What is the difference between an agreement and a deed?

There is a common misconception that the words ‘agreement’ and ‘deed’ are interchangeable, as they often do not realise there is an important difference between the two. In simple terms, a deed is similar to an agreement, however, a deed does not require consideration.

Elements of an agreement

To form a binding agreement, the following must be met: 

  • Offer and acceptance;
  • an intention to be legally bound; and
  • consideration (i.e. some form of payment or reward provided under the contract). 

Deeds, in effect, are a legal promise to do something, however, the element of consideration is often not met. For example, the following types of documents are often executed in the form of a deed. Note how the passing of consideration is often not evident in these documents:

  • Settlement Deed;
  • Deed of Indemnity;
  • Deeds of Agreement;
  • Confidentiality Deed;
  • Deeds of Release;
  • Deed Poll;
  • Escrow Deed; and
  • Deed of Termination.

How are deeds executed?

Traditionally, in order to be a deed at common law, a deed needs to comply with a number of formalities:

  • it must be written on parchment, vellum or paper;
  • a personal seal should be placed on the document; and
  • it must be delivered to the counterparty.

Limitation periods

If you are looking to execute a deed, you need to be aware that each State and Territory may have legislation you will need to consider that imposes requirements and time limitations. 

The particular time period depends on the law of which State or Territory the deed is governed by (the deed should state the relevant State or Territory), with the extended time periods being:

  • Queensland, New South Wales, the Australian Capital Territory, the Northern Territory or Tasmania – 12 years
  • South Australia or Victoria – 15 years
  • Western Australia – 20 years

Other considerations when deciding to execute a document as an agreement or a deed include:

  • whether there are any specific corporate restrictions on document execution (for example, some delegated authorities do not allow company representatives to sign deeds of behalf of the company);
  • whether a deed can be executed in counterparts (this is a technical argument based on the common laws requirement for a deed to be “delivered” in order to be effective);
  • tax implications; and
  • the availability of particular remedies for the breach of a deed.

Whether to execute a document as a deed or an agreement depends on the particular circumstance. If in any doubt, seek specific legal advice. Click here to book a FREE consultation with one of our highly experienced solicitors today or contact us at info@legalkitz.com.au or by calling 1300 988 954. 

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