Deed or agreement – which one should I use?

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by Vivian Michael

March 5, 2019

Which should I use - deed or agreement?

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Deed or agreement – which one should I use?

Updated: 30 October 2022

I’ve previously shared with you some useful tips about deeds and agreements.

Sometimes you will have an option to either use a deed or an agreement. For example, where a lawyer has an option to prepare a non disclosure agreement or confidentiality deed for you. Your document can be prepared either as a confidentiality deed or as a confidentiality agreement.  

Your choice matters. Enforceability and the way that you sign are two key factors that will influence your decision to pick a deed or agreement.

A lawyer will know the difference but so should you, especially if you are relying on online templates and don't have a lawyer to guide you.

So, if you had the choice, which should  you use - deed or agreement ?

Below are some features of a deed and an agreement side by side to help you decide which is best for you and also when you may use each.

Table of Contents
In a nutshell
Examples of when to use a deed and when to use an agreement
What do deeds and agreements look like?
What if you classify incorrectly?
The safer option  


In a nutshell

In a nutshell, a deed allows a longer period of time to take legal action if something happens, but there are some rules for how you e-sign. Also, a deed covers you if there is no consideration in a transaction, that is, you don’t have anything of monetary value changing being exchanged between parties.

 

For an agreement, you can’t get past the easy signature process but the cost you’ll pay is a shorter period to enforce - generally 6 years in Australia. For a more detailed comparison, see our summary table below.

Agreement

Deed

You need:

  • Offer, acceptance and consideration (something of value) changing hands


  • To use pen and sign on paper
  • You need a witness in the state of Victoria (so for best practice, include a witness signature block)
  • Witness needs to be over 18 and not a party to the deed.
  • Use "signed, sealed and delivered" above the signature block 

You don't need:

  • To use pen, you can e-sign 
  • A witness - they are optional
  • Consideration. You don't need any money to change hands to use a deed.

Advantages:


  • Easy to e-sign
  • No witness needed (though considered best practice)


  • You don't need consideration (money to change hands)
  • Longer time period to enforce a deed - 12 years in all states except SA and VIC which allow 15 years
  • now officeholders like directors and secretaries executing on behalf of companies can e-sign 

Disadvantages:

  • You have 6 years to enforce an agreement

  • Can't use them for initial discussions when money has not changed hands.

  • Directors and secretaries signing on behalf a company can e-sign but if you are signing a deed as an individual, you will still need a witness even under the new e-signature legislation (CORPORATIONS AMENDMENT (MEETINGS AND DOCUMENTS) ACT 2022

Examples of when to use a deed and when to use an agreement

Below are the features that may impact your decision to select either an agreement or deed in a particular situation.

Agreement

Deed

Consideration:


  • You need consideration to use an agreement (monetary value exchanged between parties)
  • There's offer, acceptance and consideration
  • You are giving the agreement to someone that you will pay or someone that will pay you e.g. employee, supplier, consultant


  • You don't need consideration to use a deed (no monetary value exchanged between parties) e.g. prospective collaborator, prospective business partner.  
  • You are still investigating if the party will be a good fit so money has not changed hands yet. e.g. discussing a confidential business idea and it's early days.


E-signatures:


  • It's easier to organise e-signatures for an agreement.
  • If easy e-signatures are important, use the agreement, otherwise if not, use a deed because you'll have a longer enforcement period.
  • Its now easy for a company's officers to e-sign a deed, no witness is needed because of the (CORPORATIONS AMENDMENT (MEETINGS AND DOCUMENTS) ACT 2022
  • For individuals signing a deed, they will still need to have their signature e-witnessed.

Enforcement:


  • If your deal does not involve a substantial investment, you can use an agreement and accept a 6 year enforcement period.


  • Use a deed if there's a substantial investment involved and you need a longer time period to enforce your agreement - the deed allows you 12 years in all states except SA and VIC which allow 15 years

Disadvantages


  • You have 6 years to enforce an agreement
  • You can't use them for initial discussions when money has not changed hands.
  • While you can e-sign a deed as an individual, individuals still need to have their signatures e-witnessed. 

What do deeds and agreements look like?

It'll be pretty clear if you are signing a deed or agreement. Here are the giveaways: 

1. the title of the document will either be 'deed' or 'agreement'; and 

2. you'll see either 'executed as an agreement' or 'executed as a deed' above the signature blocks at the end of the document.


What if you classify incorrectly?

If you use an agreement and there was no consideration (no money changing hands) then the agreement may not be enforceable.

But, before you panic about this, get advice. 

So, given that there can be some enforceability concerns with an agreement,  what's safer?


The safer option  

In this way, deeds are a safer option - you don't need to worry about a lack of consideration e.g. discussing a business idea without money changing hands because the deed covers you regardless. 

But... as discussed above, you'll need to sign a deed following the new e-signature rules for deeds if you aren't doing it the traditional way with pen and paper. So, if speed is a factor in getting a document executed, these extra steps could make a deed a hassle for you and you may opt for an agreement.

As always, if you are in doubt, get advice. 

I wish you success in your ventures!

 I just don't know which one I need - help 






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About the author 

Vivian Michael

As founder and lawyer at Michael Law Group, Vivian advises Australia's top entrepreneurs on business and employment matters. Clients benefit from Vivian's commercially focussed and pragmatic legal advice, business experience, and commitment to deliver the best quality business legal services to her clients.

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