What the escrow is there to do
In mergers and acquisitions, an escrow holds back part of the purchase price after closing to secure the seller's obligations. Many deals use one escrow for indemnity claims tied to breaches of representations, and sometimes a separate, smaller one for post-closing price adjustments based on working capital or debt. The size and length of the escrow are negotiated alongside the indemnity terms, including caps, deductibles, and survival periods. Representation and warranty insurance has changed this negotiation in many deals, often shrinking the escrow, but it rarely eliminates the need to decide how known issues and excluded risks will be handled.
How release and claims usually work
Escrow agents usually release funds only on joint written instructions from buyer and seller or on a final court or arbitration decision. That means a buyer's claim notice can freeze part of the escrow at the scheduled release date until the dispute is resolved. The purchase agreement and the escrow agreement should be read together, since they need to agree on claim procedures, deadlines for notice, and what level of detail a claim must include. When the seller side includes many shareholders, a seller representative usually acts for all of them, and its authority and expense fund are part of the structure. Interest and tax reporting on escrowed funds also need to be assigned.
Negotiating or disputing an escrow
At the drafting stage, we look at how the escrow fits the overall risk allocation and whether the release mechanics are clear enough to avoid deadlock. If a claim has already been made, bring the purchase agreement, the escrow agreement, the claim notice, and the closing statement. We check whether the notice was timely and specific enough, whether the claimed loss falls within the indemnity, and whether a deductible or cap applies. Many escrow disputes settle once both sides look closely at the agreement's language, but some go to arbitration or court, and a clear record helps either way.
