Businesses enter into agreements every day.

A customer contract, supply agreement, shareholders’ agreement, commercial lease or business sale contract will ordinarily create contractual obligations between the parties.

Sometimes, however, a transaction is documented as a deed rather than an ordinary agreement.

The distinction is more than terminology. A deed has particular legal requirements and can be useful where a party is making a binding promise even though the usual contractual requirement for consideration may be absent.

In Queensland, the requirements for deeds are now principally contained in the Property Law Act 2023 (Qld). A document takes effect as a deed if it is in writing, clearly states that it is a deed, is properly executed and is delivered in accordance with the Act.

What Is a Deed?

A deed is a particular form of legally binding instrument.

Historically, deeds were subject to formal requirements involving paper, seals and delivery. Modern legislation has simplified many of those requirements considerably.

Under the current Queensland legislation, a deed does not need to be written on paper or parchment and does not need to be sealed. A deed may also be an electronic document and may be electronically signed.

What remains important is that the document is intended to operate as a deed and satisfies the applicable requirements for making and executing one.

Simply typing “Deed” across the top of an ordinary contract is not, by itself, enough.

What Is the Difference Between a Deed and an Agreement?

One of the most important differences concerns consideration.

For an ordinary contract to be enforceable, there will generally need to be consideration — something of legal value passing between the parties — unless another legal principle applies.

For example:

A business agrees to provide services and the customer agrees to pay $10,000.

Each party is providing something in exchange for the other's promise.

A deed can generally create an enforceable obligation without consideration.

That can make a deed useful where one party needs to make a binding promise but there is uncertainty about whether anything is being provided in exchange for it.

There are also different formal requirements for executing a deed.

When Might a Business Use a Deed?

There is no reason to turn every commercial contract into a deed.

An ordinary agreement will often be entirely appropriate.

Deeds tend to be used where the nature of the transaction or obligation makes the additional formality useful.

Common examples include:

• deeds of release;
• deeds of settlement;
• deeds of confidentiality;
• deeds of accession;
• deeds of variation;
• certain guarantees and indemnities;
• documents containing unilateral promises;
• some intellectual property arrangements; and
• particular corporate or financing transactions.

Whether a deed is appropriate depends on what the parties are trying to achieve.

Deeds of Release

A deed of release is one of the most common deeds used in business.

It can document an agreement under which one or more parties release legal rights or claims.

For example, a deed of release may arise when:

• a commercial arrangement is being brought to an end;
• a departing shareholder is exiting a company;
• contractual obligations are being resolved;
• money is being paid in exchange for a release;
• a business relationship is being formally concluded; or
• the parties want certainty about future claims.

The scope of the release is critical.

A release can potentially be drafted to cover particular identified claims or a much broader category of claims.

Before signing, a party should understand exactly what rights are being released and whether any rights need to be expressly preserved.

Deeds of Settlement

A deed can also document the agreed resolution of a commercial issue.

A deed of settlement may address matters such as:

• payments;
• timing;
• releases;
• confidentiality;
• return of property;
• future conduct;
• warranties;
• indemnities; and
• consequences if obligations are not performed.

The fact that the document is called a deed does not make the drafting less important.

The practical question remains: what has each party actually agreed to do, and what happens if they do not do it?

Confidentiality Deeds

Businesses frequently need to disclose confidential information.

This may occur when:

• considering a business sale;
• negotiating with a potential investor;
• discussing a joint venture;
• sharing proprietary information with a contractor;
• exploring a new commercial relationship; or
• providing information during due diligence.

Confidentiality obligations can be documented in an ordinary agreement or, depending on the circumstances, a deed.

A well-drafted confidentiality document should identify matters such as:

• what information is confidential;
• permitted uses;
• who may receive the information;
• required security measures;
• exclusions from confidentiality;
• compelled disclosure;
• return or destruction of information; and
• how long the obligations continue.

The appropriate document depends on the particular transaction rather than simply choosing a deed because it appears more formal.

What Is a Deed of Accession?

A deed of accession is particularly useful where a new party is joining an existing legal arrangement.

A common example involves a shareholders’ agreement.

