In deciding whether to select an agreement or a deed it is important to understand what each of the documents are.
An agreement is also known as a contract. An agreement can either be made orally or in writing. In order to have a legally enforceable contract in law, the following elements must be satisfied:
- there must be an offer and acceptance;
- an intention to create legal relations; and
- consideration from both parties.
A deed is a mechanism that creates a legally binding promise or obligation to perform something. In order to create a valid and enforceable deed a number of formalities must be fulfilled. A deed is required to:
- be in writing;
- be signed;
- be witnessed by an individual that is not party to the deed;
- indicate consistently throughout the document that it is a deed (for example using the wording like “executed as a deed”); and
- be delivered to the other party of the deed.
The major difference between an agreement and a deed is that a deed does not require consideration to be binding at law. Consideration is the requirement that something of value (for example an item or service) has been agreed on by each party to the contract to be exchanged between the parties. A deed should be used in a situation where there may be no consideration flowing between the parties.
Another difference between the documents is that a deed is binding once it has been signed, sealed and delivered even if the other party has failed to execute the deed document. A contractual agreement is only binding once both parties have exchanged their parts.
The limitation period applicable to a contractual agreement and a deed varies. The limitation period is the period of time which an individual can have a claim for a breach of an obligation under a document. The limitation period for a contractual agreement is 6 years, whereas the limitation period for a deed is 12 years (NSW). The limitation period may vary in each state.
In deciding whether to select an agreement or a deed it is important to consider whether there is going to be sufficient consideration, whether there are any legislative requirements for a document to be executed in a particular form and what is the most beneficial limitation period in the individual’s circumstances.
Should you have any more enquiries in relation to the above or otherwise, our lawyers at The Quinn Group can help. Call us today on 02 9223 9166 or submit an online enquiry.