An Escrow Agreement is an instrument that is inserted, with a guarantee function, in transactions involving the purchase and sale of shareholdings, businesses, and properties.
Very often these transactions are subject to conditions, the satisfaction of which causes the transaction to enter into effect or to be terminated.
Consider, for example, the case of a preliminary agreement for the sale of a property where the promissory buyer pays a confirmation deposit to be returned upon completion of the final deed or converted into an advance on the price. The final deed could be subject to conditions or the promissory buyer could prefer not to pay the deposit directly to the promissory seller.
Or consider the case of an agreement for the sale of shares, where the seller issues representations and warranties to the buyer on the state of the company that is the subject of the transaction, undertaking to indemnify the buyer if the representations and warranties should prove untrue. The indemnity undertaking could be ensured by lodging a portion of the price in an escrow account held by a third party to whom appropriate instructions have been given.
This is where it becomes essential to have a neutral third party, the “Escrow Agent”, who acts as guarantor in the management of the sums placed at its disposal by the main agreement, and carries out the parties’ instructions in an impartial manner.
Professional trust companies are the most recognized body for fulfilling the role of Escrow Agent in agreements of this type.
Unlike bank-owned trust companies, while still ensuring strict compliance with the law, they are more flexible and can adapt to different situations. Unlike operators who are natural persons, they are not affected by personal events.
