Escrow Clause
Also called: Escrow Arrangement · Holdback Provision
An escrow clause holds back a portion of investment or acquisition funds with a neutral third party, to be released only when specified conditions are met or to cover potential future claims — such as warranty breaches discovered after closing. It gives the paying party recourse without needing to sue for money already fully paid out.
In more detail
Escrow solves a timing problem: some risks (a warranty turning out to be inaccurate, a regulatory condition not being met) can only be discovered after a deal closes, by which point money has typically already changed hands in full — escrow keeps a portion back specifically to cover that gap.
The escrow amount, release conditions, and release timeline are all heavily negotiated — sellers want a smaller holdback and faster release; buyers want enough held back, for long enough, to genuinely cover realistic post-closing risks.
A neutral, professional escrow agent administers the funds according to the agreed terms — neither party controls the money directly, which is what makes the arrangement credible to both sides.
In a ₹10 crore acquisition, 10% (₹1 crore) is held in escrow for 18 months to cover any warranty breaches discovered after closing. If no valid claims are made within that period, the full escrow amount is released to the seller.
What our lawyers check
- The escrow amount relative to the overall deal size and realistic risk
- Release conditions and timeline
- The process for making a claim against the escrow
- Identity and terms of the escrow agent
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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