When your business needs an escrow deed

You are mid-way through selling your online business. The buyer's lawyer has just sent you a draft escrow deed, and you are being asked to agree that part of the purchase price will sit with a third party until "completion" is confirmed. Alternatively, you may be the buyer, and the seller is asking you to deposit the full price before they will hand over the domain, the customer list and the login details. Either way, you have just met the escrow deed.

This document appoints a neutral third party (the escrow agent) to hold something of value, usually money or signed documents, and to release it only when agreed conditions are met. It does not replace the sale or services contract. It sits alongside the main deal and governs the handover: who deposits what, who holds it, what unlocks release, and what happens if the parties stop agreeing. In Australia the document is often structured as a deed rather than an ordinary agreement, because a deed is enforceable without the parties having to prove that value (consideration) changed hands at the moment the escrow obligations were created. Whether a deed or an agreement fits your transaction depends on the deal structure and how the underlying documents are set up.

If you are reviewing or drafting one of these documents, the clauses below are where the real decisions are made. This guide works through each of them, what the drafting choice is, and the traps that cause problems later.

Parties and definitions

Escrow disputes are often won or lost on definitions, so this clause deserves more attention than it looks like it needs. The defined terms that matter most are:

Escrow Items: exactly what is being held. For documents, name them (for example, "the executed share transfer forms"). For money, state the amount and currency. For digital assets, list the specific accounts, domains and credentials.
Release Event: the precise happening that triggers release, expressed so an independent person can check it.
Business Day: whether weekends and public holidays count in any deadline. A release notice given at 4.55 pm on a Friday can become a four-day delay if the definition is wrong.
Dispute Notice: how a dispute is raised, who can raise it, and within what time after the Release Event was supposed to occur.

The trap is leaving these terms loose. If "Escrow Items" is defined as "the assets of the business", the escrow agent cannot know what they are holding, and neither party can prove what should be released.

What is being held and who is holding it

The deposit clause lists the escrow items and appoints the agent. The choice of agent is a commercial decision as much as a legal one. Options include:

A law firm: commonly used for higher-value deals. In New South Wales and Victoria, law practices must hold client money in a general trust account under the Legal Profession Uniform Law (NSW and Victoria), which gives the funds a regulated home.
An accountant or other independent professional: sometimes used for smaller transactions.
A dedicated escrow or online payment provider: increasingly common for digital-asset deals.

Whoever is appointed, the deed should confirm the agent acts as a neutral stakeholder and holds the items on the terms of the deed alone. The agent is not a party to the underlying sale, does not owe either side the duties of a lawyer or adviser, and should have liability limited to losses caused by its own negligence or wilful default.

How the deposit happens

The deed should spell out the mechanics of the deposit in the same way the main contract spells out payment terms. For each escrow item, cover:

What is deposited: referring back to the defined Escrow Items.
The form of the deposit: executed originals, certified copies, electronic PDFs, or funds by bank transfer to a nominated account.
The deadline: including any cut-off time on the final day.
What happens on late deposit: whether the long stop date (below) is extended, or the deal can be terminated.

A practical point: if signed documents are going into escrow, they are usually executed by the parties before deposit. If a party is a company, the execution must comply with s 127 of the Corporations Act 2001 (Cth), which lets a company execute a document (including a deed) signed by two directors, or a director and a company secretary, and requires the document to be expressed to be executed as a deed if that is what the parties intend.

Release conditions

This is the clause that decides whether an escrow deed works. The release condition should be an objective, checkable event, such as:

The escrow agent receives a joint written instruction signed by both parties.
The escrow agent receives a completion certificate in the agreed form.
The escrow agent receives evidence of a specified step, such as confirmation that the domain name has been transferred to the buyer's registrar account.

Conditions written as "when the buyer is satisfied" or "when both parties are happy" are a dispute waiting to happen, because they ask the escrow agent to judge something it cannot verify.

The consequences of getting this wrong are real. In Smith v Acquire Asia Pacific Philippines Inc [2016] NSWSC 1084, a share sale of US$22 million put 20% of the completion amount into escrow for 12 months, with release to the sellers on joint instruction. When the sellers asked the buyer to join in the release direction, the buyer refused, saying it had warranty claims that should be paid out of the escrow funds. The Supreme Court of New South Wales held, on the proper construction of the contract, that the buyer was obliged to direct release of the escrow amount. The dispute over whether the buyer could instead set off its warranty claims remained live. The lesson for drafters is that the release machinery determines who can be forced to do what, and when, and that the escrow deed should say what happens to warranty or set-off claims against the escrow funds, rather than leaving that to be fought over later.

