What is a deed?
A deed is a particular form of legal contract. It must:
- be in writing;
- be clear on the face that it is intended to be a deed;
- be validly executed and witnessed; and
- be delivered.
Why do we use deeds?
The law provides that certain transactions must be effected by way of deed. These include:
- transfers and certain leases of real estate;
- appointments of trustees;
- powers of attorney; and
- variations of existing deeds.
In the context of finance transactions, the most common contractual documents entered into by the parties as deeds are security documents. This is not only because the security relates to land, but also because a power of attorney and the right to appoint a receiver are often included. Granting such powers can only be done by deed so if the security holder wishes to exercise certain rights in the name of the person granting the security or wants to enforce the security by appointing a receiver and selling the property charged in his favour then the security document must be executed as a deed.
In contrast, one of the main differences between a deed and an agreement is that a deed does not require consideration to pass between the parties. It is common for documents to be drafted as deeds when it is not clear whether the legal requirement of consideration can be satisfied.
Are there any advantages of a deed?
A particular advantage of creating a document as a deed is that there is a longer limitation period (that is, the period within which claims on the document must be started by way of legal proceedings). The limitation period for a ‘simple’ contract is six years; however, for a deed, it is 12 years.
Execution of deeds
As previously mentioned a deed must be validly executed, witnessed and delivered. For individuals this means signing in the presence of a witness. For companies and limited liability partnerships, this usually means executing the document by:
- two authorised signatories (companies) or two members (LLPs)
- one director or one member in the presence of a witness (companies).
It is important that the witness signature is legible and an address is given in case at a future date the witness is called upon to confirm the person signed is the person named.
A recent decision in the High Court* vividly illustrated the potential consequences of incorrect execution. Over a period of years, the rules of a pension scheme operated by a professional partnership were purported to have been amended by deeds signed by the partners. However, those signatures were not witnessed and the amending deeds were held by the court to be invalid and ineffective. The potential effect of this decision was that the pension scheme’s deficit was increased by up to 45 million pounds.
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