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M&A Vocabulary – Explained by the experts: “Deed” under Common Law

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In this ongoing series, a number of different M&A experts from the global offices of Rödl & Partner each present an important term from the English specialist language of the mergers and acquisitions world, combined with some comments on how it is used. We are not attempting to provide expert legal precision, review linguistic nuances or present an exhaustive definition, but rather to give a basic understanding or refresher of a term and some useful tips from our consultancy practice.

 

If contracts are subject to the laws of England & Wales, they can be concluded informally (“under the hand” deals) in writing or as a formal deed. This means that not all written contracts are automatically deeds. A deed is a written document that is prepared in the required form and which grants a right. You could therefore also define this term of English contract law as being a qualified written form with special legal consequences.


Firstly, every deed must be prepared in writing. However, both parties do not necessarily have to sign on the same physical document, but it is also possible to sign on several identical copies (referred to as counterparts). It may also suffice to exchange only the signature pages. Further form requirements depend on the individual deed. An individual must generally sign in the presence of and with the confirmation of a witness. For a limited company under British law, generally either one director and one witness, or two directors must sign, unless - although rare in practice - use is made of the option of a special company seal. For companies based outside the UK, the respective law of incorporation must be taken into account; in the case of a German GmbH, for example, only one managing director with sole power of representation can sign a contract as a deed. If a witness is needed, by law this may be any individual who is not a party to the contract. However, it is best practice for the witness to have at least a certain level of independence and to be of age.


In addition, a deed must be handed over (“delivered”). This occurs when the clear intent of the parties to be bound by the deed is demonstrated, without there necessarily being a physical handover. In this process, it must be unambiguously stated that the document should have the effect of a deed (“face value”). In practice, standard formulas such as “executed as a deed” are used. If a deed is not to be effective immediately, further options are available. The term “escrow” is used when a deed is irrevocable, but is still subject to a condition precedent. Alternatively, the handover can be delayed by assigning an agent, normally a solicitor, the task of handing over the already signed deed at a later point in time.


In certain cases, execution as a deed is legally required. These include, for example, the transfer of land, specific lease contracts, provision of certain securities (mortgages, charges), appointment of a trustee or a power of attorney. For some types of contract, a written document is required without the special characteristics of a deed, for example for certain legal transfers or personal securities (guarantees). If the prescribed form is not complied with, an agreement may not be legally effective.


However, the execution as a deed is not only a prerequisite for its validity in certain cases, but also entails special legal consequences. This includes in particular, that claims arising from a deed can be enforced without the requirement of a consideration. In addition, the statutory period of limitation generally doubles from six to twelve years. Thus, it can also be beneficial to prepare a contract optionally as a deed.

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