In New Zealand, a deed is a different legal instrument from a contract. A deed is a legally binding promise that parties make to affirm or transfer a legal interest in something. A deed must be written and signed for it to be binding, and parties must draft it in a specific legal way. Deeds are a commonly used tool for transferring ownership, such as that of property. However, your deed must contain all the correct provisions. This article will outline the common mistakes you should avoid when drafting deeds.
What is the Difference Between a Deed and a Contract?
The main difference between a deed and a contract is that a deed does not require any consideration (that is, the exchange of something for value) for it to be legally binding. However, certain processes require a deed, such as selling a house. You can also use a deed in trusts. For example, a trustee can retire through a deed.
1. Incorrect Legal Descriptions
Of many common mistakes to avoid when drafting deeds, you should make sure the provisions are not incorrect. Incorrect provisions could mean the wrong parties are being named or the property that the deed is for being wrong. This can lead to several legal issues down the line. For example, if you name the wrong property in the deed, someone else may lay a claim to the property. If the deed has already been signed, it can also be costly to change the provisions in the deed. This is because all the parties to the deed have to come back to sign the new deed.
An incorrect legal description can also mean the deed is legally unenforceable. This creates issues around who actually owns the land and can lead to lengthy and costly legal battles.
Continue reading this article below the form2. Not Knowing About a Lien
Another of the common mistakes to avoid when drafting deeds for a transfer of property is not making sure to check there is no lien on it. A lien is an interest granted over the property to secure the payment of a debt or some other sort of obligation. For example, if a homeowner cannot pay their debts on a house, the bank may place a lien over the home. If the seller then refuses to disclose a lien on the house, you may have to foot the bill if you sign the deed. It is irrelevant that the debt incurred is not yours. Always enquire about a lien over the property, and make sure you look for any hidden provisions in a deed.
3. Not Including an Exclusion or Indemnity Clause in a Trust Deed
If you are drafting a trust deed, then having an indemnity or exclusion clause for your trustees is a good idea. A trustee is a person in charge of administering a trust and acting in the best interests of the beneficiaries – who will benefit from the trust.
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Indemnity |
The trust will pay for any losses it incurs so that trustees do not have to pay. |
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Exclusion |
Excludes liabilities for the trustees. This means they are not personally liable for any losses that the trust incurs. |
It is a good idea to include either of these clauses in your trust deed so that trustees are not reluctant to make investments on behalf of the trust. If trustees are not excluded from liability or indemnified, they may not make any investments, and the trust may stay stagnant. It also means that potential trustees may not want to be appointed as they will be personally liable for any losses the trust incurs on their behalf.
However, if you do not fully trust your trustees, you may want to avoid including one of these clauses. This is so your trustees don’t make any rash decisions that could end up harming the trust.
Key Takeaways
When using a deed, it needs to be foolproof. This is because a deed is a type of legally binding agreement that allows for it to be enforceable without the need for any consideration. Certainly, deeds are also commonly used because they are the traditional document, and are legally required for particular types of transactions. It is vital you try to avoid any mistakes when drafting a deed. In particular, it is essential that your deed contains all the relevant information and is up to date. If your deed contains incorrect information, it can be costly and time consuming to change.
If you need any legal assistance with drafting deeds, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.
Frequently Asked Questions
You can only change the provisions if they are consented to and re-signed by all the parties.
Ask your seller to disclose this or refer to the personal property securities register. This is a public register that contains all registered security interests.
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