Summary
- A deed is a formal written document that creates legally binding obligations without requiring consideration, making it useful where a standard contract may not be enforceable, such as when asking a former employee to sign a non-disclosure agreement after their employment has ended.
- Deeds must meet five conditions to be valid: they must be in writing, state they are a deed, be properly executed, be delivered and be witnessed by someone with no interest in the transaction.
- The limitation period for bringing a claim under a deed is 12 years, compared to six years for a standard contract, which makes deeds preferable for high-value or long-term commercial arrangements.
- This article is a plain-English guide to deeds and when to use them for business owners in the United Kingdom, written by LegalVision’s business lawyers.
- LegalVision specialises in advising clients on commercial contracts, property transactions and corporate documentation in the UK.
Tips for Businesses
Check whether your transaction legally requires a deed before drafting a standard contract, particularly for land transfers and certain lease arrangements. If you are unsure whether a contract contains adequate consideration, using a deed removes that risk entirely. Make sure your witness has no interest in the transaction, as an interested witness can invalidate the deed.
Not every business owner knows the difference between a deed and a contract, but getting it wrong can leave an agreement unenforceable or a claim time-barred. Deeds carry specific legal requirements and are necessary in certain transactions, including the sale of land. This article will explain what a deed is and some of the common types of deeds your business may come across, and the situations where using one matters.
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What is a Deed?
A deed is a written document prepared and signed under certain circumstances, like business transactions. The law refers to the preparation and signing of a deed as the execution of a deed. A properly executed deed creates legal obligations over the party that has signed the deed.
A properly executed deed requires five conditions.
Conditions
In Writing | The deed must be contained in writing. |
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Face-value requirement | The deed must either state: + that the document is a deed; or+ that the person signing the document is signing it as a deed. In practice, most deeds contain both requirements. At the top of the document, the title will contain the word deed. For example, “A Deed Transferring a Sale of Land”. Likewise, underneath the signature line, the document will state that the signatory signs the document as a deed. |
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Execution | The person signing the deed must execute the document as a deed. In practice, this condition is satisfied if, underneath the signature line, the document states the signatory signs the document as a deed. Depending on if you are signing the document in your personal capacity or as a director in a company, there may be additional formalities. |
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Delivery | The party making the deed must indicate they agree to be bound by its terms. In other words, for the deed to be effective, it must be delivered.For practical purposes, you can think of delivery as synonymous with the date the deed becomes effective. |
Witnesses | Nearly all deeds require a witness to attest the signatory signed the document. Importantly, a witness cannot be someone that stands to benefit from the deed’s execution. For instance, if you are selling your business’ land to John Smith, Mr Smith cannot act as a witness. You would need to find someone without any interest in the sale. Depending on the nature of the deed, you may need one more witness. Additionally, companies and other business entities executing deeds have their own specific witness requirements. |
How Companies Execute Deeds
The rules for executing a deed are different depending on whether you are signing in a personal capacity or on behalf of a company.
Under Section 44 of the Companies Act 2006, a company can execute a deed in one of two ways:
two authorised signatories sign the document, such as two directors or a director and the company secretary; or
one director signs in the presence of a witness who attests the signature.
If your company executes a deed incorrectly, the document may not be legally binding. This is a common mistake, particularly in smaller businesses where there is only one director.
If you are the sole director of your company, you must have a witness present when you sign. That witness cannot be another party to the deed or someone who benefits from it.
Always check the execution block at the end of the deed carefully before signing. If it does not reflect how your company is structured, ask a lawyer to amend it before you proceed.
When Are Deeds Used?
Legal deeds are similar to a simple contract. In fact, deeds can be used whenever a simple contract would do. However, they tend to be reserved for particularly important transactions, such as the sale of:
- land;
- valuable assets such as machinery and equipment; and
- shares in a corporate transaction.
You will also see them used in the context of wills and estates.
Both a deed and a normal contract will contain their own terms, which legally bind both parties and sets out the parties’ legal rights and remedies. However, there are some key differences.
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Deeds vs Contracts
Consideration Not Required
Simple contracts require both parties to give consideration for the contract to be legally binding. Consideration refers to anything of value, such as money or property. It can also include promises to do something at a later date. For instance, your business may promise to provide its services in exchange for your customer’s promise to pay you in 30 days. If one party does not provide consideration, the contract is not enforceable.
For instance, say you terminate one of your employees. After the fact, you realise that they never signed a confidentiality agreement. You, therefore, call them and ask them to sign a non-disclosure agreement (NDA) after the fact. Not knowing their rights, your former employee begrudgingly agrees. Despite the fact they have signed an agreement, it is not legally enforceable because they received nothing from you. That is, you did not provide any consideration. If they later breach the terms of the NDA, you cannot hold them accountable because the law will not recognise the agreement as a contract.
However, if the NDA was contained in a deed, you would not need to give anything in exchange for their signature. This is because they do not require consideration to be effective. As a result, you may use a deed where you are uncertain if an agreement contains adequate consideration.
Notably, if you promised to give your former employee a good reference in exchange for signing the NDA, this would be a valid contract. This is because the promise to give a good reference is consideration.
Deeds and the Sale of Land
Almost all agreements that involve the purchase and sale of land (otherwise known as real property) require a deed. This includes certain lease transactions, though you can create a short-term lease (e.g. a one-year lease) using a simple contract.
The party selling or otherwise transferring the land usually executes it. The buyer does not have to sign it for it to become effective.
Limitation Periods
If you enter into a simple contract with someone else and they breach the terms, you may want to claim against them. Generally, you have up to six years to claim against a party in court for a breach of contract. If you bring a claim after the fact, the court will dismiss it automatically because the limitation period will have expired.
For any agreement contained as a deed, you have 12 years to make a claim. This is another reason why you may prefer it to a simple written agreement.
When to Use a Deed
Given the points above, a deed is important in a number of situations. For example:
- transfers of land;
- entering into loan agreements, especially mortgage agreements;
- when you are making a gift that you want to be legally enforceable; and
- maximising the limitation period, you can pursue the other party if they breach the agreement.
Key Takeaways
As a business owner, you may want to distinguish between deeds and simple contracts. They require certain formalities to become effective, but they tend to create more steadfast obligations over the signatory. This can enhance your position in an agreement. They are also necessary for certain types of contracts. One example is if you intend to sell your land to someone else. This transaction requires a deed.
If you need help with your business, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is a deed?
A deed is a formal legal document that binds parties. It requires certain formalities.
What is real property?
Real property is another way of referring to land.
How long do you have to bring a claim under a deed?
You have 12 years to bring a claim for breach of a deed, compared to 6 years for a simple contract. This extended limitation period is one reason businesses may prefer to use a deed for important commercial arrangements.
Does a deed require consideration to be enforceable?
No. Unlike a simple contract, a deed does not require consideration to be legally binding. This makes deeds useful when you are uncertain whether adequate consideration exists, such as asking a former employee to sign a confidentiality agreement after their employment has already ended.
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