What is a Deed?
A deed is a written document that aims to create distinct legal rights. For a deed to be legally binding, it must meet certain criteria, and incorporeal or intangible rights, such as intellectual property, patents, copyright and trademarks, can all be conveyed by deed.
The most common example of a deed is a property transfer or a conveyance. A conveyance is a type of deed that is used to transfer the legal ownership of land from one person to another. In order for the transfer in question to be enforceable, the deed must be "delivered" (usually to Land Registry) and there must have been an intention to create legal consequences. These are often known as the conditions of validity.
Conditions of validity
Intention. In order for a deed to be effective, it must be with intention to create an interest in property or other rights and for it to be delivered. In practice this requires an intention for the document to take legal effect. In general, a deed must be delivered. However, if possession of a deed has been given to another person, it is considered to have been delivered for the purpose of creating rights as long as there is no consideration for delivery of the deed. Consideration is an exchange of value. Therefore, delivery of a deed in return for consideration would not mean the property is being gifted.
Delivery. A deed must be actually delivered. If delivery is to be implied, it would be as equally as binding as where the deed is physically delivered . The circumstances in which this might apply would be if there was imprisonment of the recipient for the period prior to the document being delivered to them. There is also a rule of law that a deed activates the legal rights it creates as soon as it is delivered. Therefore, if no delivery has occurred then the document is considered void.
Types of deed
There are three types of deed
Family arrangements Deeds for family arrangements are used by a family to give shareholdings in a family company to a family member, in return for nothing. If an intention to create legal rights is clear, it may be necessary for no consideration to be given at all. This is particularly vital in cases involving inheritance tax planning for gifts of business assets between family members.
Guarantees
Guarantees create a potential liability for the guarantee of payment of debts or performance of covenants in a contract. Guarantors are generally given the legal position of being the principal debtor for the purpose of the contract.
Goods mortgage deeds
This is a deed that allows a lender to take possession of a borrower’s goods, without needing to go to court. Only those items in relation to the money owed can be taken. In order for the deed to be effective, the deed needs to be delivered to the borrower. Using a goods mortgage deed to give a lender reasonable grounds for realising its rights should be a last resort.
What is an Agreement?
An agreement, in a legal context, encompasses a broad range of written arrangements and is often used to describe the intention to perform or the promise to do something in the future. Examples include loan agreements and employment agreements. The contents of an agreement often depend on the parties, the terms of the agreement, state requirements, etc.
As with a deed, consideration, or a benefit, is needed to create a binding agreement. Consideration can take the form of money, services or the promise of a future service that is legally enforceable.
An offer is also an essential element to an agreement. An offer is an expression of an intention to be bound by the terms if an agreement is entered. For an agreement to be formed, the other party must accept the terms.
An offer can involve multiple parties. It does not necessarily require the offeror to make a formal offer to each party.
Acceptance of an offer involves agreeing to the terms issued by the other party. Typically, an offer is irrevocable until an acceptance is communicated to the offeror. Further, the acceptance must be precise and not change the terms of the offer. Then, the agreement has been formed.
For example, a seller of a painting agrees to sell the painting to the buyer for $5,000. The buyer communicates that he accepts the terms of the offer and intends to pay $1,000 upfront with the balance due before the transfer of the painting. The seller has made a counter-offer, which is a rejection and a new offer. The buyer can then reject this counter-offer and either accept the original offer or make a different counter-offer.
In a situation where the contract must be in writing, such as in the purchase of a home, but there is no clear written agreement between the parties, a court will apply the doctrine of part performance. By applying this doctrine, a court can enforce the contract to the extent necessary to avoid injustice. In other words, under certain circumstances, a court can enforce a contract that requires a writing where there is sufficient objective evidence, such as payment history, partial performance, joint possession or other facts, to indicate an agreement between the parties.
An offer and an acceptance are typically communicated orally or in writing.
Differences Between Deeds and Agreements
In English property law, the difference between an agreement (which will be legally binding against the parties under the law of contract) and a deed (which has the additional and separate requirement of "delivery" of the deed) is significant. The distinction affects the parties’ legal rights in the property in question, and affects their ability to enforce these rights. Arriving at a written contract may seem like sufficient evidence of an agreement to most parties, but the law considers the deed, which imposes further requirements.
For example, a sale of real property (such as land or a building) made by simple contract (agreement in writing with the intention to be legally bound) does not transfer the legal title to the purchaser. For this transfer to occur, the property must be transferred by deed from one party to the other. There are other instances when deeds must be executed under English law, such as the execution of a power of attorney, a will and a statutory declaration. All of these documents must be delivered in order to be binding (delivery is a separate requirement to intention to be legally bound) Paragraph 34 below discusses the requirements of delivery in more detail.
Effect of Deed vs Agreement
The obligation under a contract will become legally binding unless and until it is expressly terminated, or the contract comes to an end in accordance with its terms. The terms of a contract will frequently allow either party to terminate it on giving notice to the other party. If the parties have successfully contracted, the contract will be binding on them unless an event arises which makes the performance of the contract impossible. However, until the legal obligations of a contract "crystallise", the obligation on the parties to deliver their side of the bargain is unbinding. In contrast, where a deed has been executed and delivered the obligations of the parties become binding immediately, subject only to the possibility of rescission or discharge of the deed.
