As a business owner, it is extremely beneficial to make sure that you only enter into contracts that protect your business, legal, and financial interests. This includes knowing when a deed is required and is potentially more advantageous than a contract. Here we will explain the difference between a deed and a contract in business.
What is a deed?
We are often asked to explain the difference between a deed vs a contract. A deed is a formal legal document (which is always written) that confirms an agreement between parties whereby an interest, right or property, or a binding obligation is created or confirmed.
What is the difference between a deed and a contract?
A deed is similar to a contract, but there are some key differences as follows:
- deeds have to be written, whereas a contract can be verbal and written
- contracts require ‘consideration’ (i.e. something is given in return), deeds do not
- deeds must state that there is an intention to be a deed
- deeds have a statutory limitation period of 12 years vs six years for a simple contract
- certain transaction types have to be drawn up as deeds (see below)
- a deed involves more formalities to be completed when being drawn up compared to a simple contract. This includes requiring witnesses to observe its formation.
When must a written contract be executed as a deed?
Deeds are required in certain types of transactions, including:
- transfer of land
- appointments of trustees
- powers of attorney
- gifts of tangible goods
- releases and variations
In addition, deeds are often used where one party wants to remove any uncertainty as to whether valuable consideration has been given, or if there is a need to benefit from the longer limitation period of 12 years available under the Limitation Act 1980.
Employment contract as a deed
In some employment situations, it may make sense to enter into a deed rather than an employment contract. This may happen where the agreement contains a ‘power of attorney’ clause (as these need to be in the form of a deed). Power of attorney clauses may be added where the employer wishes to protect certain intellectual property rights. In addition, a deed can be used if there is no consideration as part of the agreement between the employee and employer.
If you require any assistance with a deed or contract, including which to use, to review an existing document, to recommend changes, or to draft an entirely new document based on your new contractual arrangement, speak to a commercial law specialist who will be able to handle this process for you. Doing so will minimise or remove any risk to your business.
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