What happens if the parties disagree

An escrow deed without a dispute process leaves the agent stuck holding the items, and both sides frustrated. A workable process covers:

How a dispute is raised: a written Dispute Notice given within a fixed period after the Release Event was due to occur.
What the agent does meanwhile: holds the items and takes no action until it receives a joint instruction, a court order, or the outcome of an agreed process.
How the dispute is resolved: negotiation for a set period, then mediation, then the parties' right to go to court.

A useful drafting choice is to make release on a disputed item conditional on a joint instruction or court order, so the agent is never required to choose between the parties. The agent's role is to follow the process, not to judge the merits.

When the escrow arrangement ends

Every escrow deed should have an end date, sometimes called a long stop date, so the arrangement cannot drift. The clause should cover:

What happens if the Release Event occurs: the agent releases to the nominated recipients.
What happens if it does not occur by the long stop date: whether items are returned, to whom, and within what time.
What happens if the underlying deal is terminated: whether deposits are returned automatically or only on instructions, and whether either party can force a return.

Keep these provisions consistent with the termination clause in the main contract. A common mismatch is a main contract that gives the buyer a termination right, while the escrow deed has no mechanism for the escrow agent to return the deposit on termination without a fresh instruction from both parties.

Fees, confidentiality and other operational clauses

The operational clauses are easy to skip because they do not feel like the heart of the deal, but they cause the day-to-day friction:

Fees: who pays the escrow agent, when, and whether the agent may deduct its fees from escrow funds. Fixed fees are common for smaller deals; hourly fees for complex ones. Deal with the cost split before the deal, not when the agent's invoice arrives.
Confidentiality and data handling: escrow items are often commercially sensitive, such as customer lists, source code, financial records and credentials. The deed should bind the agent to confidentiality, state how items are stored, who can access them, and what happens to copies after completion (return, deletion or a retention period).
Interest: if money is held for months, the deed should say who receives any interest earned. Some deeds direct it to the party that deposited the funds; others split it.
Replacement of the agent: what happens if the agent can no longer act, such as a law firm closing its trust account. A replacement mechanism avoids the arrangement stalling.

Optional clauses worth considering

Depending on the deal, the following are worth including:

Default provisions: if one party fails to deposit on time, the other can terminate the escrow and the underlying deal, or the escrow simply ends with the deposit returned.
Warranty and set-off mechanics: what happens if one party claims the other has breached the main contract, as in the Smith case. The deed can provide that release happens in full, with warranty claims pursued separately, or that an agreed amount is withheld pending resolution.
Survival of escrow terms: which clauses (confidentiality, dispute process, liability limits) continue after the escrow ends.
Governing law and jurisdiction: the state whose law governs the deed and whose courts hear disputes, which matters if the parties or the agent are in different states.

Reviewing an escrow deed with an Artificer Legal practitioner

Escrow deeds look simple, but the drafting choices above interact with the main contract, and a practitioner will usually be needed to check the whole package. When we review an escrow deed, we would:

Cross-check the release conditions against the completion steps in the main contract, and rewrite any condition that cannot be verified objectively.
Confirm the definitions of Escrow Items and Release Event are precise enough for an independent agent to administer.
Check the dispute process gives the agent clear instructions and both parties a realistic path to resolution.
Verify execution requirements, including s 127 of the Corporations Act 2001 for company parties, so the deed is validly executed as a deed.
Align the escrow deed with the sale agreement, IP assignment, confidentiality agreement and any share transfer documents, so one document does not contradict another.
Consider privacy obligations if escrow items include personal information. Under the Privacy Act 1988 (Cth), many small businesses with an annual turnover under $3 million are exempt from the Australian Privacy Principles, but the exemption does not apply to all businesses, and it is being reviewed, so it is worth checking rather than assuming.

The clause that makes or breaks the escrow deed

Of everything in an escrow deed, the release conditions are what decide whether the document works. Everything else is machinery around them. If the release conditions are objective, the escrow agent can administer them, both parties know what completion means, and a dispute is unlikely to arise. If they are vague, the escrow deed does not reduce risk, it relocates it to the moment of release, where it is most expensive to resolve.

In summary, an escrow deed is a practical tool for deals where payment and delivery do not happen at the same time. It holds money or documents with a neutral agent, releases them on defined conditions, and needs a workable dispute process, a long stop date, and clear rules on deposits and returns. It never replaces the main contract, which still carries the price, warranties, IP and completion obligations. If you are being asked to sign one, the clauses above are where to look first.