In business-to-business transactions, it is common to encounter contracts that include deferred payment obligations, financial guarantees or payments subject to the fulfilment of future contractual conditions.
For further reassurance to the contracting parties, they often appoint an independent third party, the escrow agent, to hold such funds in deposit until specific agreed-upon dates, obligations, or guarantees are met.
The purpose of the escrow contract is to increase the security of business-to-business transactions. It enables an external agent, who serves as the custodian of the deposited funds, to make the necessary payments after the transaction’s completion.
Law firms as escrow agents
In Spain, the escrow contract was traditionally offered primarily through banks and, to a lesser extent, notaries’ offices. However, in recent years, both these entities have significantly reduced their provision of this service. The costs associated with escrow contracts offered by banks and notaries have risen considerably. Additionally, the increasing bureaucracy associated with these services has made it challenging and inefficient to appoint these entities as escrow agents.
In this context, law firms offer the same service with substantial advantages. Firstly, their costs are lower compared to those of banks and notaries. Secondly, accelerated deposit completion expedites legal transactions and bolsters the security of business-to-business dealings, adding flexibility to the transaction.
Operation of the escrow contract
The formalisation of an escrow contract is straightforward. It begins with a joint instruction from the contracting parties to the escrow agent, typically a law firm. Two documents are involved in this process:
- The original contract between the contracting parties, outlining the obligations and conditions for releasing the deposited funds.
- The escrow contract signed by both the contracting parties and the escrow agent. The escrow agent will securely hold the funds until completion of the transaction, in strict accordance with the terms specified in the contract between the contracting parties.
In the quest for transactional efficiency and a secure legal framework for businesses, law firms play a pivotal role as escrow agents for fund custody, offering significant advantages.
Managing an escrow contract through a law firm ensures transactional agility, payment security, and enhanced confidence among the parties involved. Additionally, it yields substantial cost savings compared to alternatives like banks or notaries.
Mariscal Abogados specializes in escrow contract services and facilitates secure and efficient business transactions.
If you need additional information regarding escrow agents in Spain,
This article is not considered legal advice