Deeds are very common in the construction industry due to the two factors which set them apart from a simple contract: the longer limitation period of 12 years and the fact that no consideration is required in a deed. The former is clearly an important issue to anyone procuring construction works or services which may contain latent defects that remain hidden for years. The latter is particularly helpful in relation to collateral warranties where the beneficiary is unlikely to be giving anything in return to the warrantor.
However, deeds have been known to fail for simple and avoidable reasons and it is worth bearing these points in mind whenever you enter into a deed or indeed where you are in dispute with a party relying upon a deed – you may just find that the deed is not valid!
The key requirements for a deed to be effective are that the document be described as a deed, signed, delivered and, occasionally, sealed.
Described as a deed
This will normally take the form of some wording on the front of the deed to indicate that it is a deed and wording in the attestation clause stating that it is being executed as a deed.
The requirements for execution vary depending upon whether the deed is entered into by an individual or a company but the basic requirement is that all parties to the deed must have signed the document (and in some cases, e.g. for individuals, the signature must be witnessed). Signature and handing over of the deed is not sufficient however, as explained below in relation to delivery.
In 2011, the case of Bibby Financial Services and others -v- Magson and Others highlighted the need to be careful to ensure there was effective delivery of a deed. In that case, a deed in draft form containing manuscript amendments was signed and handed over by the parties with the intention that a final clean copy would be prepared and executed. This was never done and Bibby sought to rely upon the signed draft version. The Court decided that in order for delivery to have occurred, there must have been an intention that the deed be delivered and that in this instance, there was no such intention.
The most common method of ensuring delivery relies upon the deed being dated. A deed does not have to be dated, but deeds often state that they are “delivered when dated”. This not only makes it clear when the deed was entered into but helps to ensure (provided the deed is then dated of course) that the deed meets the delivery requirement.
There is no longer any statutory requirement for deeds to be sealed by individuals or companies, however there are still some companies which require use of a seal. Public bodies incorporated by statute or royal charter are still required to use a seal but those registered under the Companies Act are not required to do so. The key point is:- it is always worth asking the other party (where it is a company or public body) to provide evidence that the method of execution and/or sealing being used is correct and valid.
A final point on consideration…
It is worth noting that although consideration is not needed, nominal consideration is sometimes included for two reasons:
1. so that there is a ‘simple contract’ fallback position in the event that an error has been made rendering the deed invalid and
2. because the remedy of ‘specific performance’* is an equitable remedy and cannot be relied upon without consideration.
*See January edition’s ‘Legalese’ for a definition of specific performance.
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These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.