There are numerous matters to look out for on completion of a transaction but something that can cause more problems than you might expect are basic errors in signing the documents, especially for deeds. Here are our top 5 most common signing slip-ups that occur with deeds at completion.
1. The missing witness or the wrong witness
Whilst it is generally fine for a deed to be signed on behalf of a company by a single director, his signature must be witnessed. Often the same person will witness all of the documents being signed and it can be easy for them to miss one in the flurry of paperwork. So is this a problem?
Ideally, witnessing should take place at the same time as the director signs but, provided the witness has actually seen the director sign, a witness can sign the documents later (perhaps they want to sit down with all the documents and sign them in one go). However, the witness’s signature must be on the same original page as the director’s signature. So if the witness misses a document then, although they can sign it later, they have to get the original document to sign (not a counterpart or copy). Where a document is time sensitive or where the witness may not be readily available post-completion this can cause unexpected, often critical, delays (for example, the document is due to be delivered or registered within a certain time frame). For this reason, it’s important to check that all documents have not only been signed but also witnessed.
There is very little legal guidance on who can witness a document. A person cannot be a witness if they are party to the deed or otherwise interested in the transaction. Technically, a relative of a signatory can witness his signature. However, in reality, most lenders and solicitors will not accept a relative as a witness as, should the validity of the document be disputed by the signatory in the future, the lender doesn’t want the witness to be that signatory’s husband or wife! It is therefore best practice to ensure that an uninterested, unrelated party witnesses the signing.
2. The director who signed has resigned
If exchange and completion are split, it is possible that the director who signed on exchange is no longer a director when completion occurs. A recent case we blogged on back in January looked at this issue. In that case, the board minutes and resolutions of the company were used as evidence that it was more likely than not the signatory was authorised and still a director of the company when he signed. As the signatory was a director when signing, this was enough to fulfil execution requirements. So it’s not fatal but if this occurs you need to be prepared to show evidence that the signatory was indeed authorised to sign the documents when they were signed and that they were signed when he was still a director. Not an ideal route to go down if it can be avoided.
3. I am a director of all the companies so why do I have to sign the same document again and again?
The Companies Act 2006 states that where a document is to be signed by one director but on behalf of more than one company, it is not duly signed unless done so separately in each capacity (i.e. as a director of each company). This is generally taken to mean that there must be a separate execution box for each company signing, even where they are part of the same group and/or have the same director(s).
4. Can I just sign the signature page now and attach it to the deed once we’ve agreed it?
Following a 2008 case known as Mercury Tax, this, previously not uncommon, practice was put under the microscope. It was of such significance to how deals were completed (particularly where completion was being done remotely, with signatories in different places and documents circulated by email so called – “virtual” completions) the City of London Law Society published detailed guidance for solicitors to help them ensure deeds are valid when signed at virtual completions. This is why, when the documents are emailed to you for signing, there may be detailed instructions about printing them out and emailing them back. Printing out and signing a back page then attaching it to a document that is agreed later is not thought to be an effective method of executing a deed (or real estate contracts), and, indeed, in practice is generally avoided altogether except in exceptional circumstances where the guidance should be carefully followed.
5. I’ve signed a letter saying Mr X can sign as my attorney
Powers of attorney (PoAs) are a really useful tool for delegating authority to sign a document when the original signatory can’t be present. The Companies Act 2006 specifically permits the execution of deeds and documents by companies using a PoA. A key point however is that the PoA document itself must be executed as a deed. For a refresher on the requirements of deeds, see our previous post here.
It’s a good idea to keep a copy of the PoA with the deed so that anyone reviewing it in the future can quickly see that the attorney was properly appointed.
So after the negotiation of all the documents, sometimes it can be the seemingly straightforward matter of signing that slips up a smooth completion!
For more information, email firstname.lastname@example.org.