Reframing escrow agreements: the shift from corporate to private transactions

Perhaps logically, escrow agreements are often associated with complex transactions, multinational business deals or mergers and acquisitions, but increasingly they are used by other parties as a matter of course: by individuals or families for example. Today, escrow agreements can be used to cover a variety of transactions such as property and real estate, art and jewellery sale, investments, share certificates and even in cryptocurrency deals.

An Escrow agreement is used when two or more parties require an asset to be held by an independent and trusted third party. The asset is later released if the contractual conditions set out in an escrow agreement are met.

Escrow agreements for families and individuals

While there will undoubtedly always be a place for escrow agreements in the corporate world, we’re seeing that more private clients are aware of how an escrow transaction can benefit them in their personal transactions.

Escrow agreements can give enormous peace of mind for all parties entering into a transaction where they are selling or acquiring say, art or jewels where proof of providence, quality and authenticity are evidently a key requirement of the purchase, but are characteristics that may be undeterminable at first glance.

Escrow agreements are ideal for this kind of transaction because a buyer might be purchasing something they’ve not seen in person or had authenticated by a trusted party they’ve been able to appoint themselves. ‘Imagine, for example, buying a Picasso from a private vendor, which is wholly authentic but then finding out that it had been damaged a long time ago in a way that wasn’t disclosed before purchase,’ says John Hunter, Business Development Director ZEDRA Guernsey. ‘If the buyer has already wired the funds and then doesn’t think the price they paid was fair, the only way forward is likely to be unwelcome and potentially public litigation.’

As with all agreements, however, escrow agreements aren’t one-sided. Imagining the Picasso is uncontestably perfect, the escrow agreement also offers protection to the vendor from having to relinquish their ownership of the painting to the purchaser before they’ve been paid in full. To protect both parties in such transactions, the funds must be safely deposited with a neutral third party: that of the escrow agent, who in this case would be responsible for releasing the funds and the painting to the purchaser and vendor respectively, when all the conditions of the escrow agreement have been met.

‘Evidently, both scenarios we’ve outlined are unlikely to arise in such an important transaction,’ explains John. ‘That said, it’s rarely a bad idea to proceed with caution, and as such, in many significant transactions, both parties usually see that it is in their best interest to proceed with an escrow agreement because the stakes are so high if something goes wrong.’

In cases such as these, ZEDRA acts as an escrow agent and is the neutral party that controls the funds between the vendor and the seller, releasing these when the conditions of the escrow agreement have been met. ‘We don’t normally handle the luxury item itself, as this would generally be kept in appropriate storage facilities belonging neither to the vendor nor the seller for the period it takes to complete the transaction,’ says John.

ZEDRA as escrow agent

As escrow agent, ZEDRA drafts the contractual terms of the agreement together with the parties and, where relevant, their lawyers, and attends to all matters necessary to deliver the intended solution.  This will involve safeguarding the asset (whether cash, investments, artwork, intellectual property or otherwise) and ensuring that the asset is distributed in accordance with the precise terms that the parties have agreed.

‘Across the Group, we see many different types of request for our services as escrow agent in any given month, and no one case is the same as the other. We’re regularly being asked to be involved in scenarios we’d never have expected just a few years ago, like cryptocurrency deals or escrow transactions relating to unique luxury commodities in addition to traditional corporate circumstances,’ concludes John. ‘Today, the only common denominator between our escrow clients is that as an escrow agent, ZEDRA is required to bring everything together quickly and reliably.’