Deed v Contract

Under English law there are two main ways that parties can execute agreements; as a deed or as a simple contract (also known as a ‘contract under hand’). It is important to consider the differences between a deed and a simple contract because the execution method will affect the duration that parties can rely on the contract after completion; the limitation period.

What are the differences between a deed and a contract?   

A deed is any document that;

  • is clearly labelled a deed;
  • is intended by the parties to be a deed; and
  • is effectively executed as a deed.

A deed has a 12 year limitation period and does not require consideration although consideration is often part of the agreement.

The limitation period is the period of time within which a party to a contract can bring a claim. For the purposes of construction contracts, the limitation period also determines the length of time a contractor will be liable for defects.

A contract is an agreement between parties that can traditionally be agreed orally or in writing. However, it is often required that parties write down the terms of the agreement in a document and that both parties sign and date the document. Some specific contracts also require that the parties’ signatures are witnessed by an authorised person who is often recorded on the contract.

In contrast to a deed, consideration is required for the formation of a contract and the limitation period is 6 years.  

How do you execute a deed?

Formerly deeds were documents that were only effected under seal but over time, four principle methods have evolved for execution as a deed:

  1. through signature by a Director and the Company Secretary or by two Directors;
  2. by affixing the company’s common seal in the presence of a Director and the Company Secretary or two Directors or other duly authorised officers;
  3. signature by a single Director in the presence of a witness who attests the signature; or
  4. where the employer or contractor is an individual, signature in the presence of a witness.

It is important to consider the legal personality of the parties creating the deed. The table below highlights which method of execution can be used for each legal personality:

Execution method for a deed

Public and private companies

Local authorities and certain other bodies corporate

Individual employer or contractor

A

x

 

 

B

x

x

 

C

x

 

 

D

 

 

x

It is vital that the correct execution method is used. If there is no effective execution of an agreement the validity and enforceability of the deed will be lost and the limitation period of 12 years will no longer stand. The agreement may however be caught by a catch-all - if it was signed by the parties it would, by default, be a simple contract and therefore there will be contract with a limitation period of 6 years. 

Commercial considerations

The difference between limitation periods of a simple contract and a deed are key considerations for parties entering into agreements. A longer limitation period means there is a longer amount of time for a party to make a claim however, it also means there is a longer period of uncertainty for the party that may be claimed against. Therefore, in negotiations parties need to carefully consider how they should balance the protection of being able to claim within the  limitation period against the risk of being claimed against.

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