Execution of documents: FAQs

1st November 2013

We are regularly asked about the formalities of executing documents. The following are ten of the most frequently asked questions.

Which documents must be executed as a deed?
A deed must be used in the following:

• transfers of real estate
• leases of real estate (subject to some exceptions, e.g. leases for a term of less than three years)
• mortgages and charges
• sales of mortgaged/charged property
• appointments of trustees
• powers of attorney
• releases and variations
• gifts of tangible goods not accompanied by delivery

A party may also insist on using a deed where there is no legal obligation to do so but where it is unclear whether there is valuable consideration, or where the party wishes to obtain the benefit of the longer limitation period that applies to deeds (12 years as opposed to six years for simple contracts).

Is there a distinction between a document executed “by” a company and a document executed “on behalf of” a company?
The Companies Act 2006 draws a distinction between documents executed “by” a company (by writing or under its common seal) and documents executed “on behalf of” a company (by a person acting under its authority, express or implied).When a document is executed on behalf of a company, whether or not the company is bound will depend, among other things, on the signatory’s authority to bind the company.

Where a document requires execution “by” a company, the document cannot be executed by a signatory who is not a director (or a company secretary acting with a director) unless the company has granted a power of attorney (which must be way of deed) authorising the signatory to execute the document. Deeds must be executed “by” a company.

Can a solicitor execute a deed on behalf of a client?
A solicitor can only execute a deed on behalf of a client if he or she is authorised to do so by power of attorney.

Are electronic signatures valid?
PDFs, images of a signature sent by email, even just a name on an email, are valid so long as there is clearly an intent to indicate personal authorisation. However, there are evidential considerations as well as risks associated with fraud. Encryption technology is available but is little used in transactions. Of more use in corporate transactions is the Law Society guidance on virtual completions.

What does the Law Society guidance say?
In a nutshell, a deed may be validly executed in counterparts if the entire final version of the document is circulated by email and if each party:

prints off and signs the relevant signature page of the deed only
returns a single email attaching both the entire final version of the deed and a scanned copy of the signed relevant signature page.
The guidance states that this return email and the two attachments constitute the same physical document.

In property transactions, virtual signings are, the Law Society guidance notwithstanding, generally avoided. Transfers of property and grants of leases of over seven years are registerable transactions and the original document needs to be registered. For property transactions the procedure tends to be that each party holds their client’s own executed part, a call is made, the document dated and the parts swapped by registered post.

When does a deed take effect?
A deed takes effect upon “delivery”.In the absence of wording to the contrary, deeds are deemed to be delivered – and are therefore effective – upon execution. This is why we have wording like “Dated but not delivered until the date set out at the top of this agreement”.

Who can be a witness?
A party to a contract cannot be a witness to the signature of another party to the contract. Although there is, we believe, no case law to the point, a director of a company that is party to the contract should not witness the signature of another party.

There is no statutory requirement of independence for a witness but this is best practice. If a deed is later questioned in court, it will not be helpful if the witness’ testimony is called into question by virtue of their relationship to a signing party.

Can the requirement for a deed to be signed by a director and company secretary be satisfied by one individual signing as both a director and company secretary?
No. Section 280 of the Companies Act 2006 makes clear that a provision requiring something to be done by a director and the secretary of company is not satisfied by it being done by the same person acting both as a director and secretary. The deed could, of course, be signed by the director in the presence of a witness.

Can one director sign for several corporate parties?
The wording of the Companies Act 2006 suggests that separate signatures are required for each party. For example, where a parent company and its subsidiaries with the same directors are required to execute a single mortgage debenture in favour of the lender to secure a group loan facility, it will not suffice for the authorised signatories to sign the document only once.

Can the provisions of a company’s articles override the statutory provisions regarding execution formalities?
Provided a company complies with the requirements of the Companies Act 2006 a deed will be validly executed and the counterparty will be able to enforce it, irrespective of the provisions of the articles. It is not uncommon, particularly in the case of older companies, for the articles to contain provisions regarding affixing the common seal. These provisions apply internally and disgruntled shareholders could seek redress if there is a breach – although, as noted, this will not affect the deed’s validity.