Signed, sealed… but is it deed-livered?

Why checking signatory authority and execution formalities could mean the difference between a six-year and 12-year limitation period.

The terms of the contract have been negotiated and the parties are ready to execute. The lawyer emails asking for the full name of the person who will execute the contract as a deed. At that stage, it can feel like an unnecessary question. After all, the important part, the agreed contractual terms, has already been settled. So why do lawyers ask?

In construction contracts under English law, it is standard market practice for key documents, such as appointments and building contracts, to be executed as deeds. This allows the contracts to benefit from the extended 12-year limitation period under section 8 of the Limitation Act 1980. This is particularly important given that defects in construction works may only become apparent several years after practical completion.

But it's important to get it right.

When is a deed not a deed? When it is only a simple contract!

The issue arises when the contract execution does not meet the statutory requirements to be a deed. If the contract is not drafted and executed in accordance with statutory requirements, it will take effect as a simple contract, meaning the limitation period will only be six years.

What are the statutory requirements?

To be a deed, a contract must be:

1. Clear on the face of the document that it is intended to be a deed, and
2. Validly executed as a deed.

The first requirement is straightforward: the document must identify itself as a deed. This might be throughout the contract, but at a minimum the execution block should state the contract is "executed as a deed". If it doesn’t say it is a deed, it is only a simple contract.

For the second requirement, this is where execution formalities become important. In order for a contract to be validly executed as a deed, certain statutory formalities must be satisfied. For a company, the formalities are contained in the Companies Act 2006 and Law of Property (Miscellaneous Provisions) Act 1989. In broad terms, a company must execute a deed either by two authorised signatories (such as two directors, or a director and company secretary) or by a single director in the presence of a witness.

If the company is a limited liability partnership, the company can sign by two members or one member with a witness. 

In the simplest terms, if a contract is being executed as a deed, it will need two authorised signatories or one authorised signatory and a witness.

There are some pitfalls though.

A (surprising) issue that sometimes arises, is that someone signs whose job title includes "Director" or "Secretary" but they are not formally appointed as a director or company secretary at Companies House. If the person is not named on Companies House, then irrespective of their job title, for the purposes of deeds formalities, they are not an authorised signatory. 

For that reason, the full names of the proposed signatories need to be cross-checked against Companies House records to ensure the named individuals are authorised to execute the deed.

Parties may also sign under a power of attorney. Similar to checking Companies House above, a copy of the power of attorney should be checked to ensure the proposed signatory is duly authorised to sign a contract as a deed.

In practice, there are a number of ways of executing a contract. The important thing is to get confirmation that the proposed signatory has authority to sign the contract as a deed.

Furthermore, if the deed is being executed with a witness, the witness must be physically present when the authorised signatory executes the contract. Where an electronic signing platform is being used, the witness must still be physically present and must observe the signatory applying their electronic signature.

Physical copy or online signing platform?

Nowadays, we are working in an environment where most contracts can be issued for execution through online signing platforms, such as DocuSign. This has several advantages. Signatory details can be checked before the document is issued, signatures are clear and legible, and there is a reliable record showing who signed and when. The execution process can also be much quicker, as documents do not need to be posted around the country to the different signatories.

Where a contract is signed in hard copy, the signatory details should be checked before the document is dated. At this stage there is still an opportunity to make manuscript amendments and potentially get it re-signed by an authorised signatory. Once the document is dated though, the contract would have to be rectified by a separate document in order to correct the execution.

Hard-copy execution also presents a practical issue: signatures are not always easy to identify. If the signatory's name is not clearly shown in the execution block, the name must be verified and added to the execution block before dating or completing.

Final thoughts

Verifying signatory details is a simple task, but it can have significant consequences. Getting it right could mean the difference between a six-year and a 12-year limitation period.

So, the next time a lawyer asks for the full names of the proposed signatories and then carries out checks on these, it is not simply administrative housekeeping. It is an important step in ensuring that the document takes effect as a deed and delivers the protection the parties intended.