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    Use of Escrow Accounts in Thailand

    An escrow account in Thailand is one established by a broker for the purpose of holding funds on behalf of a third party subject to the consummation or termination of a particular transaction. This account is commonly used in real estate transactions principally when dealing with real property developers. As used in the United States especially in the state of California, escrow accounts are a standard mode of payment in property dealings and ownership transfers because of the fairness and equity it provides to all of the parties concerned. In operation, an escrow reconciles the interests of both the developer and the buyer by providing the former the prospect of a prompt payment upon the completion of the real estate project while reserving the release and transfer of the funds for the security of the latter. Although it was originally conceived of as a means of protecting the interest of the consumer, escrow accounts have now become a favored choice by both developers and buyers alike.

    The Thailand Real Estate industry has experienced a stable yet strong growth in recent years. As a result, property values have gone up and interest in Thai real estate has caught international attention. Unfortunately, this trend has brought about an increase in the number of unscrupulous real estate developers who have failed to comply with their obligations thereby resulting in a deluge of civil litigation.

    As it once stood, Thai civil and commercial law permitted the use of an escrow-like account. This account outlined the terms and conditions of payment between the purchaser and the seller particularly the mode and manner of payment. However, this has proven inadequate in protecting the interest of the buyer by allowing unfettered discretion on the part of the account agent and the lack of any legal means in guaranteeing the agent’s impartiality. Also, regulation back then was lenient as banks themselves rarely, if at all, complied.

    In order to address these concerns, the Thai Parliament has recently passed a law in December 2007 which eventually took effect on May 2008 recognizing and regulating the use of escrow accounts through a neutral third party provider. It provides additional security requirements such as limiting the entities who may engage in escrow service to recognized financial institutions. In addition, any escrow provider must secure previous authorization from the Ministry of Finance before opening an escrow account. Moreover, it is now obligatory for any escrow provider to keep a separate account for the escrow funds in order to prevent its commingling with his or her personal funds. All of these features have been put into place in order to avoid the previous excesses encountered.

    Although the law was welcomed for its attempt to regulate the use of escrow accounts, some dealers and developers have raised their concern about the added pressure it has placed on their financial and operational management considering their restricted access to funds so heavily rely upon. Irrespective of such apprehension, the utilization of escrow accounts has now become a recognized and widespread practice in the country. It is therefore only a matter of time before the use of escrow accounts become the standard mode of payment.

    At present, the use of escrow accounts has expanded to other industries including law and sales. An increasing number of established firms have take notice of its advantages and have begun to use it for their daily transactions. A favoured approach is the creation of offshore escrow accounts in jurisdictions that have developed Escrow regulation laws. All of these, however, have led to the increased operational complexity of escrow account agreements as they are now embedded in the stipulations of most purchase and sales contracts.

    Precautions abound, the utilization of an escrow account in one’s commercial dealings still requires the expertise of a trained legal professional. The guidance of a dedicated legal analyst in unravelling the intricacies involved in this prevalent commercial practice may prove to be an invaluable tool for those who would want to avail of its benefits.

    In conclusion, the Thai legal system has embraced the use of escrow accounts in order to facilitate secure commercial trade and activity. As more regulatory measures are expected to be passed, the use of Escrow accounts become all the more enticing. It may therefore be the standard mode of payment in the real estate sector and the key to its continued success in the future.