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As a business owner, you will likely have a variety of commercial contracts in place for your business services. You may have come across deeds and agreements before during your commercial dealings, and it is important that you understand the differences between both. The important difference is that a deed has more stringent signing requirements than an agreement, because deeds are a more traditional document in the eyes of the law. Deeds create binding promises upon certain persons to perform obligations and that means they have more formalities that you need to meet, compared to an agreement. This article will explain the differences between deeds and agreements, including how you use and execute them.
What is an Agreement?
An agreement is a legal document businesses can use to create a contract for the performance of services. For example, a business can create an agreement with another company for the sale of goods needed for their business operations to run.
For you to have an agreement, you need to have:
- an offer and acceptance of that offer to perform conditions laid out in the contract;
- an intention to be legally bound by the terms laid out in the contract; and
- consideration, which in layman’s terms means payment for the performance of services.
Agreements are standard contracts that you can make verbally or in writing between one or more contracting parties.
What is a Deed?
Deeds are slightly more complicated and will usually relate to property ownership or transfer. A deed is a binding promise that involves a commitment to perform a duty. For example, a deed for the transfer of land will rely on one party’s duty to transfer ownership of a plot of land to another. Deeds can also confer an interest, assignment or right over property or a specific function. Typically, deeds can transfer ownership of an asset from one owner to another and are commonly seen in property law arrangements. But, you can also use them for transactions involving:
- transfers of leases and real estate;
- transferring assets or intellectual property;
- mortgages transfers;
- powers of attorney;
- non-disclosure arrangements;
- transfers of shares; or
- appointing trustees.
Types of Deeds
You may come across the following types of deeds when transacting for new businesses:
- trust deeds;
- escrow deeds;
- special warranty deeds;
- sale deeds;
- deed poll; and
- deed of assignment.
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What are the Differences Between an Agreement and a Deed?
Deeds are a slightly more traditional type of legal document implemented throughout the UK for centuries, typically to convey assignments of land. They are usually more formal than a standard agreement. Here are four key differences between a deed and an agreement:
1. Written, Verbal and Unilateral Contracts
The first important difference between a deed and an agreement is how you make them. For an agreement to be enforceable, you must have an offer, acceptance, consideration, clarity of contract and an intention to create legal relations. That means you do not necessarily need to have a written document to create a legally binding contract.
Verbal contracts are perfectly enforceable contracts in the eyes of the law, and so are unilateral contracts. These are contracts that are not explicitly written out. Instead, you can create them by having an offer and also having it accepted by the performance of an obligation.
Conversely, for you to have a legally binding and valid deed, it must be set out in writing and clearly stated as a deed and not an agreement. It must contain language stating that the document is a deed but does not need to have the word ‘deed’ written on its front cover.
The best way to tell if a document is a deed or not is to look at the signature blocks included in the contract. Lawyers typically include language that will state, ‘this document is signed as a deed’ or ‘this document is signed as an agreement’.
2. Signed, Sealed, Delivered
You can only make deeds in writing. However, you must also have all relevant parties sign the deed for it to become enforceable. Certain companies may require that any person signing on behalf of that company affixes a company seal to that document. Historically, people use company seals to demonstrate that a person has the authority to sign a contract on behalf of their company. This is especially important when it comes to signing deeds because of the large transfers of property that a deed can mandate.
Therefore, when signing a deed, you must have someone else physically present to watch you sign the document. That person must then sign as a witness to your signature, and needs to also give their name and address. By doing so, they can be contactable if needed to authenticate your signature in the future. You must also deliver deliver deeds for them to become legally enforceable. Therefore, when compared to contracts, deeds have an extra requirement to become effective: you must deliver the deed to the other party.
Conversely, agreements do not have a ‘delivery’ requirement. Furthermore, unlike a deed, agreements do not always need signatures to become legally enforceable. For instance, if you or another party perform your duties under an arrangement, that can create a legally binding contract. It is also important to note that your signature on an agreement does not need to be witnessed.
3. Consideration
Consideration is a legal term for payment. For you to have a legally binding contract, you need to have payment passing from one party to the next in return for the performance of a service.
On the other hand, deeds do not require parties to transfer payment between themselves. Additionally, on a deed, a signature will typically show your wish to be legally bound by the terms of the contract.
4. Limitation Periods
A limitation period is the period of time in which you can attempt to claim damages for a breach of contract.
Under an agreement, you can only bring a claim against your business partner within six years of making that contract. Meanwhile, deeds have a much longer limitation period. With a deed, you have 12 years to take action against a breach of the obligations in the agreement.
Key Takeaways
Deeds and agreements are very important in standard business transactions but are very different documents, with deeds being much more traditional than an agreement. If you need more advice on drafting, negotiating or signing deeds or agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions on the differences between a deed and an agreement. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A deed is a much more formal and intricate type of contract than an agreement and has more stringent legal requirements.
The formalities of a deed can provide more legal certainty to parties when they are transferring large property and other valuable assets. Deeds also give parties a longer period to seek recourse against other contracting parties and also do not require consideration to create a legally binding contract.
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