Notice of adjustment: Overview, definition, and example
What is a notice of adjustment?
A notice of adjustment is a formal notification given by one party to another in a contract, indicating a change or modification to previously agreed-upon terms. It is typically used in situations where there are fluctuations in certain factors—such as prices, interest rates, or other variables—that require an adjustment. The notice serves as a means of formally communicating that an adjustment has taken place and provides the relevant details for the parties to be aware of the change.
For example, in a commercial lease, if there is a clause that ties the rent to a cost-of-living index, a notice of adjustment would be issued to notify the tenant of any change in rent due to fluctuations in the index.
Why is a notice of adjustment important?
The notice of adjustment is important because it:
Ensures transparency: It keeps all parties informed about changes to terms that may affect their rights or obligations under the contract.
Provides clarity: A notice clearly states the adjustment and outlines how it will impact the contract, helping to avoid misunderstandings.
Protects rights: By requiring written notice, the party issuing the adjustment is fulfilling their legal obligation to formally communicate changes, which can be crucial in preventing disputes.
Serves as documentation: It acts as an official record of the adjustment, which can be referenced in case of legal questions or issues that arise in the future.
For businesses, having a clear notice of adjustment provision in contracts ensures that both parties are on the same page regarding any modifications, particularly in long-term agreements where terms may need to be updated periodically.
Understanding the notice of adjustment through an example
Imagine a business has entered into a contract with a supplier to purchase raw materials at a fixed price, but the contract includes a notice of adjustment clause that allows the supplier to increase prices based on market conditions. If the cost of materials increases due to supply chain issues, the supplier sends a notice of adjustment to the business, informing them of the price increase and the new rate.
In another example, a real estate lease agreement includes a notice of adjustment clause tied to annual inflation rates. Each year, the landlord is required to issue a notice of adjustment outlining the new rent price based on the adjusted inflation index. The tenant is then responsible for paying the new rent amount as specified in the notice.
Example of a notice of adjustment clause
Here’s how a notice of adjustment clause might look in a contract:
“The Landlord shall provide the Tenant with a written Notice of Adjustment, indicating any changes to the rent based on the Consumer Price Index (CPI) as published by the Department of Labor. The Notice shall be given at least thirty (30) days before the new rent becomes effective, detailing the percentage increase or decrease in the rent.”
Conclusion
A notice of adjustment is a key tool in contractual agreements, allowing parties to formally communicate any changes to terms that affect their rights or obligations. It ensures that both parties are kept informed and that any adjustments are documented in writing. By including a notice of adjustment provision in contracts, businesses can maintain transparency, reduce misunderstandings, and ensure smooth contract execution as terms evolve over time.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.