What is an Escrow Account and what are they for?

What is an Escrow Account and what are they for?

Buying a property off plans can be a risky endeavor. Buyers cannot see the unit they are purchasing nor can they visit the property. Escrow accounts provide a level of protection to buyers.

In Bahrain, the developer of an off-plan sales project is required by law to open a dedicated bank account to receive all buyer payments and development financing payments. The payments to contractors and other valid costs of the development will be paid out of this bank account. Payments to contractors from this account must be authorized by a qualified engineering professional. This account is referred to as an escrow account and is managed by an independent escrow account agent authorized by the Central Bank of Bahrain and approved b RERA. This escrow account is reserved exclusively for a specific development project. Money from this account can only be used for the assigned project.

By law, a financing bank or other creditor of the development cannot create an attachment or encumbrance over an escrow account.

Should the development project encounter problems or the developer discontinue, the remaining funds in the escrow account must be divided among the buyers of the development. Payments are made in direct proportion to the amount remaining in the escrow account.


What Brokers need to know?

Brokers are no longer permitted to accept buyer payments for off plan development sales. Buyer payments must be made directly to the developer’s escrow account.

In Bahrain, a developer of an off-plan sale development is required by law to open a dedicated account to receive all buyer payments, development financing payments. The payments to contractors and other valid costs of the development are paid from that bank account. This account is referred to as an escrow account and is managed by an independent escrow account agent that is authorized by the Central Bank of Bahrain and approved by RERA.


What Property Developers need to know?

  • Under Bahraini Law, a developer of an off-plan sales development is required to open a specific bank account that is reserved exclusively for all financial receipts and valid development cost payments.
  • This account is referred to as an escrow account and is managed by an independent escrow account agent or manager authorized by the Central Bank of Bahrain and approved by RERA.
  • Under law, all buyer deposits or contractual payments for off-plan sale contracts must be paid directly into the escrow account for that development only. This means that brokers cannot accept buyer payments for off-plan contracts.
  • All loan or mortgage financing for the development project must be paid directly into the escrow account.
  • Development payments, for example, contractor payments are paid from the escrow account and must be certified by a consulting engineer or other qualified professional registered with RERA.
  • An escrow account is required to maintain a minimum escrow value and the balance in the escrow account cannot fall below that balance.