The decision on whether to use a deed or an agreement can make a significant difference to the success of a transaction or project.
Both document types are used to prepare contractual arrangements, with each having its own benefits. Understanding the differences and making an informed decision can significantly impact the success of a transaction.
An agreement (or contract) must meet the following pre-conditions to be valid and enforceable:
• Each party must have the intention to be legally bound.
• There must be an offer from one party that is accepted by the other party.
• Consideration must flow between the parties.
For a deed to be considered valid and enforceable, it must:
• Be signed, in writing and witnessed by a person who is not a party to the deed.
• Use wording that indicates that the document is a deed i.e. ‘this deed’ or ‘executed as a deed’ and ‘signed, sealed and delivered’ should be used in the execution clauses. The wording in the document must be consistent.
• Be provided to the other party or parties.
• Having supporting evidence that the parties intended the document to be a deed and are bound by it.
The main difference between an agreement and a deed is that there is no requirement for consideration to make a deed binding. This is because of the idea that a deed is intended, by the executing party, to be a solemn indication to others that they truly mean to do what they are planning to do or are doing. A deed is considered to be binding on a party when they have signed, sealed and delivered the deed to the other parties, even if the other parties have not yet executed the deed document.
Each state in Australia has specific legislation regarding the period of time in which a claim or action can be lodged, following the breach of an agreement or deed. A claim following a breach of an agreement must be submitted within 6 years of the breach occurring. The period is longer for those who make a claim following a breach of the terms of a deed. Since the length of time usually depends on the law of each state, it is important to have a jurisdiction clause in your deed or agreement.