UK: Execution of contracts and deeds – new rules

Last Updated: 26 September 2005
Article by Ruth Pedley

The rules on signing and execution of documents, contracts and deeds by companies were changed on 15 September 2005 when the Regulatory Reform (Execution of Deeds and Documents) Order 2005 came into force. This will affect anyone involved in the documentation of transactions entered into by companies and other bodies corporate.

The implementation of the Order means that a number of things which had already been incorporated into standard practice are now provided for by legislation. A number of inconsistencies between, for example, execution by companies and individuals, and execution of documents relating to land and non-land transactions, are addressed.

Click on the link below to read some practical points arising under the following headings:

  1. Merely executing a document under seal will not make it a deed
  2. A purchaser will be able to rely on the signatures of two directors (or as before, the signatures of a single director and secretary) to attest a company seal on a deed
  3. Directors and secretaries of more than one company entering into a deed have to sign separately for each company they represent;
  4. Companies have the same flexibility as individuals to complete the formalities of signing a deed in advance of being bound by it;
  5. Third parties will be able to rely on a solicitor having authority to complete a transaction in all transactions, not just when land is being sold;
  6. Where a company acts under power of attorney, the officer signing the instrument may sign in the name of the donor

To view the article in full please see below:


Full Article

The rules on signing and execution of documents, contracts and deeds by companies were changed on 15 September 2005. when the Regulatory Reform (Execution of Deeds and Documents) Order 2005 came into force. This will affect anyone involved in the documentation of transactions entered into by companies and other bodies corporate.

The implementation of the Order means that a number of things which had already been incorporated into standard practice are now provided for by legislation. A number of inconsistencies between, for example, execution by companies and individuals, and execution of documents relating to land and non-land transactions, are addressed.

The following note picks out some practical points arising under the Order:

(1) Merely executing a document under seal will not make it a deed

If you want your document to be a deed, describe it as a deed in the document. It is not enough to execute a document under seal to make it a deed if it does not actually say that it is a deed. A section to this effect has been inserted into the Law of Property (Miscellaneous Provisions) Act 1989 to strengthen the existing face value requirement. Whilst it is unlikely that in practice anyone would have taken the risk of merely applying a seal to a document and expecting it to be interpreted as a deed, it would do no harm to revise your procedures to check this point.

(2) A purchaser will be able to rely on the signatures of two directors (or as before, the signatures of a single director and secretary) to attest a company seal on a deed;

This provision has been introduced to rectify the problem where under section 74(1) of the Law of Property Act 1925, a purchaser was given protection on the attestation of a company seal on a deed only if the seal was attested by a director and the company secretary or the deputy secretary. Note that the provision only related to deeds and the attestation could only be by director and secretary, not two directors.

Section 74(1) now reads:

"(1) In favour of a purchaser an instrument shall be deemed to have been duly executed by a corporation aggregate if a seal purporting to be the corporation's seal purports to be affixed to the instrument in the presence of and attested by—

(a) two members of the board of directors, council or other governing body of the corporation, or

(b) one such member and the clerk, secretary or other permanent officer of the corporation or his deputy."

So far as the Companies Act was concerned, signature by two directors or a director and the company secretary was reliable on any document.

The Order amends section 74(1) of the Law of Property Act 1925 to:

  • Allow for the seal being affixed in the presence of and attested by "two members of the board of directors" or "one member of the board of directors and the secretary (or deputy secretary).
  • Refer to any "instrument" instead of "deed".

(3) Directors and secretaries of more than one company entering into a deed have to sign separately for each company they represent;

Until the implementation of the Order, if one person was a director or secretary of a number of companies executing a deed, (e.g., as a director of a parent company and its subsidiaries), it was permitted to sign only once.

It was possible for issues of enforceability to be raised by doing this and following a recommendation of the Law Commission that a director or secretary of more than one company sign separately for each company has been incorporated into the Order.

(4) Companies have the same flexibility as individuals to complete the formalities of signing a deed in advance of being bound by it;

Delivery is the final formality required for the execution of a deed. By "delivering" the deed, the maker demonstrates in some way they intend the deed to take effect.

The Order adds a new section into the Law of Property Act: section 74A(2):

"An instrument shall be presumed to be delivered for the purposes of subsection (1)(b) of this section upon its being executed, unless a contrary intention is proved.".

This rebuttable presumption for companies (which prior to the Order, under the LPA only applied to individuals) will also apply to companies. Hence, a document executed by a company which makes it clear on its face that it is intended to be a deed, is delivered on execution unless a contrary intention is proved. A company will now be able to take advantage of a clause in its document which says that it will not take effect until it is, e.g., dated. There was already a rebuttable presumption for companies under s. 36A(5) Companies Act 1985, which would apply, for example, where it used a seal or where the deed was not in favour of a purchaser. This change will bring the provisions of the Companies Act and the Law of Property Act into line.

The Order removes the inconvenient irrebuttable presumption which had existed under section 36A (6) Companies Act 1985, that in favour of a purchaser a document was deemed to have been executed by a company if it purports to be signed by a director and secretary or by two directors. Where it made clear on the face of the document that it was intended to be a deed, it was deemed to have been delivered upon its being executed. Although it was not clear from the wording of the section, there was judicial authority that the irrebuttable presumption also applied if a company executed under seal.

The presumption caused problems in practice. Potentially any agreement signed as a deed was delivered once executed regardless of any clause saying that it was not delivered until it was dated etc. The Order has removed this irrebuttable presumption in the Companies Act.

The wording of section 36A(6) now is (with the deleted words shown in square brackets):

"In favour of a purchaser a document shall be deemed to have been duly executed by a company if it purports to be signed by a director and the secretary of the company, or by two directors of the company. [and, where it makes it clear on its face that it is intended by the person or persons making it to be a deed, to have been delivered upon its being executed] "

This gives companies the same flexibility as individuals to complete the formalities of signing a deed in advance of being bound by it.

(5) Third parties will be able to rely on a solicitor having authority to complete a transaction in all transactions, not just when land is being sold;

There used to be a presumption that where a solicitor delivered a deed relating to the purchase of land, the solicitor had the authority to deliver it (Law of Property (Miscellaneous Provisions) Act 1989). Where a transaction did not involve an interest in land, it needed to be made clear in writing that the solicitor had authority to deliver. Now the Order extends the statutory presumption to transactions other than those involving land.

(6) Where a company acts under power of attorney, the officer signing the instrument may sign in the name of the donor;

The Law of Property Act 1925 is amended, with a corresponding amendment at section 36A Companies Act 1985 to permit an officer appointed for the purpose by the board of directors or similar of the company which is authorised under power of attorney to convey an interest in property on behalf of a donor to sign in the name of the donor. The officer may execute a deed by signing it in the presence of a witness who attests the signature.

It may be necessary to check whether any prepared signing blocks you may use might need to be amended to take this into account.

The Order does not deal with execution by LLPs or foreign companies and we have been told that that is under consideration. Where there are questions of doubt as to whether a witness is required or not on signing a deed, best practice calls for a witness to put the issue beyond doubt.

A useful Summary of Consolidated Legislation which shows the amendments being made to the LPA 1925, section 36 Companies Act 1985 as amended, and the Law of Property (Miscellaneous Provisions) Act 1989 can be found at the annex to guidance issued by the Department for Constitutional Affairs at http://www.dca.gov.uk/pubs/deed-doc-guidance.pdf

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 26/09/2005.

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