If you are buying or selling property in Dubai or completing a major transaction in the UAE, a practical problem often arises:
How do you secure payment without the buyer running the risk of paying the full amount before the transaction is completed – and without the seller running the risk that the buyer cannot or will not pay?
In such situations, an escrow account – also called a deposit account – can be a relevant solution.
Especially when purchasing property on the secondary market in Dubai (resale market), clients experience a need for a more neutral and secure payment structure.
The buyer typically wants assurance that the money will only be released when the property transfer is actually completed. Conversely, the seller wants assurance that the buyer actually has the funds at their disposal and is able to pay.
Instead of the buyer transferring large amounts directly to the seller, in some cases the funds can be placed in a neutral escrow account, where the money is held securely until the agreed terms are met.
This can create greater security for both parties – especially in international transactions and large amounts of money are involved.
What is an escrow account?
An escrow account is in practice a neutral account where money is deposited with an independent third party until certain agreed conditions are met.
The basic principle is relatively simple:
- Buyer deposits the funds into a neutral account
- The money is held securely until the agreed terms are met.
- Once the conditions are met, the funds are released to the seller.
- If the conditions are not met, the money can be handled in accordance with the agreement made.
The purpose is fundamentally to reduce the risk for both parties in the transaction.
This is especially true when:
- large amounts of money are involved,
- the parties do not know each other,
- the transaction involves parties from different countries,
- or the transaction depends on certain legal or practical conditions.
When does escrow make sense in Dubai?
In Dubai and the UAE, escrow solutions are often used in connection with larger transactions where payment and delivery do not occur simultaneously.
For example, it may be relevant for:
Buying and selling property on the secondary market
This is typically the most relevant situation.
If a person buys an apartment or villa on the resale market in Dubai, the buyer often does not want to transfer the entire purchase price directly to the seller until the property is properly transferred and registered with the Dubai Land Department (DLD).
Conversely, the seller naturally wants assurance that the buyer actually has the necessary funds.
Here, an escrow account can in some cases serve as a more neutral solution.
Escrow arrangements for resale properties should not be confused with the regulated escrow accounts used for off-plan developments in Dubai. The availability and structure of an escrow arrangement for a resale transaction will depend on the circumstances and the financial institution or service provider involved.
When purchasing property on the secondary market in Dubai, it is often important to get both the legal process and the payment structure in place. You can read more about our advice at buying property in Dubai.
Major corporate transactions
When buying or selling businesses or ownership interests, the parties may also need secure holding of funds until documents are signed or certain conditions are met.
International transactions
If the buyer and seller are located in different countries, or if there is limited trust between the parties, an escrow solution can significantly reduce risk.
Typical example – buying property in Dubai
Imagine the following situation:
An international buyer wants to purchase an apartment in Dubai on the secondary market.
The purchase price amounts to several million dirhams.
The seller wants documentation that the buyer has the funds available.
At the same time, the buyer does not want to transfer the entire amount directly to the seller until the transaction has been correctly completed at the Dubai Land Department.
In practice, the situation can often be experienced as a trust problem:
Buyer thinks:
“How do I know the property will be transferred correctly if I send the money first?”
Seller thinks:
“How do I know that the buyer can actually pay?”
Here, an escrow account can in certain cases create a more balanced solution.
For example, a typical process might look like this:
- Buyer and seller enter into an agreement on the transaction
- Funds are placed in a neutral escrow account
- The property transfer is carried out by DLD.
- Once the agreed terms are met, the funds are released to the seller.
This can create greater security and more peace of mind in the process – especially for larger transactions.
Why not just use a regular bank transfer?
A question we often hear is:
Why not just transfer the money directly?
In some cases, of course, it works fine.
But for larger transactions – especially when the parties do not know each other or when significant amounts are involved – many may feel more comfortable with a more neutral payment structure.
This is especially true when purchasing property in Dubai.
For example, imagine the following situation:
A buyer wants to purchase a property for AED 5 million on the secondary market in Dubai.
The seller wants assurance that the buyer actually has the funds at their disposal.
At the same time, the buyer does not want to transfer the entire amount directly to the seller until:
- the property has been properly transferred,
- the documents are signed,
- and the registration with the Dubai Land Department (DLD) has been completed.
In such situations, an escrow account can in some cases help create a more balanced solution.
Instead of the money sitting with the buyer or seller, the funds can be held neutrally until the agreed conditions are met.
This can reduce the risk of misunderstandings and conflicts – especially when dealing with international parties or large amounts of money are involved.
Can you just get an escrow account in Dubai?
Many are surprised that in practice it is not always easy to access escrow solutions in the UAE.
The reason is, among other things, that there are extensive requirements for:
- identification of the parties (KYC – Know Your Customer),
- documentation of the transaction,
- compliance and anti-money laundering regulations,
- the origin of the funds (source of funds),
- and the specific transaction structure.
This is due, among other things, to the fact that escrow solutions involve the handling of client funds and are therefore often subject to significant regulation and control.
In practice, this means that clients may encounter the following challenges:
- the process takes longer than expected,
- the documentation requirements are more extensive,
- or that it may be unclear which solution is relevant in the specific situation.
This is also one of the reasons why many people only start investigating escrow solutions when the need has already arisen – for example, a few days before a real estate transaction is to be completed.
How can Friis Legal help?
At Friis Legal, we regularly experience clients who are in situations where there is a need for a more secure payment structure in connection with the purchase or sale of property in Dubai or other major transactions in the UAE.
This may be relevant, among other things, if:
- you are buying property in Dubai and want greater security regarding payment,
- you are selling property and want documentation that the buyer has the funds,
- it is a major corporate transaction,
- or if the parties want a more neutral payment structure.
Since escrow solutions often involve compliance and documentation, we generally recommend that you investigate the options well in advance rather than immediately before completing a transaction.
FAQ – Escrow account and escrow account in Dubai
What is the difference between an escrow account and a regular bank account?
An escrow account is used to hold funds under agreed conditions, typically with an independent third party controlling their release. A regular bank account, by contrast, is generally controlled by the account holder.
Escrow arrangements can therefore provide additional protection in transactions where payment should only be released once specific contractual conditions have been fulfilled.
Can you use escrow when buying a home in Dubai?
Yes – especially when purchasing on the secondary market (resale market), escrow may in some cases be relevant if the buyer and seller want greater security regarding payment.
Is escrow only relevant for property purchases?
No.
Although real estate transactions are often the most obvious example, escrow solutions can also be relevant for larger corporate transactions or other international deals.
Is it easy to get an escrow account in the UAE?
It depends on the situation.
As there are typically requirements for KYC, documentation and compliance, the process can be more extensive than many expect.
Does Friis Legal help with escrow accounts in Dubai?
Yes. Friis Legal can assist clients in assessing suitable escrow arrangements and coordinating with relevant service providers, depending on the nature of the transaction and the available solutions.
Do you need an escrow account in Dubai?
If you are considering buying or selling property in Dubai or are facing a larger transaction in the UAE and would like a more secure payment structure, please feel free to contact Friis Legal for an initial discussion of the options.
The goal is not necessarily that escrow is always the right solution – but that the right solution is chosen for the specific situation.