What is a Rider Agreement?
Riders are commonly found in a variety of agreements, most often in one of these four agreements: (a) rider to lease, (b) buyer rider, (c) seller rider or (d) addendum to lease terms (commercial leases). In this blog we will be talking about the rider to lease, but note that all riders serve the same purpose of overriding standard terms with customized terms.
The purpose of a rider is to include contract terms not otherwise covered by the standard terms of the agreement. So essentially, the rider acts as an addendum to the main agreement.
For example, a rider may address the specific use of the property, define permitted use, or provide for a special allowance as part of the rent or rent credit . A rider is not a replacement for the agreement but is an addition to it. It overrides the standard terms of the agreement if the rider is executed together with and contemporaneously with the agreement. But the rider should generally be referenced in the agreement so that there is no doubt that it is part of the document.
Riders appear in many industries but may be most familiar to us in the lease and purchase sale transaction arena. For example, retail leases mostly use some form of a rider whereas sales of real estate with drugstores, fast food franchises or many developers use rider agreements.
Key Features of a Rider Agreement
A rider agreement is essentially a contract that updates the terms or conditions of a lease or loan. A rider can also amend the initial mortgage or loan document. A rider serves a number of purposes, but the most common is clarifying specific situations that may arise over the lifetime of the lease or loan. For example, a rider might be added to make the terms more specific, such as stating the responsibilities regarding damages or alterations to the property.
Sometimes, a rider is added to reduce the amount of risk on the part of the lender.
The key elements of a rider are:
- Property in question
- Rent amount or mortgage payments
- Duration of the rider
- Responsibilities of the landlord and tenant
- Requirements for sale or mortgaging of the property
- Provisions for alteration or modification of the terms on the rider
Typically, a rider is signed by both the landlord and the tenant, acknowledging the following:
- The purpose of the rider
- The date the agreement goes into effect
- How long it’s valid
- What specific topics it covers
Depending on the state, there may be certain restrictions on the types of clauses that can be added to a rider. In general, a rider may address any item of concern between the two parties through language that supplements the original lease or mortgage.
Types of Rider Agreements
Rider agreements come in several types and contexts, from insurance to real estate, and even entertainment. Insurance rider agreements come with an insurance policy to provide additional coverage for a premium increase. In an entertainment contract, a rider agreement stipulates further compensation to the contracted party to add specific contributions such as talent like acts or writing. Whether it is an artist, actor, or speaker, a rider can be added to the contract to supplement what they are engaged to do.
Real estate involves rider agreements for homeowners’ insurance policies. The rider protects the homeowner and the lender as well. If someone filed a suit against the homeowner for an injury related to the property, the rider ensures that the judgment does not exceed the value of the home or the amount of insurance available to pay for the property.
Rider agreements are commonplace in business ventures. LLCs and partnerships sign rider agreements to include new members. Non-profit organizations add rider agreements to their articles stating who is authorized to act on the organization’s behalf. But rider agreements have become habitual to the extent that stereotypes have been formed. Some believe that entertainers have "demand" rider agreements. As a result, others may be deterred from dealing with or entering contracts with that person or their team.
There are other stereotypes associated with rider agreements. The general understanding is that a rider agreement benefits one party over the other and possibly that the party benefitting is a celebrity. One area where risqué rider agreements are found is in the world of wrestling.
Before his retirement, professional wrestler Jerry "The King" Lawler had a clause added to his contract with WWE that required WWE to provide pizza to him twice a week. To enforce the clause, Lawler provided WWE with receipts for the pizza and they reimbursed him for those expenses.
Other examples of unique rider agreements are publicized less. Former professional baseball player Alex Rodriguez reportedly included a ‘no-deal’ clause in his contract with Miller Beer Company that stated he would not endorse the competing Budweiser brand. Actor Javan Wade signed a rider agreement with his contract to join the television series, "The 100." The rider agreement included stipulations that he would not have to perform scenes involving nudity or using profane language.
Advantages of Using Rider Agreements
Rider agreements bring flexibility and specificity to contractual agreements. Their ability to address particular interests and issues enables participants to leave the remaining general terms of a contract well enough alone for the time being. When circumstances change they can then quickly amend the specific agreement rather than be forced to renegotiate the entire contract. They can also benefit both parties to the agreement. For the Freger case, the employer desired the flexibility to move employees around to accommodate the dynamic needs of the business while the employee wanted a fixed rate on compensation. Both interests can be addressed using rider agreements. The utility of rider agreements is most apparent in salary negotiations. In Freger, it allowed for the parties to agree to an initial compensation agreement that fixed the salary while retaining the ability to increase or decrease the compensation once there was more information about the work to be performed and the performance of the employee itself. In an ideal situation, the rider agreements can be based on metrics that are themselves related to the work being performed. This can allow for easy access to the numbers and make even bad news seem better. For example, an employee performing research would need a significantly greater amount of resources than one charged with administrative tasks. Having that reflected in an easy to read but sophisticated set of metrics can make disputes over compensation less common and can smooth over disagreements when they do occur.
