Escrow Accounts in Thailand

Escrow Accounts in Thailand. The concept of escrow accounts is rooted in the legal tradition of risk mitigation through third-party custodianship. In Thailand, escrow is formalized and governed by the Escrow Act B.E. 2551 (2008), which introduced a statutory framework for licensed escrow services. This development was in response to longstanding deficiencies in transactional security—especially in the real estate sector—where off-plan buyers were exposed to construction delays, misappropriation of funds, or incomplete title transfers.

However, the actual implementation of escrow arrangements in Thailand remains narrowly applied, procedurally rigid, and often misunderstood by private actors. This article explores the legal foundation, scope of authorized use, licensing framework, rights and obligations of the parties, and enforcement limitations associated with escrow in Thailand.

II. Legal Framework and Key Definitions

The Escrow Act B.E. 2551 (2008) serves as the governing statute and applies only to transactions in which the parties agree to deposit property, money, or documents with a licensed third party (the escrow agent) pending the fulfillment of contractually agreed conditions.

Key Definitions:

• Escrow Contract: A tripartite agreement among the buyer, seller, and escrow agent.

• Escrow Agent: A licensed neutral party, authorized to hold and release funds or property under defined contractual conditions.

• Escrow Property: Any money, document, or other asset deposited into the escrow arrangement.

Notably, the law does not impose mandatory escrow usage in any sector—it simply creates a regulated structure for parties that voluntarily opt for escrow-based transactions.

III. Licensing and Regulatory Supervision

The Act establishes that only licensed entities may operate as escrow service providers. Licensing is granted by the Ministry of Finance, and the ongoing regulation is handled by the Department of Business Development (DBD) under the Ministry of Commerce.

Eligible Escrow Agents:

• Commercial banks with special escrow units

• Finance companies approved by the Ministry of Finance

• Juristic persons (e.g., private companies) who have obtained an escrow license

To obtain a license, applicants must demonstrate:

• Sufficient paid-up capital (typically THB 5 million or more)

• Proven internal control systems

• Adequate staffing, including responsible officers with legal/financial credentials

• Capability to ensure segregation of client assets from the company’s own assets

Lawyers, developers, or brokers without a license are prohibited from holding client funds in escrow-like arrangements, even if they act in good faith.

IV. Structure of an Escrow Arrangement

An escrow agreement must clearly define the following components:

1. Identities and obligations of each party

2. Description of the escrowed property

3. Conditions precedent to the release of funds or documents

4. Timeframe for satisfaction of such conditions

5. Remedies for breach

6. Fee arrangements for the escrow service

7. Dispute resolution forum and governing law

The escrow agent is bound by fiduciary duties to both parties, and may not unilaterally amend conditions or act on informal instructions unless both parties explicitly agree.

V. Sectoral Application

A. Real Estate Transactions

Escrow is most commonly used in property sales, especially:

• Off-plan condominium units

• Land sales subject to due diligence

• Transactions involving foreign buyers

Escrow accounts can be used to hold:

• Reservation fees

• Installment payments

• Final transfer amounts, pending registration of title or delivery of possession

However, the use of escrow is not mandatory in Thai real estate law. Most developers still require direct payments, citing administrative inconvenience and consumer reluctance to bear escrow fees.

B. Mergers and Acquisitions

In M&A transactions, escrow is often used to:

• Hold a portion of the purchase price pending performance milestones

• Serve as a contingency reserve against warranties or indemnities

• Secure regulatory approval compliance

M&A escrow terms may include multi-stage releases, claims windows, and tax clearance conditions. Escrow is especially common in cross-border deals, where trust and timing are more sensitive.

C. Litigation and Settlements

Escrow is occasionally used in civil settlements, especially where:

• One party must make payment contingent on procedural completion (e.g., withdrawal of a complaint)

• Court approval is pending

• There is concern over payment reliability or timing

VI. Authority and Limitations of Escrow Agents

A. Escrow Agent Powers

Under Section 9 of the Escrow Act, agents are permitted to:

• Hold funds and property as custodian

• Release escrow property only upon:

  • Mutual written instruction from both parties, or

  • Automatic fulfillment of the conditions clearly outlined in the escrow agreement

Agents are also obligated to:

• Keep detailed records of each transaction

• Ensure asset segregation

• Report suspicious activity under anti-money laundering laws

B. Liability and Protection

If an escrow agent releases the asset prematurely or in breach of contractual conditions, the agent may face:

• Civil liability for damages

• Administrative fines

• Revocation of license

However, agents acting in accordance with the agreed terms are protected from liability, even if one party subsequently contests the transaction.

VII. Dispute Resolution

In case of disagreement over the release of escrowed property, the agent must retain custody until:

• A court judgment is issued

• The parties reach a settlement agreement

• A statutory authority provides a binding ruling

Most well-drafted escrow agreements include arbitration clauses or designate the Civil Court as the competent forum.

Thai law prohibits agents from acting as arbitrators in disputes they administer, to maintain neutrality.

VIII. Limitations and Structural Challenges

Despite the legal framework, escrow in Thailand faces the following constraints:

A. Limited Adoption

• Use of escrow is not widespread outside high-value transactions.

• Developers often avoid escrow because it delays cashflow and introduces oversight.

• Consumers are often unfamiliar with escrow structures or distrustful of institutional mechanisms.

B. Non-Mandatory Regime

Thailand’s laws do not mandate escrow use, even in sectors like off-plan real estate, where escrow could protect buyers from significant losses. This contrasts with jurisdictions like Singapore or certain U.S. states where statutory escrow is compulsory.

C. Unlicensed Escrow

Many small firms and individuals continue to use informal arrangements—such as lawyers or brokers “holding” money pending sale—which are not legally protected under the Act. In case of fraud or embezzlement, such arrangements may be unenforceable, and the holder could face criminal charges under misappropriation statutes.

D. Enforcement Delays

If a dispute arises and the escrow agent freezes the account, obtaining court relief can take months, especially in jurisdictions outside Bangkok. This undermines the perception of escrow as an efficient solution.

IX. Comparative Framework

Thailand’s approach remains market-driven, in contrast to regulatory-driven escrow mandates in more protective jurisdictions.

X. Conclusion

Escrow accounts in Thailand are supported by a comprehensive legal framework, administered under the Escrow Act and regulated through formal licensing and fiduciary obligations. While the law provides a secure environment for conditional transfers, its practical application is constrained by voluntary use, limited institutional adoption, and low public awareness.

In high-value or cross-border transactions—particularly in real estate, M&A, and settlements—escrow remains a valuable risk management tool, offering protection against fraud, non-performance, and asset misuse. However, its effectiveness depends on careful drafting, the credibility of the licensed agent, and the legal enforceability of the underlying conditions.