Escrow Accounts in Thailand

Escrow Accounts in Thailand. In Thailand, escrow accounts serve as an important financial mechanism to secure transactions, particularly in real estate, large commercial agreements, and cross-border arrangements. Despite international familiarity with escrow as a standard risk-mitigation tool, its implementation in Thailand is relatively new, formalized under specific legislation that defines its limits, use cases, and enforcement procedures.

This article examines the legal framework and operational structure of escrow accounts in Thailand, with emphasis on real estate transactions, the roles of licensed agents, and ongoing regulatory challenges.

I. Legal Foundation of Escrow Accounts

Thailand officially introduced escrow services into its legal landscape through the Escrow Act B.E. 2551 (2008), enforced by the Ministry of Finance and the Bank of Thailand (BOT). The Act was enacted to address increasing complexity in commercial transactions and to promote transparency and trust in high-value exchanges.

The law authorizes licensed financial institutions and specially approved escrow agents to hold and disburse funds or documents conditionally on behalf of contracting parties, based on pre-agreed terms in an escrow agreement.

II. Parties Involved in an Escrow Arrangement

1. Depositor (Buyer or Payer): The party placing funds or documents into escrow, typically the purchaser.

2. Recipient (Seller or Payee): The party entitled to receive the funds or documents upon satisfaction of certain conditions.

3. Escrow Agent: A neutral third party (usually a licensed commercial bank or financial service provider) responsible for:

   • Safekeeping escrowed assets

   • Ensuring compliance with escrow terms

   • Releasing the escrowed assets upon the occurrence of specific triggers

III. Licensing and Regulatory Oversight

Escrow agents must obtain a license from the Ministry of Finance, upon the recommendation of the Bank of Thailand. Only:

• Commercial banks

• Finance companies

• Asset management companies

• Certain qualified legal or accounting professionals (in limited cases)

are eligible to become licensed agents.

They are subject to:

• Financial and professional qualifications

• Capital adequacy requirements

• Internal control obligations

• Annual reporting and audit compliance

Unlicensed provision of escrow services is criminally punishable under Thai law.

IV. Primary Use Case: Real Estate Transactions

Escrow is most widely used in off-plan residential property purchases, where the buyer seeks assurance that payment is made only upon project milestones or completion, while the developer seeks binding financial commitment from the buyer.

A. Structure

1. Buyer and developer sign a sale and purchase agreement with escrow clause

2. Escrow agreement is executed among:

   • Buyer

   • Developer

   • Licensed escrow agent

3. Buyer deposits purchase funds (in whole or by installment) into escrow

4. Funds are disbursed in tranches based on:

   • Construction progress certified by engineer

   • Transfer of title at Land Office

   • Completion certificate or municipal permit

B. Benefits

• Protects buyers from fraudulent developers or abandoned projects

• Ensures developers have capital access only upon compliance

• Provides transparent audit trail and reduces litigation risk

V. Other Use Cases

Though primarily used in real estate, escrow can also support:

• M&A transactions (e.g., holdbacks for indemnity claims)

• Litigation settlements

• Cross-border deals (e.g., pending license or regulatory approval)

• Import-export agreements involving staged payments

• Loan disbursements contingent on collateral registration

Despite these options, market penetration outside real estate remains limited due to the unfamiliarity of businesses with escrow and the cost of third-party management.

VI. Key Terms in an Escrow Agreement

Escrow agreements in Thailand must be in writing and typically include:

1. Conditions Precedent: Milestones, inspections, or approvals that must occur before release of funds

2. Obligations of the Escrow Agent: Limited to safekeeping and conditional disbursement; not fiduciaries

3. Default Provisions: In the event of breach or failure to perform

4. Jurisdiction: Thai courts, unless arbitration is specified

5. Fees and Expenses: Agent’s fees are often shared between buyer and seller

Escrow agreements do not supersede the underlying commercial contract; they support it procedurally.

VII. Legal Protections and Dispute Resolution

Thailand’s escrow framework incorporates civil and criminal protections:

• Escrow agents are liable for negligence or misconduct

• Breach of duty (e.g., premature release of funds) may give rise to contractual damages

• Parties may file complaints with the Ombudsman or pursue civil litigation

• Disputes may also be resolved through arbitration, if agreed in advance

Escrow agents often carry professional indemnity insurance to cover operational risk.

VIII. Limitations and Market Challenges

Despite the benefits of escrow accounts, their adoption in Thailand remains relatively narrow due to the following factors:

A. Voluntary Nature

The Escrow Act does not mandate escrow in any transaction, even in high-risk developments. As a result:

• Most real estate developers do not offer escrow

• Developers often prefer staged direct payments

• Buyers must negotiate escrow terms, which increases transaction cost

B. Licensing Bottlenecks

The number of licensed escrow agents remains low, mostly concentrated in major banks. Smaller developers or provincial transactions lack access to escrow services.

C. Lack of Public Awareness

Many consumers and small businesses are unaware of escrow’s function and protections. This leads to:

• Underutilization

• Mistrust of third-party fund holders

• Reliance on informal arrangements

IX. Government Initiatives and Regulatory Reform

To expand the use of escrow, Thai authorities have:

• Promoted escrow accounts through BOI incentives and residential development approvals

• Encouraged standard form contracts for off-plan projects, requiring optional escrow clauses

• Begun evaluating mandatory escrow for certain property sectors (still under policy review)

Additionally, Thai courts have shown willingness to enforce escrow terms strictly, reinforcing their credibility.

X. International Considerations

In cross-border transactions, escrow accounts in Thailand may be used in:

• Foreign Direct Investment (FDI) structures

• Joint ventures

• Property acquisitions by foreign nationals (e.g., condos)

However, foreign currency transfers into escrow must comply with:

• Bank of Thailand foreign exchange regulations

• KYC/AML obligations under the Anti-Money Laundering Act

• Foreign Business Act restrictions (if escrow relates to share acquisition or nominee structures)

Parties should always clarify whether escrow funds may be repatriated or forfeited in case of dispute.

Conclusion

Escrow accounts in Thailand provide a secure, legally enforceable mechanism for managing transactional risk. While the legal framework is sound and aligned with international practices, practical uptake is hindered by limited availability, optional implementation, and uneven awareness among participants.

Stakeholders—especially in real estate and cross-border commerce—are encouraged to use escrow where financial risk is high, milestone-based delivery is involved, or trust between parties is limited. Future regulatory developments may further incentivize or even require escrow in selected high-risk industries, particularly in light of consumer protection and anti-fraud initiatives.