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16 Jun 2010

When is a document executed as a deed in fact an agreement?

by Frazer Moss, Rachel Pie

It is necessary that the party executing the document intends that it should take effect as a deed.

When is a document that states that it is "executed as a deed" not, in fact, a deed? Is it sufficient for a document to say that it is "executed as a deed" in order for it to amount to a deed? According to the Queensland Supreme Court the answer is no.

In the recent decision of 400 George Street (Qld) Pty Ltd and Ors v BG International Ltd [2010] QSC 66, the Supreme Court was called upon to consider whether a document entitled "Agreement for Lease", but with the statement immediately preceding the execution blocks that the document was "executed as a deed", was in fact a deed.

The question was relevant, because the Agreement for Lease had been signed by the proposed tenant, but not by all of the parties at the time that the proposed tenant purported to withdraw from the Agreement. If the document was a deed, the landlords argued that it became immediately binding upon the proposed tenant when the tenant executed the document, and so it could not subsequently purport to withdraw from the deal.

10 critical features

The court identified 10 features of the document which it thought critical to determining whether or not it was a deed:

1. The cover page was titled: "Agreement" and "Agreement for Lease".

2. The term "agreement" was used throughout the documents.

3. It was not until the signing page that there was a reference to the term "deed". The reference was, however, "executed as a deed".

4. The Agreement for Lease set out some matters described as "Background", rather than using the term "Recitals".

5. On the page following the Background was the following paragraph:

"The Agreement

The parties agree as set out in the Operative Part of this agreement, in consideration of, among other things, the mutual promises contained in this agreement."

6. The form of lease attached to the Agreement for Lease referred to its terms as "covenants".

7. There were references on the signing page for execution by the proposed tenant that it was "signed, sealed and delivered" and that "by executing this deed the attorney states that the attorney has received no notice of revocation of the power of attorney".

8. The signing section for two of the landlords was to be by application of common seal.

9. Another proposed landlord was to sign pursuant to section 127 of the Corporations Act.

10. A further landlord's signing section contained the words "signed, sealed and delivered".

Weighing up all of these features, the court decided that the document was not a deed.

What amounts to a deed?

The primary reason for rejecting that the Agreement for Lease was a deed was that it is necessary that the party executing the document intends that it should take effect as a deed. The intention of the parties is to be ascertained from the document as a whole, read in the context of the factual matrix as known or assumed by the parties.

On that basis, the court found that:

  • in favour of the landlords' argument that the Agreement for Lease was a deed, was the statement at the commencement of the execution pages that the document was "executed as a deed" and the words next to the signatory's signature that it has been signed, sealed and delivered;
  • however, the balance of the document and all of the surrounding circumstances strongly indicated that the document was not intended to be a deed by the proposed tenant;
  • looking at the balance of the document, the court considered the statement at the beginning of the document that the parties have agreed "as set out in the Operative Part of this agreement, in consideration of … the mutual promises contained in this agreement" was inconsistent with the notion that the proposed tenant should be bound whilst the other parties (which had not signed the Agreement for Lease) were not bound;
  • it was significant that the proposed tenant did not insert a date as the date of the agreement and as that was left undefined, many of the provisions of the agreement could not become operative. The court considered that this was indicative of the proposed tenant not intending to be then bound by the document solely by its own execution;
  • the court also found that the operative part of the instrument did not use the language of deeds and that at no stage in the dealings between the parties or their solicitors was there any suggestion that the Agreement for Lease should operate as a deed; and
  • there was no need for the document to be a deed to overcome any lack of consideration (consideration is essential for an agreement to be binding).

The court concluded that the argument for the document being a deed came only where the document was to be executed, and not in the balance of the document, which contained continued references to the document being an agreement and to matters having been agreed.

Drafting tips

  • Parties should be decisive about whether the document is intended to be a deed or agreement.
  • If a document is intended to be a deed:
    • make sure that the document is called a "deed" and not an "agreement";
    • use language that is consistent with that document operating and binding the parties as a deed;
    • use the term "Recitals" rather than "Background".
  • Use appropriate execution clauses.

These tips are examples only and are by no means an exhaustive list of considerations which should be taken into account when drafting deeds. For more information about deeds, agreements and contracts, or for assistance with drafting, please contact one of our team members.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.