Escrow Accounts in Thailand

Escrow Accounts in Thailand. In Thailand, the use of escrow accounts has gained growing legal and practical significance in real estate transactions, project financing, and contractual performance assurance. Although historically underutilized due to limited regulatory infrastructure and market familiarity, the introduction of the Escrow Act B.E. 2551 (2008) established a clear statutory framework, enabling third-party fund holding arrangements under supervised conditions.

Despite this legislative progress, the use of escrow remains voluntary and narrowly scoped, particularly outside the real estate context. This article outlines the legal architecture, licensing framework, transaction mechanics, permissible uses, and practical limitations of escrow arrangements in Thailand.

1. Legal Basis and Supervisory Bodies

1.1 Escrow Act B.E. 2551 (2008)

The Escrow Act came into force to formalize escrow services, providing legal certainty in transactions involving deferred obligations, performance milestones, and transfers of ownership. It defines:

Who may serve as an escrow agent
The types of transactions eligible for escrow services
The rights and obligations of parties and agents
Governmental oversight of the arrangement

The Act applies primarily to real estate transactions, though the Minister of Finance retains discretion to designate other types of commercial arrangements eligible for escrow treatment.

1.2 Oversight and Licensing

Licensing of escrow service providers is regulated by the Ministry of Finance, with delegated supervisory authority to:

The Bank of Thailand – for financial institutions offering escrow
The Department of Business Development (DBD) – for monitoring escrow in real estate and other commercial arrangements

Only entities licensed under the Act may act as escrow agents for transactions covered under its scope.

2. Definition and Function of Escrow

Under Thai law, an escrow agreement is a three-party arrangement whereby:

A buyer (obligor) and seller (obligee) agree that
A licensed escrow agent will hold funds, documents, or property
Release of such assets occurs only when predefined contractual conditions are satisfied

Escrow does not require the use of a bank account alone—it is a legal structure where control of property is vested in a neutral third party to enforce fairness, mitigate risk, and ensure performance.

3. Who Can Serve as Escrow Agents?

Under Section 7 of the Escrow Act, only the following entities may serve as escrow agents:

Commercial Banks licensed by the Bank of Thailand
Finance Companies
State Financial Institutions (e.g., Government Housing Bank)
Private companies that obtain specific licenses from the Ministry of Finance to operate as escrow service providers
Other entities prescribed by Ministerial Regulation

Law firms, developers, or brokers are not allowed to hold client funds or assets in escrow unless separately licensed under the Act.

4. Escrow in Real Estate Transactions

Escrow is most commonly used in off-plan condominium sales and large-scale land transfers, particularly where:

Payment is made before construction is complete
Title transfer is conditional on due diligence
A foreign buyer needs time to complete remittance and documentation

4.1 Typical Escrow Procedure

Tripartite Agreement signed among buyer, seller, and escrow agent
Buyer deposits funds into a designated escrow account
Escrow agent verifies satisfaction of conditions (e.g., permit issuance, land transfer)
Upon verification, agent releases funds to seller and delivers title documents to buyer

The agent has a fiduciary duty to both parties and must remain neutral, accountable for loss arising from negligence or misconduct.

5. Conditions for Fund Release

A key feature of Thai escrow practice is the conditionality of fund release, which must be precisely defined in the escrow agreement. Typical conditions include:

Transfer of ownership at the Land Department
Completion of physical inspection
Regulatory approval (e.g., construction permit)
Satisfaction of environmental clearance or zoning compliance
Delivery of warranties or third-party consents

Ambiguous conditions can delay or frustrate the escrow process. Courts will enforce escrow terms only to the extent they are clear, specific, and lawfully defined.

6. Documentation and Legal Requirements

Escrow agreements should include:

Clear identification of all parties
Scope and purpose of escrow
Rights, duties, and obligations of the agent
Conditions for fund or asset release
Dispute resolution procedure
Governing law and venue (typically Thai law and courts)
Fees and liability limitation clauses

For real estate, the agreement is usually accompanied by:

Land title deeds (Chanote)
Construction or environmental permits (if applicable)
Corporate documents (if seller is a company)
Bank certificates for foreign remittance

Escrow agreements are not required to be registered at the Land Office but should be signed in the presence of witnesses and notarized if to be used in court.

7. Use in Non-Real Estate Transactions

Though envisioned primarily for real estate, escrow can be adapted—subject to Ministerial approval—for:

Mergers and acquisitions
Cross-border share purchases
Project finance and milestone-based disbursements
Litigation settlement or dispute resolution funds

However, there is no blanket provision for applying escrow across all contracts. For non-real estate uses, a licensed agent must confirm that the transaction falls within permitted scope or seek ministerial clearance.

8. Limitations and Market Adoption

Despite its regulatory availability, escrow usage remains limited in Thailand due to several factors:

8.1 Cultural Resistance

Developers and sellers often resist delayed access to funds, preferring direct payments with minimal legal structure.

8.2 Lack of Awareness

Foreign buyers may be familiar with escrow but struggle to find licensed agents or navigate Thai regulatory procedures.

8.3 Narrow Legislative Scope

The Escrow Act does not automatically apply to all contract types. Expansion of permissible categories requires additional ministerial action.

8.4 Absence of Fiduciary Enforcement

Thai law lacks a deep tradition of fiduciary trust principles (e.g., constructive trusts), which weakens remedies for breach of escrow duties outside contractual claims.

9. Dispute Resolution and Enforcement

Disputes over escrow conditions, delay in release, or misappropriation fall under Thai contract and tort law.

Escrow agents are liable for breach of contract or negligence
Parties may seek injunctions or declaratory relief to prevent wrongful release
The Central Civil Court or the Provincial Civil Court has jurisdiction over disputes
Arbitration clauses are enforceable if inserted into the agreement

No special court procedures exist for escrow disputes, though evidentiary proof of compliance or breach is essential.

10. AML Compliance and KYC

Licensed escrow agents are considered reporting entities under Thailand’s Anti-Money Laundering Act B.E. 2542, and must:

Conduct Know Your Customer (KYC) and Customer Due Diligence (CDD)
File suspicious transaction reports (STRs)
Maintain transaction records for at least 5 years
Report cash transactions above prescribed thresholds

Failure to comply may result in suspension or revocation of escrow licenses.

Conclusion

Escrow accounts in Thailand offer a secure, legally structured mechanism for handling funds and sensitive transactions, particularly in the real estate sector. Although legislatively supported by the Escrow Act B.E. 2551, market adoption remains uneven due to narrow legal scope, cultural resistance, and procedural complexity.

For foreign investors, developers, and companies seeking risk mitigation in Thai transactions, escrow agreements—when properly drafted and managed—provide a robust tool to protect interests and enforce conditional performance. However, success depends on precise contractual terms, selection of a licensed escrow agent, and adherence to Thai regulatory protocols, including AML and corporate compliance.