An escrow agreement is employed between two parties and is supervised by a third party. Basically, this agreement states that a property, business or any other asset is temporarily handed over to a third party until the two parties complete specific conditions. This condition could be anything like a payment or repaying a debt. The third party ensures the safety of the given property and hands it over safely to both parties after the condition is fulfilled. By employing this agreement, the owner of the agreement gets the assurance that the other party is fulfilling the said condition before continuing with their deal.
Example of Escrow Agreement
A common example of an escrow agreement can be taken from a house seller and buyer. The seller implements an escrow agreement for the down-payment of the house and the buyer does not get ownership of the house until he(/she) pays the down-payment. In another case, the condition of an escrow agreement could be the fulfillment of another agreement such as the purchase agreement of the deal. In short, this means that the escrow agreement will be completed when the purchase agreement is fulfilled.
Content of an Escrow Agreement
An escrow agreement is composed by the third party or the party that temporarily holds the consideration. However, it is created in the presence of the other two parties and after their consent. Once the agreement has been formed, both parties read it through and give their consent to it, usually by signing the agreement or even by putting their fingerprints at the end of the agreement. The agreement stays with the third party until its conditions are fulfilled. Some of the elements of an escrow agreement are as follows:
1- The agreement starts off with the date on which it will be initiated.
2- Followed by the introduction to all three parties. Including their names, address, contact information and which party they belong to.
3- The purpose of the agreement.
4- The condition on which the agreement is based on and the property or asset which the third party will temporarily hold until the condition is fulfilled.
5- The time period till which the third party will hold the said property or asset. This time period or date will be considered the last date for the completion of the condition. If the condition is not fulfilled till the said date, the agreement will not be processed further.
6- The confidentiality terms of the agreement must be clearly stated.
7- If the terms and conditions are not completed, then what will be the result of the agreement?
8- The signature bar for the signature or approval of all three parties.
In this agreement, the third party also acts as an eye witness of the agreement that took place. The third party will be held responsible in case of any damage done to the property. Similarly, if the other two parties do not fulfil the condition there will be certain consequences which will be mentioned in the agreement.
Templates for Escrow Agreement
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