Escrow agreement: what are the essential clauses?

The escrow agreement is the document that governs the entire operation. It is what defines the escrow agent's remit and, above all, the conditions under which the funds will be released. Its precise drafting is the best safeguard against disputes.

The parties and the subject matter

The agreement identifies the depositing party, the beneficiary party and the escrow agent. It specifies the subject matter of the escrow (most often a sum of money), its amount, and the operation to which it relates.

The remit and the release conditions

This is the heart of the agreement. It describes the escrow agent's remit and, above all, defines with precision the release conditions: on a set date, on the occurrence of an event, on the fulfilment of conditions precedent, on presentation of documents, or on the joint agreement of the parties. The clearer these conditions, the less room the escrow leaves for interpretation.

• Term of the escrow and the fate of the funds on expiry;
• Remuneration of the escrow agent;
• Scope and limits of its liability;
• Handling of disagreements between the parties and a dispute-resolution clause;
• Confidentiality of the information in the file.

Anticipating disagreements between the parties

A well-drafted agreement provides for the scenario in which the parties dispute the release of the funds. It then specifies the escrow agent's conduct: maintaining the escrow until an agreement or a court decision, the option to deposit the funds with the court, or referral to a judge. Anticipating this deadlock prevents the escrow from itself becoming a source of dispute and protects the third party's liability.

Model escrow clause

Here is a clause outline to insert in a sale agreement or a memorandum of understanding. The bracketed items are to be completed, and the clause adapted to each transaction.

• Appointment. The parties jointly appoint [Maître X, member of the Paris Bar] as conventional escrow agent, within the meaning of articles 1956 et seq. of the French Civil Code, who accepts this mission.
• Deposit. [The buyer], as depositing party, shall pay the sum of [amount] euros into the escrow agent's CARPA account no later than [date], by transfer from an account in its own name.
• Release. The escrow agent shall release the funds to [the seller], as beneficiary, upon presentation of [evidence: signed completion deed, certificate of no opposition, etc.] or upon joint written instructions from the parties.
• Return. If the conditions precedent are not met by [date], the funds shall be returned to the depositing party, unless the parties agree otherwise.
• Dispute. In the event of a dispute, the escrow agent shall hold the funds until a written agreement of the parties or an enforceable court decision, and may deposit them with the Caisse des dépôts et consignations.
• Fees and liability. The escrow agent's fees, being [amount], shall be borne [equally by the parties]. The escrow agent is bound only to perform this mission and need not assess the merits of the parties' claims.

This clause sets out the principle; the escrow agreement completes the arrangement: identity and source-of-funds checks, timetable, confidentiality, governing law. For the overall mechanism, see our escrow account guide.

A tailor-made agreement

There is no standard escrow agreement: each operation calls for its own release conditions. This is why the agreement must be tailored to the nature of the operation and to the needs of the parties.

Do you need an escrow agreement? Fidens draws it up from the details of your file and secures the funds on a CARPA account.