Deeds and Agreements – what’s the difference?
What is an agreement?
In general, all contracts are agreements. However, whether an agreement is binding (that is, enforceable by law) depends on the circumstances surrounding it.
A written agreement usually refers to an exchange between multiple parties, where one party provides goods/services to another party in return for ‘consideration’. Consideration is often monetary compensation, but it can be anything of value.
Elements of an agreement
To be legally enforceable, an agreement must include:-
- An offer and acceptance of the offer;
- An intention by the parties to be legally bound by the agreement; and
- Consideration, which is some form of exchange of value from one party to the other. This broad term that can mean much more than just money.
Agreements are enforceable regardless of whether they are in writing or oral.
What is a deed?
A deed is a form of promise or commitment to do something. It may show a party’s intention to:
- Create an obligation a party must act on; or
- Transfer an interest in property.
How is a deed executed?
In NSW, to be enforceable:
- a deed must in writing;
- it must be signed, sealed and delivered to the counterparty; and
- there must be a witness who is not a party to the deed.
What are the key differences between agreements and deeds?
The main differences between a deed and a binding agreement are that:
- an agreement may be made orally or in writing but a deed must be in writing; and
- consideration is not required for a deed to be binding.
How does a court determine whether a document is an agreement or a deed?
This is often determined by considering parties’ true intentions.
Agreements and deeds have different limitation periods. A limitation period is a set amount of time within which legal proceedings can be initiated in the event of a dispute.
For a breach of contract, the limitation period is usually 6 years after the breach. For a deed, 12 years is a common limitation period.
Can an agreement be executed as a deed?
Yes, if it is signed, sealed and delivered.
Take Aways
Deciding whether to execute a deed or an agreement will depend on the circumstances of each case.
To show your intentions and avoid confusion as to whether a document is an agreement or a deed, use words explicitly showing the intention of the document (e.g. specify that the document is “to be executed as a deed”).
If you are unsure whether there is sufficient consideration, include the words ‘signed, sealed and delivered’ to ensure that the agreement is legally binding.
If you are unsure of what form of instrument or agreement you should use, contact us.
