Posts tagged: property

An escrow accounts in Thailand is a practical, contract-driven mechanism that holds money, documents or other assets with a neutral third party (the escrow agent) until agreed objective conditions are met. In Thai deals—property closings, M&A, construction, cross-border trade and indemnity holdbacks—escrow converts execution risk into a controlled, low-surprise closing. This guide covers who can act as escrow agent, the legal and regulatory realities, drafting essentials, operational steps for closings involving Thai land, AML/FET issues, typical fees/timelines, enforcement and dispute options, and a ready-to-use model instruction and checklist.

Practical meaning & when you need escrow

Escrow in Thailand is almost always contractual (part of the SPA, lease, or purchase paperwork). Typical uses:

• Property purchases: hold the purchase price pending Land Office registration and production of the updated chanote.

• M&A closings: purchase-price escrows, tax/indemnity holdbacks, and earn-out retainers.

• Construction contracts: retention monies released on certified completion or defect-free periods.

• Cross-border trade: payment conditional on receiving bill of lading, certificate of origin or test results.

• Share subscriptions / escrow of original documents: hold share certificates, powers of attorney or originals pending corporate registration.

Escrow reduces counterparty risk and gives the non-performing party a clear, enforceable path to recovery or dispute resolution.

Who can act as escrow agent — pros & cons

• Commercial banks / trust companies (preferred for high value). Pros: regulated, KYC/AML capability, ability to hold blocked accounts, strong operational controls and client proof of funds. Cons: less flexibility for bespoke instructions and higher fees.

• Law firms (client trust accounts). Pros: flexible bespoke instructions, integration with legal services, quick operational turnaround for small/medium deals. Cons: not a regulated bank; choose reputable firms and insert strong indemnities.

• Independent escrow service providers / corporate service firms. Pros: structured services for complex, multi-jurisdictional deals. Cons: must be carefully vetted for solvency and reputation.

• Notaries/public officers (limited use). Pros: low-cost and suitable for document custody; not suited for holding large funds.

Choice depends on size, regulatory exposure (land deals often need bank evidence), and whether the escrow must be Court-enforceable quickly.

Legal & regulatory realities in Thailand

• No single “escrow statute.” Escrows are contractual; their effect depends on the quality of the instruction and the agent’s willingness to follow it. Use written escrow instructions annexed to the SPA.

• Banking regulation & AML: banks are subject to strict KYC/AML rules. For foreign funds used to buy Thai land, banks and the Land Office typically demand FET/SWIFT evidence and source-of-fund documentation before accepting or releasing funds.

• Client trust accounts (law firms): operate under law-firm practice rules—reputation and separate accounting are essential; include auditing rights in the escrow agreement.

• Insolvency risk: if the agent becomes insolvent, funds may be caught in the agent’s estate unless the agent holds funds in separately-ringfenced client accounts. Prefer regulated banks or trust companies for large sums.

Always require the agent to acknowledge receipt, maintain separate accounting, and limit agent liability by contract while preserving remedies for gross negligence or fraud.

Drafting the escrow instruction — must-have elements

A robust escrow instruction (annexed to the SPA) should be concise and precise:

1. Agent identity & account details — named party, bank name, account number or law-firm trust account.

2. Escrow property defined — exact sum, currency, documents or instruments. If funds: specify SWIFT reference or deposit date; if documents: list originals.

3. Objective release triggers — documentary triggers only (e.g., “release upon presentation of Land Office Form 13 and new chanote issued in Buyer’s name” or “release on delivery of auditor certificate No. X”). Avoid subjective standards like “satisfactory to Buyer.”

4. Release mechanics — single-party release, joint-release, or agent to act on dual instruction; timeline for agent (e.g., 3 business days after receipt).

5. Dispute ladder — negotiation → independent expert → arbitration/court; agent to retain funds pending resolution.

6. Agent duties, fees & expenses — who pays, fee schedule, interest handling, tax gross-up.

7. KYC & AML obligations — required documents and who provides them.

8. Indemnity & liability cap — indemnity for agent costs and limitation for consequential losses (but not for fraud/gross negligence).

9. Termination & insolvency protocol — agent’s procedure if a party becomes insolvent, and requirement for court order to release funds if necessary.

