An escrow account is part of the purchase price both sides agree to place with a neutral third party after closing, released only on the terms the purchase agreement itself sets out — not a registered security interest.
Ontario practice runs on two structures, described by treadstonelaw's escrow guidance: "the cheapest arrangement is for one lawyer to hold the funds in trust," used where release is purely mechanical, versus a named third-party escrow agent under a separate escrow agreement for scenarios that will need a judgment call. "The fight is never about whether to hold money back — it is about how much, for how long, and who decides when it comes out." Release mechanics for the judgment-call structure typically require written notice of any claim, with particulars, before the release date, automatic release of anything not properly claimed, and a fast arbitration for what remains genuinely disputed.
An escrow account is not a registered security interest. Where a Canadian lender takes collateral over a company's assets it registers under provincial personal property security legislation — in British Columbia, the Personal Property Security Act, RSBC 1996, c. 359, which governs attachment, perfection and priority of security interests generally. An escrow account sits entirely outside that regime: it is simply funds a third party holds under a private contract, which is exactly why the release terms have to be spelled out in full rather than relying on any statutory default. One further wrinkle a fund closing on a non-resident seller needs to plan for: where the seller is not resident in Canada and is disposing of taxable Canadian property, the buyer is personally liable to remit 25 per cent of the cost of the property to the Receiver General unless the seller produces a clearance certificate — a separate withholding that an escrow structure can be built around but does not replace.
A fund buys a target's shares for $3M. $300,000 (10%) is placed with a trust company for 18 months to secure the seller's indemnity obligations, structured as a third-party holdback rather than a simple lawyer's trust account, because the fund expects some claims will need judgment calls rather than automatic release. Under the escrow agreement, the fund has 30 days after any claim is discovered to deliver written notice with particulars before the 18-month release date; anything not properly noticed releases to the seller automatically, and whatever remains genuinely disputed goes to a short, binding arbitration rather than litigation.
See also: Holdback · Purchase price true-up · Completion accounts.
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