Definition
Escrow is the arrangement under which a buyer's deposit, and often the balance of the purchase price, is held by an independent third party (typically the buyer's broker, the seller's broker, or a maritime law firm) pending satisfaction of the conditions in the Memorandum of Agreement. Funds release only when the deal closes or, in failure cases, return to the buyer or pass to the seller per contract terms.
Background and use
The standard pattern in tender and yacht brokerage is a 10% deposit on signature of the MOA, held in escrow during the survey-and-acceptance period. If the buyer accepts the boat following sea trial and survey, the escrow funds form part of the closing payment. If the buyer rejects on contractual grounds, the deposit returns. If the buyer walks without grounds, the deposit typically passes to the seller as liquidated damages.
Choice of escrow agent matters. Brokers' client accounts are common and acceptable when the broker is a member of a recognised professional body (IYBA, MYBA) with regulated trust-account handling. Maritime law firms offer a higher level of independence and are usually preferred for transactions above EUR 1m, where the cost premium is negligible relative to the deal size. Banks and dedicated escrow services are alternatives but add friction.
The escrow agreement itself, often a side letter to the MOA, governs release conditions, currency handling, and dispute resolution. It should specify the bank holding the funds, the conditions for release to seller, the conditions for return to buyer, and the dispute mechanism if both parties claim the funds. Done properly, escrow is invisible; done badly it becomes the centrepiece of a slow and expensive dispute.
Related considerations
- Never wire deposit funds directly to a private seller; insist on independent escrow.
- Confirm the escrow account is a separate trust account, not commingled with the broker's operating funds.
- Currency-of-deposit matters; FX moves between deposit and closing can erode value materially.
- Interest accrual on escrow funds is usually a non-issue for short periods but should be addressed for deals on extended timelines.
- Escrow does not eliminate counterparty risk on the asset itself; due diligence on title, encumbrances, and VAT status sits separately.