Both agreements and deeds can be enforced against the parties, meaning that the court may compel the party in default to perform in accordance with the agreement or deed. Equally, a deed has the potential to furnish the non-defaulting party with damages. The deed is usually intended to be a permanent and complete record of the parties’ agreement. Caution should be exercised when drafting, as the fact that it is a deed may lead a court to interpret the language used as imposing more onerous obligations upon the parties than would otherwise be the case had the agreement been drafted as a mere agreement.
When to use a Deed rather than an Agreement
In general, agreements between parties will suffice where the subject matter is not too significant and a flexibility of amendment or termination may be required. Alternatively, a deed should be used where the subject matter is very valuable, which might include a future interest, involves an obligation for which there is no adequate remedy at law or would compromise valuable rights and privileges which should not be surrendered without taking formal steps to do so.
In real estate transactions, a property sale is usually done by an agreement for sale while a property transfer is effected by a deed. A property sale agreement requires completion by the signing and delivery of the certificate of title and a transfer/ deed. However, for the sale of land, use of a deed is simpler than an agreement for sale as it is sufficient for the deed transferring the property to be delivered to the purchaser without the purchaser having to sign it. A contract for the sale of land such as that for which caveat issued, requires registration with the registry. Moreover, since under a general power of attorney, a real estate may be sold without the principal’s need to give up possession, a deed becomes the only option for a conveyance in such circumstances.
In a trust deed, usually the trustees execute a deed promising to hold investments for the benefit of the beneficiaries with an obligation to follow special instructions regarding the management of the trust property.
In circumstances of gratuitous promises, it is sufficient to execute a deed by a donation with an intention to make a gift to the donee. This sort of a debt, being limited by time, is called a deed of gift. In such situations the deed is governed by deed or estoppel and hence further requirements are waived. However, any conditions imposed for the vesting of the entitlement to property in the donee as well as any express or implied powers of management or disposal given to the donor as well as a right to receive profits by way of dividends are not waived.
Wherever there is a gift or a gratuitous promise involved in a transaction and the intention of the parties is to create a deed rather than a contract, it is requisite that it should be signed, sealed and delivered. By signing the deed, each party including the donor is bound to the deed although he has not sealed it. The agreement through which the property passes from the donor to the donee is a deed of gift which must be accepted by both parties to it.
Legal Requirements and Formalities
Deed:
The property and/or rights granted by the deed must be clearly stated.
The deed must be signed in the presence of an independent witness.
The witness must also sign the deed.
The date the deed is signed should also be inserted.
The original signed deed must be lodged in the land title registry (if the deed affects land) along with any other forms which are required to be lodged and a lodgement fee (currently $131 . 20).
Agreement:
The parties must sign the document in front of one witness who must also sign it.
The witness does not have to be independent.
The date the agreement is signed should also be inserted.
No lodgement is required in the land title registry, although it is preferable for security reasons.
Agreements and deeds should be entered into after advice is obtained from a legal practitioner.
Common Legal Mistakes in Deeds and Agreements
In order to avoid any common pitfalls we have set out below some examples of the issues that are often encountered: Incorrect terminology As previously mentioned, the use of the term "deed" when not required can create an issue, resulting in an agreement that is difficult to enforce, or has greater formality attached than otherwise necessary. A poorly drafted deed can also invalidate its status as a deed. Key elements to be aware of include: Timing issues A common pitfall is neglecting to include execution and completion dates. This can have a significant impact on your rights and liabilities (if applicable). For example a lease which states that it commences on the commencement date is much more powerful than one which states that it commences on the date the deed is entered into. Lack of clarity The relationship between parties is also something which needs to be carefully defined. If there are multiple parties, it is important to clearly identify which parties have which obligations, to avoid confusion as to who must do what. Statutory requirements There are a number of statutory requirements that regularly catch people out: Agreement fit for purpose It is not uncommon for clients to find themselves with a fancy brand new deed for no pressing purpose at all. In fact, even a standard commercial agreement (a ‘Heads of Agreement’ or ‘Memorandum of Understanding’) can be an important document in a negotiating process. It is important to have an agreement that is fit for purpose for the parties involved.
The Importance of Legal Counsel When Drafting
In any event as discussed in two previous posts on different subjects, any lawyer of reasonable experience will recommend that if one or other of the documents are important enough to cause a fair amount of concern about protection of the particular party, then that party should obtain legal advice.
Without going over the same ground, the lawyer’s role is a protective one to ensure compliance, protection and risk management. In most cases the advice can be found for example in one or all of the following:
If the lawyer has done a lot of these documents they will know the industry, can advise on what to look for, and what issues to flag or negotiate.
A few repetitions of the advice followed by compliance and completion of the contract, should avoid a shoddy job.
With regard to advice prior to entering into the contract, it is very important as well , for example in terms of protecting the party if they may not have the authority to sign (is a company required to authorise before binding agreement), or whether whether appropriate due diligence has been done (is this too much of a wolf in sheep’s clothing). How many times have we heard, ‘I wish I had known this before I signed’?
So with regard to lawyers advice, my view is that it is very important to get the right advice at the beginning of the signing process, so that protection can be built into the deal.
What about the seller? Are you trading as a sole trader (get advice now)? Is your company trading under a different registered name (get advice now)? What about an industry association getting a lawyer to approve the trade description and registered name to protect the goodwill built up over 25 years…you get my point.