You know that you need to have a contract drawn up, although you are unsure whether it needs to be in the form of a “deed” or an “agreement”, or whether it even matters. Both documents are used to put in place contractual arrangements, but as each can have its own benefits getting it right can make a significant difference to the success of a transaction.
Below we explain the difference between deeds and agreements.
What is a deed?
A deed is a special type of binding promise or commitment to carry out an act. A deed can:
- pass legal or equitable interests in property or other rights
- create a binding obligation on a person
- affirm an agreement that passes legal or equitable interests in property or other rights.
A deed must be:
- in writing
- witnessed by at least one person who is not a party to the deed
- expressed to be a deed
- delivered to the other party
- supported by evidence that the parties intended to execute the document as a deed and be legally bound by it.
What is the differences between a Deed or an Agreement?
Generally, all contracts are agreements; however, all agreements are not necessarily legally enforceable contracts.
The main differences between a deed and an agreement are that:
- There is no requirement for consideration in order for a deed to be binding.
- A deed is binding on a party when it has been signed, sealed and delivered to the other party, even if the other party has not yet executed the document.
If phrases used in the document include “executed as a deed” or “by executing this deed” this will demonstrate an intention that the document was a deed rather than an agreement, although this in itself may not be enough.
When asked to determine whether a document is a deed or an agreement, the courts have concluded that it depends on whether the person executing the deed intended that the document be immediately binding on that person. If that was the intention, the court is more likely to find that the document is a deed rather than an agreement.
What does executing documents mean?
Parties tend to execute documents in the form of a deed in order to overcome any difficulty that may arise if there is no consideration provided for. However, in some cases the parties have no choice of what form the document should take.
Some documents are required by legislation to be executed in the form of a deed. For example, conveyances of land in some Australian States will be void unless made by deed
The deed has been signed and sealed, but what about the element of “delivery”?
Delivery can be inferred from any fact or circumstance, including words or conduct. Merely executing the document in the form of a deed does not itself imply delivery, unless it appears that execution was intended to constitute delivery.
For example, the court has said that the execution of the deed by a proposed tenant did not constitute delivery because the tenant only intended to be bound once all the parties executed the deed, and that had not occurred. In another case, the court found that execution could be intended to constitute delivery where the party relying on the document did not wait until the counter party had executed the deed before sending the signed forms necessary for a particular registration.
What are limitation periods?
An important aspect of using deeds relates to the period of time in which a claim can be brought for the breach of an obligation contained in the deed.
Usually, breach of contract claims must be commenced within 6 years of the breach occurring, however, the limitation legislation provides for a longer period of time to commence action following the breach of a deed.
The period of time in which a claim can be commenced in respect of a deed depends on the legislation of the particular State. For example, 12 years in Queensland, New South Wales, the Australian Capital Territory, the Northern Territory or Tasmania and Western Australia; and 15 years in South Australia and Victoria.
Should I choose a deed or an agreement?
That decision may be based on a number of considerations; however, it is important to think about the binding effect of the deed. The nature of a deed is that it is binding on the maker as long as it has been signed, sealed and delivered – even though the parts have not been exchanged. With this in mind, a deed is commonly used by parties:
- where there is some doubt as to whether there is suitable ‘consideration’ being provided for the transaction
- where the document includes a power of attorney that authorises the attorney to execute a deed on behalf of the principal
- where legislative requirements call for the document to be executed in the form of a deed, and/or
- in order to benefit from the longer statutory limitation period that applies for actions arising under a deed – 12 years may be more beneficial to you than 6 years.
Get in touch:
Whether to execute a document as a deed or an agreement depends on the particular circumstance. For a confidential discussion of your requirements please contact You Legal for legal advice.
* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.