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I often get asked a question on whether an arrangement can be set out in the form of a traditional
contract or if it must be in the form of a deed. I set out below some guidance on this.

 

First and foremost, under the laws of England & Wales there is no general requirement for
documents containing the terms of commercial agreements to be executed by deed. That said there
are of course documents that must be executed as a deed and these are:

(1)   documents which convey or create a legal estate in land; 

(2)   documents which create powers of attorney, including documents which contain powers of
attorney as well as other provisions; 

(3)   any mortgage or charge, whether of land or other property, if the mortgagee or chargee is to
have the statutory power of sale and consequently, under the Law of Property Act 1925 Section 104,
the important power to overreach subsequent charges. 

 

There are some documents commonly executed as deeds (although these are not necessary), for
example:

(1)   a purchaser of a company will usually require the vendors to execute a deed in which they
covenant with the company to indemnify it against certain tax liabilities; 

(2)   a bank will normally require a guarantee of amounts which it has previously advanced to be
given by deed, unless it is clear that the bank is providing consideration, for instance, by
refraining from exercising a right to call in the overdraft; 

(3)   a deed is normally used for the release of security; 

(4)   contracts with local authorities are often executed as deeds; 

(5)   a deed is often used to amend a previous contract if the amendments appear to be to the
advantage of only one of the parties. If no consideration is given for the amendment, it may not
be legally binding unless executed as a deed. 

(6)   a document varying a deed is normally itself executed as a deed. 

 

From a practitioner’s point of view there are instances where recording commercial agreements
recorded as deeds are preferred. This is because, in a deed there is: 

(1)   no need for consideration. Contracts are generally not legally enforceable if consideration
does not pass to or from the parties to the contract. Sometimes a nominal consideration (e.g. a
peppercorn (in the old days or £1 now)) is inserted into the contract so as to ensure that the
contract does not fail for want of consideration. On the other hand, contracts executed as deeds
generally will not fail for lack of consideration, and parties sometimes execute their contracts
as deeds to avoid uncertainty as to whether consideration has passed. 

(2)   Extended limitation period. In most situations, an action for breach of contract cannot be
brought more than 6 years after the date on which the cause of action accrued. In the case of
contracts executed as deeds, the limitation period is extended from 6 years to 12 years. 


About the Author

Lawdit Solicitors offer services and advice for litigation, commercial contracts, Intellectual Property and IT legal agreements. We are experts in commercial law with a heavy emphasis on Intellectual Property, Internet and e-commerce law. Lawdit is a member of the International Trademark Association, the Solicitors' Association of Higher Court Advocates and we are the appointed Solicitors to the largest webdesign association in the world, the United Kingdom Website Designers Association.



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Article Published/Sorted/Amended on Scopulus 2007-09-05 22:32:44 in Legal Articles

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