What Does “Escrow” Mean in a Contract?
An arrangement where money or assets are held by a neutral third party until specified conditions are met.
Detailed Explanation
Escrow protects both parties by ensuring funds are available and conditions are verified before release. Common in real estate (holding deposits until closing), M&A (holding purchase price during transition), and software (source code escrow).
The escrow agent follows specific release conditions in the escrow agreement. They don't make judgment calls—they verify whether documented conditions are met.
Example in a Contract
“Ten percent (10%) of the Purchase Price shall be deposited in escrow with [Agent] and released to Seller upon satisfaction of the conditions set forth in Section 7.2, or returned to Buyer if such conditions are not met within 90 days.”
Why It Matters
Escrow adds security but also cost and complexity. Review escrow conditions carefully—vague conditions can lead to disputes about release. Understand who pays escrow fees and what happens if conditions aren't met.
Related Terms
Have a Clause with “Escrow”?
Paste your contract clause below for instant AI analysis. Get risk assessment, plain English explanation, and suggested improvements.