction clauses and conflict of law clauses, the following are several examples of contract riders that are often attached to contracts: insurance riders, entertainment industry riders, and construction contract riders.
Insurance Riders
The most common type of insurance rider is the "Additional Insured Rider", attached to an insurance contract with the purpose of extending the liability coverage to a person not otherwise named in the contract, generally requiring that insurance proceeds be paid to both the insurer and the "additional insured" if a claim is made. For example, a bartender signing a contract with a bar for use of the bar’s kitchen and grill might be added as an "additional insured" to the bar’s general liability policy, in case there is an uninsured incident on the bar’s premises during the bartender’s time in the kitchen or cooking area.
Entertainment Industry Riders
As the entertainment industry continues to expand, more contracts use riders. Entertainment contracts often have riders, including cast riders, director riders, producers’ rights riders, and "stunt airport" riders. For example, a "stunt airport" rider, which is a very specific form of location rider commonly found in contracts involving airport stunt work, would address issues of possible downtime from operations due to stunt activities requiring the airport to be closed. There are other types of riders commonly found in the entertainment industry, including merchandising rights riders affecting the rights to produce merchandise based on a film or other work; the right to record and distribute a soundtrack of a film; and so forth.
Construction Contract Riders
Construction contracts may also have riders, but the most common construction contracts do not have riders. Among the most common types of construction riders are riders concerning the use of liquidated damages to the value of the project; and an "oral requests" rider, providing that no oral requests or agreement can defeat the terms of the contract.
How to Draft a Rider
Drafting a rider, like writing the original contract, is something usually done by a lawyer developing an example that can be used over and over again. The lawyer’s job is to draft a provision that gives a broad definition of what should be included or excluded in the existing contract, while creating an enforceable contract that will be accepted by a court or arbitrator if it comes to that. It is very rarely done by the parties themselves.
First, the original contract should contain a reference to the rider. "This agreement includes as part of the term sale of our widgets, a rider setting out the list of excluded widgets."
Then, beginning the actual drafting of the rider, the lawyer should set out the purpose of the rider clearly and plainly. "The purpose of this rider is to set out and exclude the following widgets from the agreement."
Then comes the substance of the rider, which can be long and complicated, depending on the company’s goods. The rider must then be reviewed and signed by both parties, attached to the original agreement, and either be a part of the original agreement or contained in a separate agreement. It is good practice to put a provision in the main agreement saying that the agreement may be amended by later written agreement signed by both parties.
Finally, there is the interrelationship of the rider and the main agreement. If the main agreement includes a dispute provision requiring arbitration, then the rider must also not be inconsistent. In a recent decision, a clause in a rider that purported to give a party the option to litigate all disputes rather than arbitrate was found to preclude arbitration of the counterparty’s claims, notwithstanding a clause in the main agreement that all disputes were to be arbitrated.
Enforceability of Riders
Enforcing riders follows the same principles that apply to any other enforceable contract. It is necessary that there must have been consideration provided—payment—for the ability to add a rider. With such consideration, the rider as addition or change to the original contract will be enforceable.
Agreements to modify are disfavored by the courts, as they should be separate contracts. The circumstances in which a modification would be enforceable include instances when the parties are modifying a contract with a relationship that has great public interest. Another example is when there has been a misunderstanding of the law. In such instances, there arises a need to keep the minds of the parties tied to the initial strict terms of the document.
When both parties agree to modifying a contract, there is no obvious harm to the parties, as the contract is mutually agreed-to. However, if one party is under some misapprehension and if the agreement is created when there was reason for the party in question to know, then the effectiveness of the modification can be compromised when challenged.
As with consideration, it must be clear that an agreement between the parties to modify the contract must be mutual. One-sided promises are not enough , as they must be for the purpose of altering the substance of the contractual obligations. In the absence of evidence indicating that there was an intent for the contract to be changed in the alteration, the rider will not be effective. For example, if the rider includes a new closing date but the language surrounding it is not explicit, the rider may not be appropriate.
When modifications to the contract do not involve addition or modification to an essential term, the effect is often minimal. A synopsis of the terms might not be required to ensure brevity; that is because they are not altering the nature of the potential agreement. At the same time, however, if the rider is "significant," such as a proposed change in rate of payment or change to a date, the scope of the change must be outlined in clear language.
Although each case is different, in order for there to be an enforceable rider, the initial written agreement must set out the intentions of the parties at the beginning of the agreement. As well, a mutual understanding must be reached and the agreement must be structured so that the agreement between the parties is clearly spelled out.