Common Challenges and Considerations
Buyer should also be cautious when negotiating and drafting rider agreements. A rider agreement must be reasonable, clear, and specific, or it may be unenforceable or difficult to enforce. Courts often find that buyer must prove the reasonableness of the restrictions in rider agreements. The burden is on buyer to prove that the restrictions are appropriate for the purposes and duration of the restriction . If the restrictions restrict the use of the property in a manner that is overly broad or is not based on a valid business reason, that particular restriction may be voidable by the courts. Furthermore, if the restrictions place undue hardships on the buyer, the court may invalidate or excise or modify the restriction. The buyers are also cautioned not to negotiate an unreasonable rider agreement. The rider agreement may be re-negotiated if buyer finds the restrictions unreasonable.
Legal Ramifications of Rider Agreements
When a rider is attached to an event contract, it becomes a legal modification to the underlying agreement. Riders are considered a part of the final agreement, meaning that it binds the parties to its terms. Just because the language is moved to a different document does not mean it is wiped out: if the rider is still part of the agreement, then it must be adhered to or the party breaching the contract will be liable for breaching the main contract (assuming that the breach of the rider caused damages).
If a main contract has a rider, then any terms in the rider must be followed by both parties: 1) the party who created the rider; and 2) the other party who received the rider. For instance, if Party A and B enter into a contract where there is no rider attached to it, but Party A later sends Party B a rider to add specifics about the main agreement (e.g. the sound system A will use), then B is not required to follow the new specifications in the rider. If B sends A a rider in response, then B must follow the rider if A accepts it. Both parties are required to follow the contract, as long as both parties have accepted the contract as modified. Copies of the agreed-to rider should be exchanged and kept.
As already mentioned, a rider modifies the main agreement in some way. Therefore, 1) the rider must be legal and 2) the rider must not contradict anything in the main, basic agreement. In other words, the rider must be legally worded and the rider must not directly contradict anything contained in the original agreement. In the example above where A and B do not have a contract in place, but A unilaterally thinks that B will allow him to perform at his desired location on his own power, the rider cannot be relied on by A. There is no contract to support A’s belief. In the event both A and B have a contract in place, but A sends an updated rider, then any inherent conflict between the two documents must be resolved first. If the rider was sent prior to acceptance of the contract or acceptance of the rider is inferred by the actions of the parties, then the rider is treated as a counteroffer. In this case, the last contract sent between the parties (whichever has the most recent date) will be the controlling document. Finally, if the rider contradicts something in the contract, then the contract takes precedence. Riders only modify the original agreement, and therefore a contradictory clause in the main contract controls.
Practical Examples of Rider Agreements
Rider agreements are often utilized in different industries and fields. In the construction industry, rider agreements can be used for a number of reasons, including to make a stipulation for a certain type of material to be used in a project, or to stipulate that the deadline for the completion of the project is to be adhered to. Sometimes, these rider agreements are used because the initial contract is so lengthy that it could be cumbersome to add in any changes or stipulations to the original contract.
Rider agreements are predominantly utilized in labor contracts. For example, you may have a full-time union labor contract. However, the company and the union representing the employees may decide to "ride" out the terms of the contract by continuing to work side-by-side with one another. The union representatives of the employees will continue to receive monetary compensation, which will also be provided to the union itself. In this particular case, a rider agreement is being used to extend the terms of that original agreement, even if for a short period of time, until a new agreement is reached .
Another example of the use of a rider agreement is in an insurance contract. Insurance contracts are often lengthy and may include a wide range of stipulations. Sometimes, the insurance company and the insured may agree to a number of changes that do not include full changes to the contract. To avoid creating a new contract, a rider agreement can be created to make specific stipulations.
Rider agreements can also be a useful tool in business contracts. When two businesses are entering into a business relationship of any kind, it may be difficult to come to an agreement on every small detail of that relationship at the time of signing the initial contract. However, the business relationship may not allow for a lengthy negotiation and creating a number of addendums to the original contract. This creates a situation in which a rider agreement becomes a beneficial option. It allows the businesses entering into a contract to continue their business dealings, but also allows them to make changes to their imposed contract at a later date.