Given the legal profession’s love for language – and its often confusing use of words for similar principles – it’s no surprise that some may be confused between ‘deeds’ and ‘agreements’.
Aren’t these just fancy words for contracts? Do they have the same effect? Or are they in a different ballpark all together?
This article will explain the difference between deeds and agreements, and help you decide which is best for your situation.
What Is An Agreement?
In general, it can be considered that all contracts are agreements. However, whether an agreement is binding (that is, enforceable by law) depends on the circumstances of the agreement.
A written agreement usually refers to an exchange between multiple parties, where one party will provide goods/services to another party in return for ‘consideration’. This ‘consideration’ is commonly monetary compensation, it can also be anything of value.
Elements Of An Agreement
For an agreement to be legally enforceable, there must be
- 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. Consideration is a very broad term that can mean much more than just money (though this is the most common form of consideration).
Agreements can be expressed in written form or can be agreed upon orally. They are enforceable regardless of which form is used.
For example, a typical agreement may state: I offer to mow your garden, and you accept and agree to pay me $30.
In this scenario, there is a clear offer and acceptance from the parties, as well as a clear intention to create legal relations. Lastly, there has been consideration provided in the form of the $30 monetary payment.
What Is A Deed?
A deed is a form of promise or commitment to do something.
A deed emphasises the fact that a party is honestly indicating their intention to follow through with what they have promised.
A deed is commonly used to show a party’s intention to:
- Transfer an interest in property
- Create an obligation that a party must act on
How Is A Deed Executed?
In NSW, for a deed to be enforceable, it must be in writing.
The deed must also be signed, sealed and delivered to the counterparty for it to be binding.
You will also need a witness who is not a party to the deed.
So, What Are The Key Differences Between Deeds and Agreements?
The main thing that differentiates a deed from a binding agreement is that, in order for a deed to be binding, consideration is not necessary.
Furthermore, while an agreement is enforceable whether it is made orally or in writing, a deed must be executed in writing.
But how do courts determine whether something is an agreement or a deed?
This is often decided by considering parties’ true intentions. If the person executing a deed is intending that the document will be immediately binding on themselves, it’s more likely to be seen as a deed rather than an agreement.
Another key difference between deeds and agreements is limitation periods. A limitation period is the amount of time after a certain event has occurred that a party can initiate legal proceedings.
For a breach of contract, the limitation period is usually 6 years after the breach. When it comes to deeds, given their unique nature, it is common to find a limitation period of 12 years.
What To Take Away…
To avoid confusion as to whether a document is an agreement or a deed, words that explicitly show the intention of the document should be used. For instance, you may specify that the document is “to be executed as a deed”. The wording and format of the document is vital to show your intentions and avoid future headaches.
Deciding whether you wish to execute a deed or an agreement will depend on the circumstances of each individual case.
As a deed is binding once it has been ‘signed, sealed and delivered’, it may be commonly used when parties are unsure about whether there has been sufficient consideration provided. This will ensure that the obligations under the proposed agreement are legally binding.
What’s more, some states require that certain transactions must be executed by a deed in order to be valid.
If you are unsure about what form of instrument or agreement to use, it is important that you seek legal advice.
At Sprintlaw, we have a friendly and experienced team of lawyers ready to help! Get in touch for a free, no-obligations chat at email@example.com or on 1800 730 617.
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