What is an escrow account?
Escrow accounts make business happen. They are an essential part of the financial system, which plugs the trust gap between buyer and seller.
The buyer deposits funds in escrow, which can only be released to the seller when certain conditions are met.
Since lawyers are an important part of most commercial transactions, an escrow facility is often needed.
Can’t we just use the client account as an escrow facility?
Well, yes and no.
A solicitor’s client account often acts like an escrow account. Property transactions rely on the seller’s solicitor receiving funds in advance of completion, only releasing them once the completion takes place.
But – and this is a huge but – solicitors cannot provide banking facilities through their client account. Which means a client account cannot be used purely as an escrow facility.
We wrote about this here.
The SRA takes this very seriously. Which means you should always use a third party escrow account if your firm is not acting on the legal transaction itself.
Isn’t it a hassle to set up an escrow account for individual transactions?
Not at all. Modern fintech platforms mean that an account can be opened painlessly.
How much does an escrow account cost?
It depends on the platform and the amount being deposited, but it is typically worked out as a percentage of the balance. This should be built into the transaction costs.