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The importance of Escrow Agreements

Written by Rehana Ali on 22 November 2012

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With economists predicting we are heading towards a triple dip recession!!! It is crucial that all businesses remain on guard and protect themselves when transacting with parties. In particular for those companies commissioning others to develop software, websites, databases or similar an Escrow Agreement is a must, as many companies heavily rely on such commissioned work although they do not own it!

What is an Escrow Agreement?

It is an agreement entered into by three parties, i.e.

Party 1 - Supplier (i.e. Software or website developer)

Party 2 - Escrow agent

Party 3 - End user (i.e. Company commissioning work)

The purpose of an escrow agreement is to safeguard source code, bespoke software or other commissioned work in the hands of the escrow agent. The escrow agent may then release the work to the company commissioning it under certain pre-determined, agreed conditions. i.e. if the supplier becomes insolvent or goes into administration. It is a process whereby parties have a form of assurance and redress in the event of the above happening.

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