The Building Safety Act 2022 (BSA) introduced reforms to improve the safety of higher-risk residential buildings in England. Amongst its provisions are mechanisms for remediation of life-critical defects, such as unsafe cladding, and legal tools like Remediation Orders (ROs) and Remediation Contribution Orders (RCOs), designed to compel responsible parties to fund or carry out remediation works. However, one persistent challenge remains: ensuring that funds for remediation are available and protected throughout the process. This is where escrow services can play a vital role.

Why Escrow?

Escrow is a legal arrangement where funds are held by a neutral third party (often an FCA regulated escrow agent) and released only when pre-agreed conditions are met. In construction remediation, escrow offers:

• Financial Security: Funds are ring-fenced, reducing the risk of insolvency or non-payment by developers, landlords, or other stakeholders.
• Trust Between Parties: Contractors and building owners gain confidence and security that payment will be made upon completion of agreed milestones.
• Compliance with Regulatory Obligations: Escrow supports obligations under the BSA by ensuring remediation works are funded and not delayed due to financial disputes.

Application in Remediation Agreements

Under the BSA, remediation agreements often involve developers, freeholders, and leaseholders. These agreements can be complex, especially when disputes arise over responsibility or cost allocation. Escrow can be integrated into these agreements to:

1. Hold Lump Sum Payments: Where a developer agrees to fund remediation, the sum can be deposited into escrow before works commence.

2. Stage Payments: Funds can be released in tranches aligned with project milestones, verified by an independent surveyor.

3. Cover Interim Measures: Recent amendments to the BSA confirm that temporary safety measures (e.g., waking watch, alarms) are recoverable costs. Escrow can ensure these are funded promptly.

Benefits Over Alternatives

Traditional security mechanisms, such as performance bonds or guarantees, often fall short in remediation contexts. In our experience, bonds typically cover only 10% of build costs and may not address insolvency risks. Escrow, by contrast:

• Provides full or partial upfront funding, by requiring funds to be deposited up front.
• Avoids complex enforcement procedures.
• Offers transparency and contractual certainty.

Legal and Practical Considerations

• Escrow Agreement Terms: Must clearly define the release conditions, dispute resolution processes, and compliance with the BSA.
• Regulatory Oversight: Funds should be held by FCA regulated entities, as it offers clients a higher level of protection, compliance assurance, and transactional integrity.
• Integration with ROs and RCOs: Escrow can complement tribunal orders by ensuring funds are available once a particular liability is determined.

Escrow arrangements are emerging as a practical solution to one of the biggest challenges in building safety remediation: securing and safeguarding funds. By embedding escrow into remediation agreements, stakeholders can reduce risk, accelerate compliance with the Building Safety Act, and ultimately protect residents in higher-risk buildings.

If you’d like to find out more about how escrow services could help you mitigate the risks of your construction projects you reach out to a member of our team via our website or give us a call.