Suppose three shareholders enter into a shareholders’ agreement governing their company.

Two years later, a fourth person acquires shares.

The existing shareholders generally want the new shareholder to become bound by the same rules without having to renegotiate and re-sign the entire shareholders’ agreement.

The shareholders’ agreement may therefore require the incoming shareholder to execute a deed of accession.

Through that document, the incoming shareholder agrees to become bound by the existing agreement as though they were an original party, subject to the wording of the relevant documents.

This is why properly drafted shareholders’ agreements commonly anticipate what will happen when new shareholders enter the company.

Related article: Shareholders’ Agreements: Why Every Business With Multiple Owners Should Have One.

Deeds of Variation

Businesses sometimes need to change an existing legal document.

A deed of variation may be used to formally amend an earlier deed or other arrangement where a deed is appropriate.

For example, parties may need to alter:

• payment obligations;
• ownership arrangements;
• contractual rights;
• timeframes;
• security arrangements; or
• other existing obligations.

It is important to check the original document first.

The original agreement or deed may prescribe how it can be amended and whether particular approvals or formalities are required.

Guarantees and Indemnities

Commercial transactions commonly involve guarantees and indemnities.

For example, a landlord may require directors to personally guarantee a company's obligations under a commercial lease.

A lender, supplier or purchaser may also require particular guarantees or indemnities.

These obligations can create substantial personal or commercial exposure.

Whether they are documented in an agreement or deed, the wording should be reviewed carefully.

Questions include:

• What obligations are guaranteed?
• Is liability capped?
• How long does the obligation continue?
• Does it survive termination of the underlying contract?
• Can the beneficiary recover directly from the guarantor?
• What events trigger the indemnity?
• Are there exclusions or limitations?

The title of the document is much less important than understanding the actual liability being assumed.

Does a Deed Need Consideration?

One of the principal reasons for using a deed is that a deed can generally be binding without consideration.

Consider this example:

A company promises to transfer a particular right to another person but there is no obvious payment or other value being provided in return.

If the promise is documented only as an ordinary contract, the absence of consideration may create an issue.

Depending on the circumstances, properly documenting the promise as a deed may address that problem.

However, this does not mean a deed should automatically be used whenever consideration is uncertain.

The document still needs to satisfy the legal requirements for a deed and accurately record the intended transaction.

How Is a Deed Executed by an Individual in Queensland?

Queensland's Property Law Act 2023 modernised the execution requirements.

An individual may execute a deed by signing it, and the Act provides that the individual may sign whether or not in the presence of a witness.

This is a significant simplification from traditional deed formalities.

However, special rules can apply to particular documents. For example, the legislation contains separate requirements concerning certain powers of attorney and enduring documents.

Accordingly, the execution requirements should be checked for the particular document rather than assuming every document described as a deed can be executed identically.

How Does a Company Execute a Deed?

Australian companies commonly execute documents under section 127 of the Corporations Act 2001 (Cth).

A company may execute a document without using a common seal where it is signed by:

• two directors;
• a director and company secretary; or
• for a proprietary company with a sole director, that director where the statutory requirements concerning the company secretary are satisfied.

Section 127 expressly deals with deeds and allows qualifying execution electronically and without witnessing.

Companies may also have other legally available methods of execution, so the circumstances and company structure should be checked.

Can a Deed Be Signed Electronically?

Yes — in many commercial circumstances.

In Queensland, the Property Law Act expressly provides that a document intended to have effect as a deed may be an electronic document and may be electronically signed.

Federal company law also permits technology-neutral signing of relevant documents and provides for electronic execution of deeds by companies in accordance with the Corporations Act.

This means businesses no longer need to assume that every deed requires everyone to meet around a table and sign the same physical piece of paper.

However, exceptions and special requirements can apply to particular types of documents or transactions.

Can Parties Sign Different Copies?

Queensland law also allows a deed to be signed by signing a counterpart or true copy of the document.

This is useful in commercial transactions involving several parties in different locations.

For example, the seller may sign one counterpart on the Gold Coast while the purchaser signs another in Sydney.

The execution provisions need to be drafted and followed correctly, but the parties do not necessarily need to sign the same physical document.

