Back to basics: signing construction contracts

As is the case in any legal transaction, it’s vitally important that construction contracts relating to a new project are signed correctly. If not, major questions could be raised about the contract's validity/enforceability, whether the contract has been agreed to, and the limitation period. Getting it right is crucial. 

Ross Galbraith and Pippa Garden, lawyers in our construction and engineering team, explore the difference between “simple contracts” and “deeds" and how each contract can be signed. This is becoming even more important with the increasing use of electronic signatures post-covid. 

What are the different types of contracts that can be signed?

Simple Contract 

A simple contract can be made:

• Orally.
• In writing.
• Using a combination of the two.

Typically, it’s advisable for a simple contract to be signed and in writing. Where this is the case, a simple contract is referred to as being signed “underhand”. 

In terms of the limitation period for simple contracts signed underhand, claims for breach of a contract can be brought up until 6 years from the date on which the cause of action accrued.

Deed

A deed is a written contract which is signed with the necessary formality, that is, more than a simple signature. Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 states that a deed must be:

• In writing.
• Stated as being a deed.
• Signed.
• Witnessed.
• Delivered.

Claims for breach of a contract signed as a deed can be brought up until twelve years from the date of breach (although the limitation period is six years for claims for arrears of rent and arrears of interest under a mortgage). 

If a deed is not signed correctly, in line with the relevant requirements set out above, it will likely be a simple contract (with a six rather than 12-year limitation period). 

From a construction perspective, appointments and building contacts will generally be signed as a deed, but there may be instances whereby they are signed as a simple contract with a shorter limitation period (i.e. in relation to less complex/low-value projects). Also, many construction contracts will include express limitation periods within the contract itself, which will generally be 12 years from practical completion of the works (but please see our comments below in relation to the impact of the Building Safety Act and the new longer statutory limitation periods). 

How can each type of contract be signed?

Signing of a contract by individuals

There are no specific rules for individuals signing a simple contract. Signing takes place when:

• The parties verbally agree to be bound by the terms of their agreement; or
• A written contract is signed. 

For deeds, the Law of Property (Miscellaneous Provisions) Act 1989 governs how an individual is to sign a deed correctly. It requires a deed to be:

• Signed.
• In the presence of a witness.
• Delivered as a deed.

Alternatively, where an individual is unable to sign the deed themselves, it can be signed at the individual's direction in the presence of two witnesses who each acknowledge the signature. 

Signing of a contract by a partnership 

Where a traditional partnership is to enter into a simple contract, the signature of one partner is required. 

All partners may sign a deed unless one partner has been given express authority by power of attorney to sign on the other partners’ behalf. In both cases, the partners’ signature will need to be witnessed in accordance with the above requirements. 

Signing of a contract by an LLP

A simple contract can be signed by an LLP by: 

• Any person with express or implied authority to do so; or 
• Under common seal. 

Company seals are stamps pressed onto a document and may include the company’s name, date of establishment, emblem, or logo. Although they are generally less common now, they are often used by public authorities to signal their acceptance of contracts. 

A deed can be signed by an LLP by:

• It's common seal.
• A signature of two members of the LLP; or 
• Ane member of the LLP in the presence of a witness. 

Signing of a contract by a company 

A company may sign a simple contract by: 

• Use of the company’s common seal; or 
• By an individual (typically a director) acting with the company's authority. 

The signing of a deed by a company involves additional considerations. Section 44 of the Companies Act 2006 allows a company to sign a deed by: 

• Affixing its common seal.
• The signature of two authorised signatories; or 
• A director of the company with an independent witness.

Wet ink vs Electronic signatures

Signing by wet ink involves inserting a physical signature. Typically, this has been the default position for signing, although more recently, particularly as a result of Covid, electronic signatures have become more popular (via DocuSign, AdobeSign and other providers). 

Electronic signatures can be used to sign simple contracts and deeds. Provided that a signatory intends to authenticate the document and all other formalities have been complied with, a contract signed by electronic signature has the same legal enforceability as if it had been signed in wet ink. 

However, please note that simply copying and pasting an electronic signature into a contract could raise enforceability and validity issues. Copying and pasting an electronic signature does not provide a reliable method for proving that the individual named intended to sign the contract, and it doesn’t provide any court-admissible audit trail in the same way that using electronic signature software would. 

If you are planning on signing a contract by electronic signature, it’s best to get the approval of all parties involved, and if you are unsure as to whether it’s a sufficient method of signing, legal advice should be sought. 

Counterparts

A contract may be signed in counterpart when a transaction is time-pressured or involves several parties signing in different locations. This involves duplicate contracts or deeds being signed by each of the parties involved. Together, the various signed copies are collated to form a single contract. This method allows for signing without having to circulate a single copy of the contract to all parties for signature. 

There are no specific rules around signing in counterparts, although it is best practice to include a counterpart clause in the contract or deed preventing a party from arguing that the contract is not binding. 

Using a mixture of wet ink and electronic signatures is acceptable when signing in counterpart. If this is to be the case, the parties should agree in advance.

Building Safety Act 

An additional consideration from a construction perspective is the recent introduction of the Building Safety Act 2022. 

In respect of claims brought pursuant to the Defective Premises Act 1972, the limitation periods have been extended as follows:

• 15 years for all claims going forward for dwellings due to be completed after 28 June 2022.
• 30 years for dwellings completed before 28 June 2022.

Claims brought pursuant to section 38 of the Building Act 1984 or sections 148 to 149 of the Building Safety Act will also have a limitation period of 15 years.

From a practical perspective, we are now seeing express limitation periods of 15 years being included in building contracts and appointments to ensure that the period in which the contractor and consultant are potentially liable is in line with the extended statutory limitation periods. 

For more information on how to sign contracts and the implications of different signing methods, please contact Ross Galbraith using [email protected] or 0191 211 7999.