An escrow
account in Sri Lanka is a systematic way for property buyers to manage payments
for a real estate transaction. Instead of being paid directly to a property
developer, the money is held by an independent institution and paid out
according to conditions in an escrow agreement. Real estate escrow can give
buyers purchasing an apartment under construction more visibility regarding the
payments held and released. This guide explains how escrow accounts work in
real estate, who holds the funds, the benefits and the questions apartment
buyers should ask before committing to a purchase.

What is an Escrow Account in Sri Lanka Real Estate?

An escrow
account is a setup in which an independent third party holds money until
contractual conditions agreed upon have been met.

In a real
estate transaction, the buyer puts cash into an escrow account rather than
wiring it directly to the developer or seller. The designated escrow
institution shall hold such funds in accordance with written instructions and
shall disburse such funds when the applicable conditions are met.

In simple
terms, a real estate escrow account is the separation of two parts of the
transaction, the buyer making a payment and the receiving party getting to use
it. An escrow account for apartment buyers is especially crucial in off-plan
property investment because payments may start before the construction is
finished. The escrow provides a paper trail for you to see how your money is
handled from purchase to handover.

The 4-Step Escrow Process for Property Buyers

The
precise property escrow process in Sri Lanka will differ from development to
development but generally consists of four main stages:

Step 1: The Escrow Agreement

The account rules are
established by the buyer, developer or seller, and the escrow institution.
The escrow agreement should set out the responsibilities of each party,
the conditions for release of funds and the documents or instructions
required. Buyers will need to read the escrow agreement in conjunction
with the Sales and Purchase Agreement, to understand how it fits into the
wider property transaction.

Step 2: Apartment Buyer Deposits Money

The buyer shall deposit the relevant payment to the designated escrow account. The appointed institution is to hold the money in accordance with the agreement and to make no immediate free direct payment.

Step 3: Conditions Agreed Upon Are Assessed

For an apartment under construction, fund releases can be tied to certain construction milestones or other contractual requirements. The agreement should describe how each condition is verified and what evidence of support is needed.

Step 4: Release of Escrow Funds

The escrow institution
releases the authorized amount after the stated conditions have been
satisfied. Any remaining funds are held until the requirements for the
next release are met. Buyers should look at the setup for their own
development, rather than assume that all escrow accounts are created
equal.

Advantages of Escrow Accounts in Real Estate

Escrow
accounts are beneficial in real estate because they restrict who can hold and
disburse the funds.

Key Benefits for Off-Plan Apartment Buyers

More Transparency on Property Payments: Buyers can know who is holding their payment, what is required and when the money may come out. This adds a lot of clarity to the financial process throughout the buying of the property.

Systematized Construction Milestone Payments: When releases are tied to
agreed project milestones, buyers can better see how their payment
schedule relates to construction progress.

Clear Responsibilities: The escrow agreement can specify who provides supporting documents, what conditions have to be satisfied and who can authorize release. This reduces the uncertainty of the parties.

Extra Confidence for Off-Plan Apartment Buyers: A well-designed escrow payment
process can increase confidence during the period between purchasing an
apartment and receiving the finished property.

Primarily,
escrow prevents the release of money outside of the conditions laid out in the
agreement. If applicable, the independent institution will hold the payment
until the requirements are met. This measure of property buyer protection can
help clear up where the payment is kept, who administers the funds, when the
developer might be paid, what conditions must be fulfilled, how payments tie to
agreed project requirements, and what documentation will be needed for the
release.

However,
escrow controls custody and release of funds. It does not of itself assure the
completion of a project or the recovery of an investment. Legal, financial and
property due diligence is still critical.

Why Property Developers Use Real Estate Escrow: Property
developers use real estate escrow to create a documented framework to manage
payments from buyers. Reputable property developers use escrow because buyers
can have more visibility into the payment process through independent custody
and agreed release conditions. Escrow also offers transparent payment
processes, defined responsibilities for each party, and stronger buyer
confidence.

Escrow
should not be your only consideration when choosing a development. Buyers
should also review the developer’s track record, title documentation,
approvals, contractual terms, construction capacity and proposed handover
arrangements.

Escrow vs. Regular Payment & Who Keeps Funds

In a
regular payment, money flows directly from the buyer to the recipient in
accordance with the sale agreement. In an escrow payment, the buyer first
deposits the money in an independent institution, which releases funds only
when the conditions in the escrow agreement have been satisfied.

Who
Keeps Escrow Funds for Property Transactions? The funds shall be held by the independent
institution designated in the escrow agreement, such as a bank, financial
institution or authorized escrow agent. Buyers should verify the institution
holding the funds, account and payment details, release terms, required
documentation, obligations of each party, and dispute resolution processes
before transferring funds.

Questions Apartment Buyers Should Ask Before Buying

Make sure
to ask before committing to a property purchase:

• Will the development be subject to any escrow arrangement?
• Who controls and owns the escrow funds?
• Can I see the escrow agreement before I sign it?
• What triggers each release, and how are construction milestones checked?
• What if a release condition is not fulfilled?
• What is the relation between the Sales and Purchase Agreement and the escrow agreement?
• Are there any escrow admin fees?

Buyers
shouldn’t assume every development automatically includes escrow. Check with
the developer, review contract documents, and seek independent legal advice
from a qualified Sri Lankan legal professional before signing agreements or
transferring funds.

John Keells Properties: Escrow for Buyer Confidence

In its
off-plan developments, John Keells Properties uses escrow arrangements to offer
an additional layer of structure around buyer payments. An independent
institution holds money and releases it according to the conditions for the
respective development. This ensures that apartment buyers enjoy better
visibility of how their payments are handled throughout the property investment
journey, demonstrating commitment to transparency, clean financials, and buyer
confidence.

When
considering a property, buyers should look beyond location, design, amenities
and price. Understanding how payments are held and released is an essential
part of an informed real estate investment decision. A well-documented
arrangement provides transparency over who controls the funds, what controls
their release, and how payments fit into the overall transaction.

Frequently
Asked Questions:

When do escrow funds get released? The funds are released once the escrow agreement conditions have been met and supporting documentation is provided.

Are Escrow Accounts Safe for Buyers? Escrow provides structure and transparency, but effectiveness depends on the agreement, institution appointed, and release conditions. Independent professional advice is recommended.

Does Escrow Mitigate Risk for Off-Plan Purchases? Escrow controls payment timing
and reduces payment-management risks, though buyers must still evaluate
the developer, title, approvals, and construction status.

For
further information and guidance on how escrow arrangements apply to a specific
development, contact the John Keells Properties team.