10. Governing law & jurisdiction — usually Thai law and Bangkok courts/arbitration where Thai land or bank sits.

Attach specimen release forms and a detailed exhibit list of required supporting documents.

Operational steps for a property closing (practical flow)

1. LOI/SPA sets escrow requirement and triggers.

2. Select agent early and obtain agent’s “willingness to act” letter and fee quote.

3. KYC & FET prep: buyers supply bank/customer KYC, SWIFT/FET evidence, and (for foreigners) remittance chains early.

4. Deposit funds to escrow account and obtain agent receipt/reference. Banked foreign funds may require conversion or held in foreign currency account—confirm with bank.

5. Closing day: simultaneous presentation at Land Office of original title and escrow payment documents; agent releases funds upon certified registration evidence (updated chanote + tax receipt).

6. Post-closing: agent issues release confirmations and account statements; reconcile fees and interest.

Simultaneity is critical: plan Land Office slots and bank clearance windows to avoid mismatch.

FET, remittance & Land Office realities (foreign buyers)

• Land Office & banks routinely ask for FET evidence proving foreign currency was remitted into Thailand for the property purchase—produce original SWIFT, bank confirmation and serial numbers.

• Timing: ensure inward remittance completes before Land Office registration day to avoid forced payment structures or multiple trips.

• Escrow allocation: escrow instructions should oblige the agent to release only on production of original FET/SWIFT documents where the buyer pays by foreign funds.

Preparation of remittance proof saves last-minute adjournments at the Land Office.

Fees, timelines & typical costs

• Bank escrow fees: usually a fixed admin fee + a small percentage of the held sum for large transactions (negotiable; typical range 0.02%–0.2% depending on value and term).

• Law firm escrow: fixed fee or hourly for managing releases; cheaper for small/short escrows.

• Turnaround: domestic deposits and releases can be same-day; cross-border remittances, KYC and Land Office processing may add days. Build contingency into the closing timetable.

Negotiate agent fees early and include fee responsibility in the SPA.

Disputes, preservation & enforcement

• If a dispute arises, agent should retain funds pending a court order or arbitral award per the escrow instruction.

• Emergency relief: obtain a Thai court injunction or preservation order to prevent release or to compel agent to retain funds. Include an express power for parties to apply for such orders in the escrow agreement.

• Agent non-compliance: contractual indemnity and the right to immediate injunctive relief are the core remedies; criminal complaints are rare unless fraud is suspected.

Use an escrow instruction that gives the agent clear steps when disputes arise to avoid freeze or wrongful release.

Risks & mitigation

• Agent insolvency: use regulated banks/trusts or require ringfenced client accounts and audit rights.

• Ambiguous triggers: use documentary, objective triggers and independent experts for valuation disputes.

• AML rejections: run KYC/FET tests in advance.

• Operational timing mismatches: coordinate Land Office, bank and agent operational calendars and allow buffer days.

Model short escrow release clause (illustrative)

“Upon receipt by Escrow Agent of (i) an original certified Land Office transfer receipt showing Chanote No. X registered in Buyer’s name and (ii) original tax and transfer fee receipts, Escrow Agent shall release THB [amount] to Seller within three (3) business days. If Buyer and Seller each deliver written conflicting release instructions, Escrow Agent shall retain funds pending (a) joint written instruction of Buyer and Seller; (b) an independent expert determination under Clause 9; or (c) a final court or arbitral order. Escrow Agent’s fees shall be paid by Buyer on deposit and deducted from the escrow balance on release.”

Practical closing checklist (use on deal day)

1. Choose agent and sign escrow instruction early.

2. Complete KYC/AML and pre-test remittance.

3. Obtain bank deposit receipt / client trust account confirmation.

4. Book Land Office appointment and confirm registration timing.

5. Prepare original FET/SWIFT, chanote, SPA, tax receipts and specimen release forms.

6. Coordinate simultaneous Land Office registration + agent release; confirm communication lines.

7. Keep copies of all receipts and obtain final escrow statement.

Final practical note

Escrow is a powerful closing tool in Thailand — but its effectiveness depends on precise, objective drafting, the credibility of the chosen agent, early KYC/FET preparation and careful coordination with the Land Office or other registries. For high-value or multi-jurisdictional deals, use a regulated bank or trust company as agent and draft a clear dispute ladder with documentary triggers.