How long does an escrow last?

How long will the funds stay locked? It is one of the first questions parties ask before entrusting a price to an escrow agent. There is no single answer: an escrow can last a few weeks or several years. Everything depends on the nature of the operation and on the risk the funds are meant to cover. This article reviews the usual durations, operation by operation, then explains what determines them and how the escrow agreement sets the term.

A duration driven by the operation, not by a single rule

There is no general statutory duration for an escrow. It is the needs of the operation that govern the timetable: an escrow lasts as long as the risk it is designed to neutralise remains. Once that risk is cleared — a period elapsed, a condition met, a dispute resolved — the funds are released to the designated beneficiary. Depending on the case, this ranges from a few weeks to two years, sometimes longer. Keeping a rough order of magnitude in mind for each type of operation helps to anticipate cash flow and to calibrate the agreement.

Sale of a business: three to five months

This is the most heavily regulated case. In the sale of a business (fonds de commerce), the price cannot be handed over to the seller straight away: it is made unavailable by the creditors' right of opposition and by the buyer's joint tax liability. The escrow of a business sale price runs, in practice, over three to five months, the time it takes for several periods to combine:

• The creditors' opposition period, of ten days from publication of the sale in the BODACC official gazette;
• The clearing of registered liens and pledges encumbering the business;
• The buyer's joint tax liability period, which runs from the filing of the seller's results return;
• The handling of any oppositions, which freeze the price up to the amount of the declared claims until they are lifted.

This three-to-five-month bracket is therefore not arbitrary: it corresponds to the actual running of the periods that protect creditors and the tax authorities. It may lengthen if an opposition is filed and not quickly lifted, or if the seller's tax position calls for further checks. Conversely, it cannot be shortened below the statutory periods, whatever the parties may wish.

Warranty and indemnity: twelve to twenty-four months

In a share sale (M&A), a fraction of the price is often placed in escrow to secure the warranty and indemnity given by the seller. The duration of the escrow then aligns with that of the warranty itself, generally set by reference to the tax and employment limitation periods. In practice, this period commonly runs from twelve to twenty-four months, and sometimes up to three years. Release can be gradual: the escrowed amount decreases over time, as the main covered risks lapse, rather than being returned in a single payment at the end of the warranty. If a warranty claim is made before the deadline, the corresponding fraction stays locked beyond the initial term, until the claim is settled.

Financing and conditions precedent: until the conditions are met

Where the escrow secures a price subject to conditions — obtaining financing, shareholder approval, regulatory authorisation, the release of security — its duration is not fixed in advance: it runs until those conditions are actually met. The escrow may then be short, if the conditions are satisfied quickly after signing, or longer in the event of administrative delay or of a hard-won approval. To avoid an open-ended arrangement, the agreement almost always provides for a long-stop date: past that term, if the conditions are not met, the funds are returned to the party that paid them.

Dispute or settlement: until the agreement or the decision

When an escrow relates to a disputed sum, its duration mirrors that of the dispute. The funds are held until the parties sign a settlement agreement, or until a court decision becomes final where the dispute is decided by a judge. This duration is by nature less predictable than in a sale, since it depends on the pace of the negotiation or on the progress of the proceedings. The escrow agent neutralises the sum until each party's entitlement is settled, which prevents one side from disposing of it unilaterally before the outcome.

What actually determines the duration

Beyond the type of operation, several factors lengthen or shorten an escrow:

• The nature of the risk covered: a statutory period sets a predictable duration, whereas a tax or employment risk follows the limitation periods;
• The precision of the release conditions: the more clearly they are defined, the faster and less contestable the release;
• The diligence of the parties in gathering the expected supporting documents: releases of security, certificates, corporate or tax records;
• The occurrence of an incident — a creditor's opposition, a challenge, a warranty claim — which extends the holding of the funds until it is resolved;
• The existence of a long-stop date, which caps the maximum duration and provides for the fate of the funds should the event not occur.

The escrow agreement sets the term

Ultimately, it is the escrow agreement that determines the duration. It fixes either a precise term — a date, the expiry of a period — or a triggering event: the fulfilment of a condition, the production of a document, the joint agreement of the parties. It also organises the fate of the funds should the awaited event not occur within the allotted time. When entrusted to a lawyer, the escrow relies on the CARPA account, which holds the funds on a dedicated sub-account and releases them only on the agreed conditions and dates.

Are you preparing an operation and wondering how long the escrow will last? Fidens defines the release conditions with you, sets the term in the agreement and holds the funds on a CARPA account until they are handed to the beneficiary.