Escrow Accounts in Thailand

Escrow Accounts in Thailand. In Thailand’s real estate and business landscape, escrow accounts offer an important layer of financial security and risk mitigation. An escrow arrangement involves a neutral third party—typically a licensed financial institution—holding funds or assets on behalf of two transacting parties, and releasing them only when predefined conditions are met. Escrow services are particularly relevant in property sales, joint ventures, cross-border transactions, and complex commercial agreements.

Although common in international business, escrow arrangements in Thailand are governed by a specific legal framework, and their use is subject to regulatory controls and market limitations.

Legal Framework for Escrow in Thailand

Escrow accounts are regulated under:

• Escrow Act B.E. 2551 (2008)

• Ministerial Regulations issued by the Ministry of Finance and Ministry of Justice

• Supervision by the Bank of Thailand and Department of Business Development (DBD)

• Licensing of escrow agents by the Ministry of Finance

The 2008 Escrow Act was enacted to bring legal certainty to escrow practices and to protect both parties in high-value or high-risk transactions.

Definition and Parties Involved

Escrow is defined as a legal arrangement where an escrow agent holds money, documents, or property in custody for two parties engaged in a transaction. Funds are disbursed or assets transferred only when the agreed contractual terms are fulfilled.

Key Parties:

• Buyer and Seller (or obligor and obligee)

• Escrow Agent (licensed financial institution or authorized escrow company)

The escrow agent acts as a neutral fiduciary and is bound by strict duties of care, confidentiality, and impartiality.

Use Cases for Escrow in Thailand

Escrow is primarily used in the following scenarios:

1. Real Estate Transactions

• Particularly common in off-plan condominium purchases

• Buyer’s funds are held in escrow and released to the developer only when construction milestones or title transfers occur

• Reduces buyer exposure to default or fraud

2. Cross-Border Transactions

• Foreign investors transferring funds to Thai entities for joint ventures, acquisitions, or capital increases

• Escrow mitigates transfer risk, especially where regulatory clearance or board approval is pending

3. Business Mergers and Acquisitions

• Escrow is used to hold earn-outs, performance-linked payments, or good faith deposits

• Protects buyer from post-closing liabilities or seller’s breach of representations

4. Litigation and Settlement Agreements

• Courts or arbitral tribunals may order funds to be held in escrow pending resolution

• Used in family law, inheritance disputes, or contract breaches

Requirements for Valid Escrow Arrangements

For an escrow arrangement to be enforceable in Thailand:

1. The escrow agent must be licensed by the Ministry of Finance.

2. The agreement must be in writing, clearly defining:

   • The purpose and scope of escrow

   • Conditions for release

   • Duties and fees of the agent

   • Dispute resolution mechanism

3. The agent must:

   • Keep segregated accounts for each transaction

   • Maintain confidentiality and neutrality

   • Follow applicable anti-money laundering (AML) protocols

Escrow agents must report suspicious transactions and comply with Know Your Customer (KYC) requirements under Thai law.

Licensed Escrow Agents in Thailand

Escrow agents may include:

• Commercial banks (e.g., Bangkok Bank, SCB, Krungthai Bank)

• Escrow service companies authorized by the Ministry of Finance

• Some law firms with licensed escrow capability

Not all law offices or developers can legally serve as escrow agents. Unlicensed providers may not have the legal standing to resolve disputes or enforce escrow terms.

Escrow Process Overview

Here’s how a typical escrow arrangement works in Thailand:

1. Agreement Signing

• Buyer and seller sign a purchase or transaction agreement.

• A separate escrow agreement is signed between both parties and the escrow agent.

2. Fund or Asset Deposit

• The buyer deposits funds or assets into a dedicated escrow account.

• The seller may provide title documents or other deliverables to the agent.

3. Condition Monitoring

• The escrow agent monitors contract milestones (e.g., completion certificate, board resolution).

• Agent may request documentation or verification from both parties.

4. Release of Escrow

• Upon fulfillment of conditions, funds are released to the seller (or vice versa).

• If conditions are not met, funds may be returned to the depositor or held pending dispute resolution.

Fees and Duration

• Escrow fees range from 0.1% to 1% of the transaction value, depending on complexity and size.

• Duration varies:

  • Real estate deals: 3–6 months

  • M&A or JV deals: May span years, especially for performance-based holdbacks

Fees are usually split equally between the parties, unless agreed otherwise.

Escrow in Real Estate Development

Under Section 10 of the Escrow Act, developers selling residential units off-plan may be required to use escrow accounts, particularly if they:

• Accept payment before construction is complete

• Are not fully licensed or registered with the DBD

In practice, however, mandatory escrow for residential units has not been widely enforced. Some developers voluntarily offer escrow as a marketing advantage.

Risks and Limitations

A. Unlicensed Escrow Agents

• Engaging with unlicensed providers (e.g., informal brokers or unregulated developers) puts funds at risk.

• In the event of fraud, there is no regulatory recourse under the Escrow Act.

B. Inadequate Documentation

• Poorly drafted escrow agreements may cause confusion or delay in fund release.

• Vague conditions can lead to disputes over interpretation.

C. Limited Mandate

• Escrow agents do not resolve disputes—their role is purely custodial.

• In case of conflict between the parties, the funds may be frozen until court or arbitration settlement.

D. Non-Enforceability of Side Agreements

• Private instructions that contradict the written escrow agreement are not enforceable.

Dispute Resolution

If a dispute arises regarding escrow:

• Parties may initiate civil litigation or arbitration, depending on the escrow agreement clause.

• During litigation, the escrow agent will typically retain the funds until ordered by a court.

• Escrow agents may interplead and request discharge from responsibility after deposit of funds to the court.

Regulatory Oversight

• Licensed agents are subject to financial audits, compliance checks, and AML reviews by regulators.

• Complaints may be filed with:

  • Ministry of Finance

  • Consumer Protection Board (if applicable)

  • Thai courts

Conclusion

Escrow accounts in Thailand offer a secure and legally recognized mechanism to manage financial risk in property, business, and cross-border transactions. While the Escrow Act of 2008 provides a clear regulatory structure, the system’s effectiveness depends heavily on licensed agents, precise documentation, and a strong contractual framework. Both Thai and foreign parties should conduct due diligence and seek professional legal advice when structuring escrow arrangements, especially for high-value or long-term deals.