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Agreement or Deed: What’s the Difference?

Feb 2019

At first glance, Agreements and Deeds appear to be similar however contractual requirements, methods of execution and time limitations give rise to distinct differences.

At first glance, Agreements and Deeds appear to be similar. Both documents record and impose legally binding terms on the contracting parties, and are frequently used to avoid the cost, uncertainty and, often undesired, publicity associated with judgments arising out of litigation.

However contractual requirements, methods of execution and time limitations give rise to distinct differences, and parties should be aware of these differences when drafting and executing documents.

Consideration

Agreements are documents that set out ‘bargains’ made between parties where one party promises something to the other party in exchange for something else (otherwise known as consideration).

Deeds on the other hand, are a type of promise or commitment that doesn’t require anything in return.

The subject matter of a Deed can vary greatly. Purposes include to create a binding obligation on another person, such as through a Deed of termination or an indemnity Deed, or to affirm an agreement that passes a legal or equitable interest in specified rights, such as in a financial guarantee.

Form

An Agreement can take a flexible form and be made up of multiple documents. However, a Deed is required to be in writing, signed, and witnessed, with an explicit indication that it is intended to be a Deed. For example, case law has found that by using the words ‘by executing this Deed’ or ‘executed as a Deed’, specifying how delivery will be made and not referencing central concepts of Agreements, such as “consideration”, a Deed will be validly drafted (although not effective until properly executed).

Agreements need only be signed by both parties to be enforceable and can be executed by an agent on behalf of a party, such as a lawyer.

Execution

A Deed will only become enforceable when it is delivered to the other party. When made between individuals, the signing of a Deed is dealt with under state legislation so it’s always best to check local state requirements to make sure that the Deed is properly executed. In many jurisdictions, Deeds passing an interest in real property that is devoid of consideration, for example, a transfer of title in land to another person such as a family member, are required to be witnessed.

Agreements need only be signed by both parties to be enforceable and can be executed by an agent on behalf of a party, such as a lawyer.

Section 127 of the Corporations Act 2001 governs execution of documents by Corporations, which is inclusive of both Agreements and Deeds.

Limitation Period

Claims for breach of an Agreement must generally be brought within six years of execution, while complaints pertaining to a Deed must be brought (in New South Wales and the Australian Capital Territory) within twelve years. Exact limitation periods are dependent on the governing law of the Deed, which should be explicitly outlined to avoid future uncertainty.

In circumstances where longevity of rights is desired, such as in contracts surrounding issues of confidentiality, termination of agreements, or financial guarantees, a Deed may be preferable.

The decision to execute a document as an Agreement or a Deed is dependent on many circumstances. Where there is any doubt over the most suitable form of contract, parties are encouraged to seek legal advice.

Material in this article is available for information purposes only and is a high level summary of the subject matter. It is not, and is not intended to be, legal advice. You should first obtain professional legal advice prior to taking any action on the basis of any information contained in this article. This article is copyright. For permission to reproduce this article please email Hazelbrook Legal: enquiry@hazelbrooklegal.com

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