Escrow

Factual definition

Escrow is an arrangement in which funds or assets are held by a third party under agreed release conditions. In an acquisition, an escrow can secure purchase-price adjustments or indemnity claims, with amounts and release schedules set by the agreement.

Shayne Fitz-Coy’s definition of Escrow

Escrow is part of the price held back, and the seller finds out late that “the price” includes money not received at closing. The discovery usually arrives at the same moment as another one: the reps they signed.

The two are a system. Escrow is the pre-funded answer to the question the reps pose, if a statement of fact proves false, the claim is paid from money already on deposit rather than from a seller who has moved on.

The seller’s real negotiating task is not avoiding the holdback but sizing it against the realistic probability that any claim ever draws on it.

How Shayne Fitz-Coy uses Escrow

Size and duration against claim probability: general reps warranting ordinary business behavior justify a standard cap and standard term. Specific diligence risks justify specific (special) indemnities with their own terms, carved out of the general cap or added to it.

Interest, release mechanics, and the claims cut-off date are the working levers.

Hypothetical acquisition: US$1 million of the agreed price goes to an escrow agent at closing. The agreement permits payment of an agreed US$200,000 indemnity claim to the buyer, leaving US$800,000 in escrow.

Assume there are no other claims, fees or interest. The seller receives the remaining US$800,000 when the agreement’s release conditions are met.

A disputed claim is different from an agreed payment. The agreement must explain what remains reserved, what can be released and whose instructions or decision authorize payment.

In this filed escrow agreement, a disputed amount remains reserved until joint instructions or an arbitrator’s decision permit release. That is one contract’s mechanism, not a rule for every escrow.

A buyer-retained holdback leaves the money with the buyer; an escrow places it with the third-party agent. Read the custody and release provisions rather than assuming the labels describe the same arrangement.

Escrow is the buyer’s answer to a question the seller has not been asked yet.

Why Shayne Fitz-Coy’s perspective on Escrow matters

Escrow allocates the cost of unknown problems between people who are about to stop being counterparties. Priced consciously, it is insurance.

Discovered late, it is the part of the sale that continues after the sale.