Escrow Agreement Review Checklist

Document type: Checklist Practice area: Corporate — Mergers and Acquisitions Jurisdiction: United States Last reviewed: 5 September 2026

Section 1 — Agent diligence

Agent identified and engaged at least three weeks before closing
Permitted investments specified; who bears investment loss stated
Liquidity confirmed — no lock-up preventing a same-day release
Fee schedule obtained: acceptance, annual, per-transaction; whether deducted from escrow
Named relationship manager and backup identified
Callback verification procedure for wires understood and timed
Agent's practice on conflicting instructions understood (how quickly it interpleads)
KYC onboarding started for buyer and Seller Representative
Seller Representative entity formed and EIN obtained, if applicable

Section 2 — Parties, deposit, and funding

Parties correctly identified; Seller Representative named (not individual sellers)
Representative's authority recited and cross-referenced to the purchase agreement
Deposit amount stated exactly; multiple escrows in separate accounts
Funding date and wire instructions specified
Wire details verified by callback to a known number, not by email reply
Agent's written acknowledgment of receipt obtained and circulated

Section 3 — Investment, income, and tax

Permitted investments listed
Authority to liquidate without penalty to fund a release
Tax owner of the escrow designated
Whether income is distributed currently, and how often
Tax identification numbers and forms collected for every recipient
Backup withholding authority addressed
Non-US recipients: treaty documentation and withholding addressed
Information reporting responsibility assigned

Section 4 — Claim mechanics

Claim Notice content requirements stated
Requirements are achievable at the time of notice — "in reasonable detail to the extent then known"
No-prejudice clause: failure to include particular detail does not invalidate absent actual material prejudice
Objection period length stated and realistic (30 days preferred over 20)
Objection period runs from actual receipt
Consequence of no timely objection stated (deemed acceptance)
Notice must go to the Representative and its counsel and the agent
Email permitted with deemed receipt
Retained amount for an unliquidated claim specified — buyer's good faith estimate, with a challenge mechanism
Reservation of right to supplement a claim notice

Section 5 — Release mechanics

Every release event enumerated: scheduled dates, joint instructions, final order
"Final non-appealable order" defined; agent will not act on interim orders
Scheduled release dates and amounts stated precisely, including tranches
Whether retained amounts draw from the current tranche or across tranches
Covenant requiring both parties to execute joint instructions consistent with any determination
Form of joint written instruction attached as an exhibit
Authorized signatories listed; procedure for updating them
Release timetable allows for callback verification

Section 6 — Agent protections and administration

Agent's duties limited to ministerial acts (expected; confirm nothing more is assumed)
Reliance on documents appearing genuine
Indemnification allocated between buyer and sellers; carve-out for the agent's gross negligence and willful misconduct
Resignation right and notice period
Successor agent mechanism that does not require the parties to agree — e.g., appointment from a qualified list if no agreement in 30 days
Interpleader right acknowledged; costs allocation understood
Governing law and venue

Section 7 — The consistency review

Run with the purchase agreement open. Confirm each item matches exactly:

Defined terms: Losses, Claim Notice, Final Determination, Survival Date, Seller Representative
Survival dates by representation category, to the day
Notice addresses and permitted methods
Claim notice content requirements
Objection period length and start
Release dates and amounts
Definition of final determination
Treatment of the adjustment escrow
Exclusive-remedy language
Anti-duplication between adjustment and indemnity recovery
Order of recourse if setoff against an earnout or note is also available

Section 8 — Closing deliverables

Executed escrow agreement, all counterparts
Agent's acknowledgment of funding
Authorized signer certificates
Distribution schedule approved by both sides
Letters of transmittal collected from every seller
Tax forms collected from every recipient
Escrow facts memo circulated to finance, integration, and counsel

Section 9 — The administration calendar

Build at closing, with a named owner and reminders at 60 and 30 days:

