As a result of drastic unprecedented measures being implemented worldwide in response to the COVID-19 pandemic, millions of people in the UK are now required to work from home.
This has caused considerable practical difficulties whilst executing and witnessing legal documents and the question of whether it is possible to enter into legally binding agreements and deeds electronically is more relevant than ever.
The correct method of execution will depend on a number of factors and therefore it is important to understand the key underlying differences between contracts and deeds under English law.
Legally binding contracts may be made fairly informally under English law. Most contracts do not even need to be in writing, as long as the key components – offer, acceptance, some form of consideration, an intention to create legal relations and certainty of terms – are present.
Having said that, there are certain types of contracts for which the law imposes a requirement of form. For instance, contracts which must be in writing include:
• Contracts for the sale of land;
• Assignments of certain Intellectual Property rights; and
• Transfers of shares.
The main reasons for having a written contract is primarily to achieve certainty as to the terms of the contract, to provide a record of those terms or in certain cases, to fulfil an applicable registration requirement (at the Land Registry, for instance).
Furthermore, there are particular contracts which must be carried out as a deed, including:
• Transfers of land;
• Powers of attorney; and
• Appointments of trustees.
Although generally speaking, deeds require more strict and onerous formalities to be observed than contracts, an important difference between the two types of legal documents is that deeds do not require consideration in order for them to be valid. Therefore, any legal agreement without some form of consideration must be executed as a deed.
The following formalities must be complied with when entering into deeds:
- Deeds must be made in writing;
- It must be clear from the face of the instrument (usually via specific wording inserted above the signature blocks) that it is intended to take effect as a deed;
- Strict formalities as to execution must be followed which will depend on the legal personality of the executing party; and
- Deeds must be delivered.
Execution of deeds:
Where a deed is executed by an individual, the instrument will only be valid if it is signed by (or at the direction of) an individual in the presence of a witness who attests the signature. Similarly, where it is executed by a company by the signature of one director, the executing director must sign in the presence of a witness who attests the signature.
In either case, the law does not impose any requirements relating to the identity or competence of a witness. It is however, an established principle at common law that a party to a deed cannot be an attesting witness.
As the number of people currently working from home in the UK is higher than ever before, it has raised the question of whether family members may witness signatures. Government guidance suggests that the relevant legislation does not prevent a signatory’s spouse, civil partner or cohabitee from acting as a witness (if they are not a party to the deed), but this is best avoided. Indeed, considering that the primary purpose of witnessing signatures is to provide evidence of what was signed, when and by whom, independent and unrelated witnesses should be used as a matter of best practice.
Electronic execution of contracts and deeds:
The application of the key contract law principles (offer, acceptance, consideration, intention to create legal relations and certainty of terms) does not depend on the particular technology being used to create the contract. The parties will simply need to consider whether these elements are present in the electronic means being used.
In case of contracts, where no legal formalities are to be observed, (ie. simple contracts) the legal validity of the form in which the contract takes place and the method of execution should not be questioned, as no legal requirement for writing or signature applies and therefore, it will be open to the parties to agree an approach.
Where the contract is subject to a statutory requirement for writing and signature, the key question is whether the electronic means satisfy these requirements. Whilst the law is continuing to develop in this area, there is a visible general trend towards accepting that electronical means are capable of satisfying the statutory requirements.
It is now becoming increasingly common to deliver deeds via virtual means as it is accepted that electronic closing mechanisms are capable of creating legally binding deeds. It must be noted however, that Wills and various property deeds registrable at the Land Registry cannot be executed electronically.
Another important matter to be considered is how to witness e-signatures. The Law Commission has confirmed in September 2019 that a deed which must be signed in the presence of a witness requires the physical presence of that witness, meaning that remote witnessing is not possible. Therefore, although there is nothing to prevent people from creating legally enforceable deeds electronically, witnessing an electronic signature in person may result in practical difficulties, and is why the vast majority of deeds are still being delivered via manual execution of a paper copy.
Should your business needs any assistance to determine what legal formalities must be observed whilst executing legal documents, or should you need further clarification, please do not hesitate to get in touch with a member of our Corporate team.