Legal Q&A: Execution of contracts
Karen Cossar, Senior Associate, and Jane Fender-Allison, Of Counsel, CMS Cameron McKenna Nabarro Olswang LLP
REACHING agreement in principle on a construction contract (whether a building contract between employer and contractor; a sub-contract; a consultant’s appointment; or the many collateral documents there may be like warranties, bonds and guarantees), can take months or years of negotiation and drafting. But the next step of executing those documents properly is critical and it’s an area where problems frequently arise.
Here’s a run-down of key points to remember.
- Is it a ‘construction contract’? Consider whether you have entered into a ‘construction contract’ for the purposes of the Housing Grants, Construction and Regeneration Act (1996) (as amended) (aka the Construction Act). This can include collateral warranties in certain circumstances. Where the act applies to the contract, this will require certain contract terms relating to payment and adjudication, whether or not those are expressly included.
Who the signatories to a contract should be, also depends on whether the party to the contract is an individual or an entity like a company or partnership.
- Is it a deed or a simple contract? Contracts subject to English law can either be executed as a deed, or underhand as a simple contract. Commercial contracts are frequently executed as a deed whilst certain contracts have to be executed as deed – for example mortgages, a transfer of land or an interest in land. The requirements for executing deeds and simple contracts are different. Simple contracts (if they are even in writing, as they do not have to be) are able to be signed by one signatory. Deeds (which do need to be in writing) require either two signatories, or a signatory who signs in the presence of a witness.
(That is not the same across the UK – Scots law does not have the same distinction and all contracts should be signed either by two signatories, or a signatory with a witness.) Deeds and simple contracts also have some different legal consequences. For example a deed does not generally require consideration to be enforceable and the standard limitation period under a deed is 12 years from the date on which the cause of action accrued, whereas under a simple contract it is six years.
- Has the deed been delivered? A deed must also be ‘delivered’ to have effect. This is the parties showing an intention to be bound by the contract. This often does not require a physical delivery – for example under statutory presumptions where a company executes a deed it is deemed to be delivered on execution, unless an intention to the contrary can be evidenced. Typically the contract is dated at the point of delivery and this is the date when the document takes effect. (Again this is not the same across the UK, under Scots law the date and place of signing for both parties will be contained within the execution blocks and the contract can be defined with reference to a number of dates if the parties do not sign on the same day.)
- Who should sign? Who the signatories to a contract should be, also depends on whether the party to the contract is an individual or an entity like a company or partnership. For example, executing a deed on behalf of a company can be done by two authorised signatories (which includes directors, the company secretary and others authorised for example by a power of attorney) or a director in the presence of a witness, in compliance with section 44 of the Companies Act (2006). Make sure that your signatories have the correct authority to sign. Directors must be statutory directors, who are listed on Companies House. This is easy to check on the Companies House website.
Often obligations in construction contracts, such as the requirement to deliver performance security or collateral warranties run from the date of the contract. Therefore once the contract has been executed by both parties (and delivered if subject to English law), you should ensure that you are in compliance with any requirements relating to those deliverables.
- How to sign with a witness? Under English law if signing with a witness, the witness must be physically present to witness the signatory’s execution of the contract. This applies even when using electronic signing.
- Can you sign electronically? Since COVID-19, electronic signing has become common place and specific electronic signing platforms are available. This is subject to various legislation which defines different types of electronic signatures and advice should always be sought to ensure electronic signing is carried out so as to execute a contract properly. If one party signs using an electronic signature, this does not preclude another party to the contract signing in wet ink. It’s also worth noting that there are specific signing requirements for signing deeds electronically which relate to land and specifically to the transfer of land.
- How best to incorporate technical documents? Construction contracts usually have a number of technical documents appended to them. Make sure to check that all relevant documents have been appended and the correct version of each has been included. A documents list, which includes version numbers of each of the individual technical documents, can be useful to include. To avoid issues where the technical documents may conflict with the legal terms and conditions, it is also useful to include an order of priority clause, which states in the case of a conflict which document takes precedence.
- What obligations are triggered? Often obligations in construction contracts, such as the requirement to deliver performance security or collateral warranties run from the date of the contract. Therefore once the contract has been executed by both parties (and delivered if subject to English law), you should ensure that you are in compliance with any requirements relating to those deliverables. There may be financial consequences for not complying with these provisions, for example if they are pre-condition to payment, or carry a deduction from the sums paid until they are delivered.
Karen Cossar, Senior Associate, and Jane Fender-Allison, Of Counsel, CMS Cameron McKenna Nabarro Olswang LLP