Survival expiration for each representation category
Each scheduled release date
Adjustment escrow: closing statement delivery deadline, review period end, expert submission
Special-issue escrow triggers and outside dates
Annual income distribution and tax reporting dates
Objection deadline for each claim notice, calendared on service

Section 10 — Before any release

Compute release amount, retained amounts, and fees; circulate ten business days early
Confirm Seller Representative entity still exists
Confirm authorized signers are current
Confirm distribution schedule reconciles to the penny
Confirm addresses and bank details for all recipients
Resolve any disagreement about retained amounts before instructing
Allow two extra business days for callback verification

Section 11 — Red flags in an escrow agreement

Each of the following should stop the review and prompt a negotiation.

"Buyer may deliver a notice specifying the amount of the Loss and attaching documentation evidencing the same." A strict content requirement with no "to the extent then known" qualifier and no no-prejudice clause. A buyer who discovers a problem three weeks before survival expires cannot satisfy it, and a good claim dies on a technicality.

An objection period of fifteen days or fewer. No representative acting for dozens of sellers can evaluate a complex accounting or IP claim in fifteen days. The result is a reflexive objection to every claim, which defeats the purpose of the deemed-acceptance mechanism.

Silence on the retained amount. If the agreement does not say how much the agent holds back for a pending unliquidated claim, the buyer will demand everything and the sellers will demand nothing, and the agent will interplead.

Release "upon the joint written instructions of the parties" as the only mechanism. With no deemed-acceptance path and no court-order path, a representative who stops responding freezes the fund permanently.

A successor agent provision requiring agreement of buyer and sellers. By the time an agent resigns, the parties are usually in dispute and will not agree on anything.

Fees payable from the escrow without a stated cap. Sellers are paying, and an uncapped fee on a long escrow is a real deduction from proceeds.

No provision for income distribution where the sellers are the tax owners. The sellers owe tax on money they cannot access.

Survival dates that differ from the purchase agreement. Even by a day. This is the single most common inconsistency and it is dispositive.

"The Escrow Agent shall determine whether a claim is valid." No agent will accept this, and if one did, its determination would be unreviewable and uninsured. Escrow agents hold money; they do not adjudicate.

No successor mechanism for the Seller Representative. A representative entity that dissolves in year two leaves nobody able to sign a joint instruction.

Section 12 — Sizing worksheet

Complete this before negotiating the amount. The output is a reasoned number rather than a percentage borrowed from the last deal.

Question	Answer	Effect on size
How many sellers, and are they individuals, entities, or funds?		Many dispersed sellers → larger
Will any seller cease to exist within the survival period?		Dissolving funds → larger
Is there representation and warranty insurance?		Yes → much smaller; escrow funds retention only
What does the policy exclude?		Broad exclusions → escrow those risks separately
What is the survival period for general representations?		Shorter → larger, because less time to find problems
What is the survival period for fundamentals, and is it covered?		Usually a gap; consider a separate tranche
Are there deferred payments to set off against — earnout, note, rollover?		Yes → smaller escrow acceptable
Are there identified risks warranting a special escrow?		Yes → separate account, separate trigger
Is there a creditworthy guarantor?		Yes → smaller
What is the buyer's realistic worst case on the diligence findings?		The escrow should cover a plausible bad outcome, not a catastrophic one

Then ask the only question that matters: if a $10 million breach surfaces in month fourteen, what can the buyer actually reach? If the answer is "the escrow and nothing else," the escrow is the whole indemnity and should be sized as such. If the answer includes a solvent guarantor, insurance, and an unpaid earnout, the escrow can be modest.

Section 13 — Post-signing, pre-closing tasks

Confirm agent onboarding complete for both parties
Confirm Seller Representative entity formed and funded
Confirm expense fund amount and holder
Circulate near-final escrow agreement with the consistency review completed and signed off
Confirm distribution schedule and letters of transmittal are on track
Confirm wire instruction verification procedure and schedule the callback
Identify who will own the administration calendar after closing, by name
Draft the escrow facts memo now, to be circulated on day one