Receiving an interest or right in a property? Watch out!

Receiving an interest or right in a property? Don’t get caught out when signing on the dotted line!

It is common practice for a creditor to require a debtor to consent to passing an interest or right in the debtor’s real property (also known as real estate) as security for the provision of credit, goods or services.

The provision of this security can be made by way of contract (guarantee or agreement) or deed. The failure to correctly execute the document can render the document void and severely impact the legal enforceability of the clauses contained therein. Each state has their own requirements when drafting and executing these documents. It is therefore imperative that you (or your legal representatives) are aware of the governing requirements in the respective state.

This article will discuss:

  1. the main differences between deeds and agreements; and
  2. execution requirements of deeds and agreements in each state, particularly in relation to passing a legal interest or right in property.
What is a deed?

Generally, a deed is a written document that outlines the commitment or promise of a party to perform a specific task. Deeds are commonly used to confirm, or affirm, the owner’s right and interest in the property.

What is the difference between a deed and a contract?

Deeds and contracts are both ways in which a ‘deal’ can be committed to writing. Similar in nature, deeds and contracts are commonly mistaken as being an interchangeable term for the same document.
The principal rules of contract law confirm that in order for a contract to be binding, a contract must have:
• Offer and acceptance;
• An intention to legally bound; and
• Consideration.
In simple terms, consideration is the benefit that each party receives, or expects to receive, when entering into a contract. Often monetary, consideration can also be a promise to perform a specific act, or refrain from doing something.

For example, John agrees to sell his house to Michael for $350,000. Michael’s payment serves as consideration for John’s promise to sell the house to him. John’s consideration is his promise to sell Michael the house.

Unlike a contract, there is no requirement for consideration to render the parties bound to the terms of a deed. The lack of consideration in a deed is overcome by the intention of the executing party of a deed upon signing of the deed.

For example, a third-party who agrees to guarantee a bank loan may sign a deed if they are not receiving any benefit of that loan.

What is the execution and witnessing requirements in each state?

“Signed, sealed and delivered” is more than the song title of a 1970’s Stevie Wonder chart-topper. These are the elements commonly recognised as constituting the requirements to execute a deed.
However, it is not necessarily the case in each state, particularly in relation to passing an interest or legal right in property.

Queensland
The Property Law Act 1974 (QLD) governs the requirements necessary to hold a valid interest over land (the Act).

Section 11 of the Act requires that an interest in land must be in writing and it must be signed by the grantor. Section 45 of the Act confirms that in order for a deed (that provides an interest in land) to be valid, it must be witnessed by a third-party.

Section 56 of the Act further specifies that a guarantee must be in writing and must be signed. There is no provision within the Act that requires a guarantee to be witnessed.

New South Wales
The Conveyancing Act 1919 (NSW) confirms that no assurances of land shall be valid to pass an interest at law unless made by deed. Deeds are required to be in writing, signed and witnessed in accordance with the provisions of the Act.

South Australia
Similar to the provisions in New South Wales, the Law of Property Act 1936 (SA) confirms that passing of an interest in land is void unless made by deed. Deeds are required to be in writing, signed and witnessed in accordance with the provisions of the Act.

Western Australia
Section 33 of the Property Law Act 1969 (WA) confirms that the transfer of interest in land in Western Australia is not valid unless made by deed. A deed under this Act is required to be in writing, signed by the grantor and witnessed by a third party.

Tasmania
Section 60 of the Conveyancing and Law of Property Act 1884 (TAS) confirms that the transfer of interest in land in Tasmania is void unless made by deed. A deed under this Act is required to be in writing, signed by the grantor, witnessed by a third party.

Northern Territory
The Law of Property Act 2000 (NT) confirms that the conveyances of land or interest in land in the Northern Territory is not valid unless made by deed or in writing signed by the grantor.

Further and similar to Queensland provisions, the Act specifically mentions that a guarantee must be in writing and signed.

Section 47 of this Act confirms that a deed is considered to be duly executed if it signed and attested by at least one witness who is not a party to the instrument. However, the Act does not specify whether a guarantee must be witnessed.

Victoria
The Property Law Act 1958 (VIC) confirms that conveyances of land or interest in land in Victoria are void unless made by deed. The Victorian legislation requires the deed to be in writing and signed. However, there is no requirement in the provisions that requires the deed to be witnessed.

Australian Capital Territory
The Civil Law (Property) Act 2006 (ACT) confirms that interest in land cannot be created or disposed of by a person except in writing. Unlike the provisions of the other states, a deed is not specifically required to convey an interest in land in the Australian Capital Territory.

In accordance with the provisions of the ACT legislation, the instrument providing the interest in the land must be in writing and signed. In all cases, regardless of its contents, a deed is required to be signed, sealed and witnessed to be valid in accordance with the provisions of the legislation.

It is important to know what you are signing, and how to correctly execute the document before putting pen to paper. This is particularly true when executing deeds or agreements that pass interest or rights in property because a poorly or incorrectly executed document will extinguish a party’s entitlement to that right or land.

The above information is general in nature and does not constitute legal advice, should you have any queries regarding execution of or enforcement of a deed or agreement, feel free to contact our office.

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