13 Jan

What is escrow?

Escrow is the process of two or more parties placing (usually) money in the hands of a trusted third party (an ‘escrow agent’). The escrow money is then released by he Escrow Agent to the relevant party when an agreed release event, such as satisfaction of that party’s obligations, or failure of another party’s obligations, has ocurred. 

Who acts as Escrow Agent?

The escrow agent is typically a bank, the solicitor for one of the parties or sometimes, jointly, both parties’ solicitors. It is the escrow agent who will administer the escrow account. The escrow agent holds the money in the escrow account on trust for the parties to an Escrow Agreement and, as trustee, the agent has a duty to act independently in its administration of the account.

What is an escrow account?

An escrow account is an interest-bearing bank account to which certain specified criteria are attached that must be satisfied before funds can be released from the account. These conditions will be set out in the associated escrow agreement.

What is an Escrow Agreement?

An Escrow Agreement is made between 1. the parties who want the security of using a trusted third party to help them complete a transaction and 2. an Escrow Agent that they have agreed to appoint. It is essential that all parties involved in the transaction join in and sign the Escrow Agreement.

The Escrow Agreement will typically contain provisions dealing with: 

  1. The instruction to the Escrow Agent to ct as trustee for the parties to the Escrow Agreement in respect of the escrow money: 
  2. A declaration that the escrow agent will act independently; 
  3. The duration of the escrow account; 
  4. Provisions relating to the establishment and operation of the escrow account;
  5. Details of release events that will trigger payment of funds to one of the parties;
  6. The process for the release of monies from the escrow account;
  7. Provisions requiring the employer to maintain the account balance; 
  8. An indemnity from the parties to the Escrow Agent;
  9. Who any interest accrued will be due to.

Legal Notice:

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Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only.


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