What Does “Delivery” of a Deed Mean?

Delivery has a technical legal meaning in relation to deeds.

It does not necessarily mean physically handing the document to the other party.

Queensland's Property Law Act requires delivery as part of the general requirements for a deed, with section 56 dealing specifically with when a deed is delivered.

In commercial documents, this is commonly addressed through wording dealing with when the deed takes effect.

Interestingly, the federal Corporations Act expressly provides that delivery is not necessary where an individual executes a deed in exercise of a company's powers in accordance with the relevant section 126 provisions.

This is another reason execution provisions should be tailored to the parties rather than copied mechanically from an old precedent.

Does a Deed Need a Seal?

Not generally.

The traditional concept of a deed being “signed, sealed and delivered” can create confusion.

Queensland legislation expressly provides that a document can take effect as a deed even though it is not sealed or stated to be sealed.

Companies can also execute deeds without a common seal where the requirements of the Corporations Act are satisfied.

Is the Limitation Period Longer for a Deed?

This is an area where businesses — and old website articles — can easily become outdated.

Historically, deeds were often associated with a longer limitation period than ordinary contracts in Queensland.

That is no longer the general position.

The current Limitation of Actions Act 1974 (Qld) provides a six-year limitation period for an action upon a deed, subject to any shorter period prescribed elsewhere in the Act.

Accordingly, an old Queensland article stating that using a deed automatically provides a 12-year limitation period should be updated.

This is particularly important for your KMB Legal rewrite because we do not want to preserve outdated information from the old article.

Does Calling a Document a “Deed” Make It a Deed?

No.

Queensland law requires more than a title.

For a document to take effect as a deed under the general provisions, it must:

• be in writing;
• contain a clear statement that it is a deed;
• be executed in accordance with the applicable statutory requirements; and
• be delivered in accordance with the Act.

The substance and execution of the document therefore matter.

Conversely, elaborate old-fashioned wording and a red seal are not what make a modern Queensland deed legally effective.

Should You Use a Deed or an Agreement?

The answer depends on the transaction.

An ordinary agreement may be appropriate where:

• there are clear reciprocal obligations;
• consideration is being provided;
• there is no particular reason for deed formalities; and
• a standard commercial contract appropriately records the arrangement.

A deed may be considered where:

• a binding promise needs to be documented without conventional consideration;
• a release is being given;
• a new party is acceding to an existing arrangement;
• the underlying transaction is conventionally documented by deed; or
• there is another legal or commercial reason for using a deed.

The choice should be deliberate rather than simply using whichever precedent happens to be available.

Deeds in Business Sale Transactions

Deeds can arise at several stages of buying or selling a business.

For example, a transaction may involve:

• confidentiality deeds before due diligence;
• deeds concerning guarantees or security;
• deeds of assignment or accession;
• releases associated with existing owners;
• deeds documenting post-settlement arrangements; or
• variations to existing legal documents.

The deed should be considered alongside the broader transaction rather than in isolation.

Related article: Buying or Selling a Business in Queensland: Key Legal Considerations.

Deeds and Shareholder Arrangements

Companies with multiple owners are another area where deeds frequently appear.

A shareholders’ agreement may require a new shareholder to execute a deed of accession.

A departing shareholder may enter into a deed dealing with matters such as:

• transfer of shares;
• repayment of shareholder loans;
• resignation as director;
• confidentiality;
• restraints;
• releases; and
• continuing obligations.

These documents should work together with the company's constitution, shareholders’ agreement and share transfer documentation.

Related article: Shareholders’ Agreements: Why Every Business With Multiple Owners Should Have One.

Before Signing a Deed

A deed can create significant and sometimes continuing legal obligations.

Before signing, consider:

Why is the document being structured as a deed?

What obligations am I assuming?

Am I giving a release?

Am I providing a guarantee or indemnity?

Do any obligations continue indefinitely or after the transaction ends?

Is there a restraint?

Are there confidentiality obligations?

Does the deed correctly identify the parties?

Has it been executed correctly?

When does it take effect?

The fact that no money changes hands does not mean the document is insignificant.

In some cases, that is precisely why a deed is being used.