Unsure of the differences between deeds and agreements? Are they just fancy words for contracts?
Many people don’t know the difference between these legal documents, so you’re not alone.
However, the effect and execution of these documents are drastically different.
Understanding these contracts isn’t just fun legal trivia. It may help you appreciate their impact on critical commercial transactions so you can better negotiate agreements that work for you.
Read along so you’re ahead of the game!
What is an agreement?
Agreements are also known as contracts or contract law.
In other words, a contract is an agreement giving rise to an obligation that is enforced or recognised by law.
Whether an agreement is binding and enforceable by law comes down to whether the key elements of an agreement are met.
Common types of agreements
Different types of deeds that you can execute include:
- Services Agreement
- Distribution Agreement
- Full-Time Employment Agreement
- Contractor Agreement (Company)
- Escrow Agreement
Elements of an Agreement
For an agreement to be legally enforceable, the following elements must be present:
- Offer – An offer is a statement of terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer is provided. For example, ‘I offer to walk your dog, and you agree to pay be $50 for it.’
- Acceptance – Acceptance is a clear indication by the offeree that they will enter into the agreement on the offeror’s terms. For example, imagine some offers to buy your goods. You deliver the goods according to the terms of your agreement, and the delivery is sent. This is an example of acceptance.
- Intention – For an agreement to exist, the parties to it must indicate that their agreement is to be legally binding in the sense that each will be able to sue or be sued in a breach of the agreement. For example, if you enter into a contract with your real estate agent, the intention across both parties is that the real estate agent will help you sell your house.
- Consideration – Consideration means that the person to whom the promise is made must have been given something of value in exchange for the promise. For example, agreeing to buy a car.
How to execute an agreement
Executing an agreement is not the same as executing a deed where it needs to be signed, sealed and delivered to the counterparty.
To execute an agreement, you need to tick the following checkboxes:
- There needs to be an offer, acceptance, intention and consideration.
- Not all agreements have to be in writing – They may be oral, party written or partly oral and written.
- There is no general provision that agreements must be in writing unless a statute requires writing, e.g. Sale of land.
- If an agreement must be evidenced in writing and isn’t, the agreement is unenforceable.
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What is a deed?
Now that we understand agreements let’s find out the differences between deeds and agreements.
A deed is a traditional way of making a solemn unilateral promise enforceable.
In simpler terms, this means a deed is a special type of binding promise or commitment that must be in writing.
A contract entered into a deed form is also known as an agreement under a seal, speciality contract or indenture.
No consideration is required because the solemnity and formality of the form of a deed take the place of consideration.
Unsure of when to use a deed? A deed can be used in the following situations:
- The transfer of intellectual property between related companies
- Following a dispute, documenting an agreement reached with another party
- providing a bank guarantee
- The transfer of property, such as a house sale
- Powers of attorney must be made by deed
Common types of deeds
You may come across many different types of deeds. The most common types of deeds include:
- Deed of Indemnity for Directors
- Deed poll
- Letter of credit
- Indemnity Deed
- Shareholder Accession Deed
- Deed of termination
- Deed Release
- Confidentiality Deed
- Financial Guarantee or Letter of Credit
Elements of a deed
For a deed to be binding at common law, the instrument needs to meet fundamental elements.
To execute a deed correctly, the following elements must be evident:
- A deed must be in writing- it must be signed, have a personal seal and be delivered to the other party
- There need to be representations of a unilateral solemn promise
- Form takes the place of consideration – It does not need to have consideration because the form takes the place of consideration
How to execute a deed
Executing a deed is the process of formally finalising the contractual document.
If you require a deed to be executed for personal reasons, for example, a house deed, an individual must witness your signature under the Real Property Act 1900.
The individual witnessing your deed must also be:
- Over 18 years of age
- Cannot be a party to the transaction
- Must know the person signing the deed for at least a year
- Include their full name, residential or business address
On the other hand, if the deed is for your company, it needs to be signed by:
- One director and the company secretary; or
- Two directors
A deed for a company also doesn’t require the following for it to be executed:
- A witness is not required
- No need for the other party to sign the document
- A deed is binding once one party executes it
One important thing to remember is that every Australian state has specific legislative requirements relating to the execution of deeds. If you fail to take into consideration the legislation of your state, it could be that deed is void.
For example, specifically related to NSW, section 38 of the Conveyancing Act 1919 provides that a deed passing interest in the property must be signed, sealed and attested by at least one witness not being a party to the deed.
If you’re unsure about how to execute a deed or whether you require additional information, it is best to hire a lawyer for advice.
What are the key differences between deeds and agreements?
Let’s summarise the differences between deeds and agreements together.
Other frequently asked questions
What are relevant legislations relating to deeds and agreements?
The Corporations Act 2001 (Cth), Conveyancing Act 1919 and the Real Property Act 1900 are the most relevant legislative instruments for deeds and agreements.
It is important to take into account that every Australian state (New South Wales, Queensland, Northern Territory etc.) has altered variations of the relevant legislation.
For example, QLD deals with deeds under the Property Law Act 1974 (Qld).
Do deeds require consideration?
In short no.
A lack of consideration will not mean that the instrument is not binding as the solemn indication and formality of the deed takes the place of consideration.
What is a limitation period?
A limitation period is a period of time after a breach occurs that a party has to take legal action.
In NSW and QLD, the limitation period to bring a claim to court for breach of contract (agreement) is six years from the date of the breach occurring.
Under a deed, there is a 12-year limitation period to take a claim to court for a breach of a deed.
Key takeaways
Understanding the differences between deeds and agreements is an integral part of your business’s growth and development.
To avoid confusion, ensure that you clearly specify whether the document you intend to create is an agreement or a deed. For instance, you could state, ‘this document is to be executed as a deed’.
As we’ve established, there are many differences between an agreement and a deed. The most important difference is that a deed doesn’t require consideration, whereas an agreement does.
So before executing your deed or agreement, make sure you’re aware of all the key differences and the relevant statutory requirements in your state.
If you’re not sure where to start or require legal advice preparing your deed or agreement, hire a Lawpath lawyer to assist you.
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