Agreeing the terms of construction contracts takes time and money. Only when a contract is correctly executed and dated will those agreed terms come into effect and a party be able to enforce its rights. Poor execution of contracts can create uncertainty as to the correct contracting parties and the enforceability of the rights under the contract, with significant consequences.
The tips below should help to ensure your contract is correctly executed and enforceable.
It is essential that the correct parties are named in a construction contract. In the case of limited companies and limited liability partnerships (LLPs), this means including the registered company name, address and company number. This can be checked for free at Companies House.
The majority of construction contracts are executed as deeds rather than under hand, with the main advantages being that:
the limitation period for bringing a claim under a deed is twelve years (under hand it is six years);
deeds are enforceable even when no consideration (usually money) is being exchanged. This is frequently the case with collateral warranties. However, the law of equity does not favour voluntary transactions (i.e. those without consideration) even if contained in a deed. This means that equitable remedies, such as specific performance, will be refused where there is no consideration provided.
There are certain formalities to execute a construction document as a deed. These will vary depending on whether the party entering into the contract is a limited company, an LLP or other entity. There are also specific requirements for other types of entities and overseas companies.
Directors can execute construction contracts with one other director or a secretary. The director(s) and secretary need to be registered as a director/secretary of the relevant company at Companies House. It is also possible for a construction contract to be executed by a single director with the signature being witnessed.
Two members of an LLP can execute a construction contract as a deed. Members must be listed at Companies House. Again, it is also possible for a construction contract to be executed by a single member with the signature being witnessed.
Under a power of attorney
Other individuals can execute construction contracts if they have authority from the entity they are executing the contract on behalf of. A company can grant authority by way of a power of attorney or a resolution at a board meeting. It is important that evidence of the authority is obtained in case a dispute arises later.
Manuscript amendments to engrossed documents will sometimes be required. Either manuscript amendments need to be initialled by the parties so as to incorporate them into the contract, or the parties will need to give authority for the amendments to be made on their behalf (the amendments are usually made by one of the contracting parties’ solicitors).
Construction contracts often incorporate other documents, such as drawings and specifications. To avoid confusion about which versions of these documents are incorporated into construction contracts, such documents are often printed and initialled or signed by the parties at the time of executing the main contract. Reference to the schedule of amendments to building contracts, or other construction contracts, should be made in the documents that it seeks to amend and make it clear that the terms of the schedule of amendments prevail.
Construction contracts should be not dated until all parties have executed the contract. With some construction contracts, it is important that other contracts are completed first. For example, a consultant’s appointment will need to be executed and completed before a collateral warranty in respect of the consultant’s appointment can be completed.
For more information please contact David Weare
Tailored insights delivered to your inbox