Both riders and modifications are riskier and less effective and thus not as favorably viewed by the courts as the original contract. It may be more effective to negotiate the terms of a modified agreement via an actual new agreement that negates the need for a rider.
Examples of Contract Riders
To illustrate the importance of contract riders, consider the following examples.
Sarah and John recently entered into a five-year commercial lease. The landlord provided a pre-printed form lease. Sarah and John struck out a rent increase provision found in the pre-printed form lease and the space for the increase was left blank. Without a rental increase provision, rent would not change for the duration of the lease without a rider. If Sarah and John wanted to take advantage of increasing market rates, they should have considered a rider setting forth future rent increases.
Sally was a salesperson at a high-end electronics store. Sally arranged to purchase a number of expensive home theater systems from a wholesale electronics vendor. Sally’s employer terminated Sally’s employment before Sally could pick up the products from the supplier’s warehouse. Upon delivery of the products, the supplier claimed Sally could not take possession of the products because her employment was terminated and her employer never authorized the supplier to sell the products. Sally had an oral agreement to sell the systems but the absence of a written rider authorizing Sally’s acquisition of the products and sale to customers created problems getting the products at Sally’s store.
Jim was shopping around for a cell phone service provider. Jim selected a one-year term service plan from his provider. Jim wanted unlimited text and unlimited long distance calling. Jim did not look to see if there were riders to the contract. The contract did not include an access fee. A company representative told Jim that an access fee would not be applied for the first six months of the term. However, when Jim received his first bill, an access fee for monthly unlimited text and long distance was included. Jim should have looked to see if there were riders to the contract. If Jim had a rider incorporating the representative’s promise, he could have sued the service provider for breach of contract.
Sophia emailed a website design company requesting three revisions to her website. The website design company sent Sophia a contract setting forth the terms of the parties’ agreement. Sophia signed and returned the contract. Afterwards, a company’s representative requested on the contract a handwritten approval containing all three revisions so that the company’s owner could approve the revisions. Sophia did not notice the need for a handwritten authorization until after the company had completed the revisions. Because there was no signature at the bottom of the contract, the website design company was within its rights to refuse to make additional revisions.
Julia worked for an accounting firm that was expanding both its accounting and consulting units. Julia’s boss asked her to negotiate agreements with clients of both units. Julia only worked under the agreement of the accounting unit. The consulting unit did not have a rider for the accounting agreement, so all of Julia’s work ended when the client-direct engagement ended. Julia’s consulting unit clients filed suit claiming they were relied upon a contract of indefinite term of faithful expedient performance from Julia’s firm.
Negotiating Riders: Best Practices
When negotiating any contract that contains a rider, an artist should use caution to ensure that the rider does not unfairly bind them to terms or requests that exceed that which is contemplated under the general terms of the underlying contract. To that end, artists should avoid signing a rider without having a chance to review it with the general terms of the related contract in mind, agree to the rider prior to agreeing to the overall contract, and focus on negotiating specific rider provisions that could be problematic if left to the discretion of another party. When advancing or receiving a rider, an artist should do their best not to agree to anything without first consulting an experienced attorney, and be mindful of what they are agreeing to in the long run.
Conclusion: Why Riders Matter
As we have explored in this article, riders are an important part of the contract process, providing an opportunity for parties to more flexibly address their specific needs and concerns. It is also vital to be prepared to use a rider. Uncertainty or ambiguity in contracts can lead to disputes over rights or obligations that could have been addressed in a rider or a follow-on contract. A rider might address specifics that are otherwise left out of the contract. It could set out an amendment to limits on liability, or insurance requirements, grant a right of first refusal for additional work, or address alternative dispute resolution, to name a few possibilities. Riders can be identified early in the contract negotiation, and their potential to address issues or opportunities should be discussed.
Moreover, as contract attorneys, we’ve seen situations where a client thought a rider had been prepared , only to find that it was not incorporated into the contract, or a rider to one agreement was not incorporated into a later contract or amendments to that prior contract. This can lead to significant misunderstandings down the road, if one or both parties believe they were to be governed by the changes in a rider that isn’t part of the chain of contracts. It’s tempting to believe that these are largely administrative issues, because the riders are often noncontroversial, or because the aspects of the contract they address are also covered elsewhere. But in contract situations, every word in every document can matter, and parties should be sufficiently alert to avoid missing those instances when something as apparently innocuous as a rider can pose a risk.
Contract riders should be an important component of your contracting process, and not just an afterthought. They can help you realize advantages well beyond the original concept of the deal.