What is a deed?
A deed is often a binding promise or commitment to do something. It is said to be the most solemn indication that a person intends to do what they have promised.
To create a valid deed the document must be:
- in writing
- signed with an intent that it is to be a deed
The subject matter of a deed can vary greatly and may do one or more of the following:
- pass or confer legal or equitable interests in property or some other rights;
- create an obligation binding on some person; or
- simply affirm an agreement that passes a legal or equitable interest in property or some other rights.
What is an agreement?
It is a basic principle of modern contract law that to have a binding agreement there must be:
- offer and acceptance;
- an intention to be legally bound; and
- consideration (payment of some sort).
Agreements are preferably in writing, but are not always.
What is the difference between a deed and an agreement?
The most important difference between a deed and a written agreement is that there is no requirement for consideration in order for the deed to be binding. The lack of consideration is overcome by the idea that a deed is intended by the executing party to be a solemn indication that the party really means to uphold its promise.
Another important difference between a deed and an agreement is that a deed is binding on a party when it has been signed, sealed and delivered, even if the other parties have not yet signed the deed.
How to avoid confusion between a deed and an agreement
If a deed is desirable in the circumstances, it is imperative that the deed instrument clearly describes itself as one to avoid it being construed as an agreement, for example:.
- the document should use language commonly associated with deeds;
- the document should include the phrase ‘signed, sealed and delivered’ on the execution page; and
- the document should indicate that the parties intend to be bound upon delivery.
Should you choose a deed or agreement?
Consideration when deciding to execute a document as an agreement or a deed include:
- the period of time in which a claim can be brought for the breach of an obligation set out in a deed;
- whether there are any specific corporate restrictions on the execution of deeds (eg. some authorities do not allow company representatives to sign deeds on behalf of the company);
- whether any obligations are imposed on third parties;
- tax implications;
- any difficulties in proving consideration;
- whether a deed can be executed in counterparts; and
- the availability of particular remedies for the breach of a deed.
Whether you should enter into a deed or an agreement depends on the circumstances and the parties involved and you should seek legal advice prior to making the decision.
Important Disclaimer: The content of this publication is general in nature and for reference purposes only. It is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.