Escrow Arrangements in Kenyan Property Transactions

“Escrow” comes up constantly in Kenyan property deals: buyers ask for it on off-plan purchases, sellers ask for it before releasing a title, and lenders build it into disbursement schedules. What surprises many parties is that there is no dedicated Kenyan statute that defines an escrow account or regulates how one must be run. An escrow arrangement in Kenya is a creature of contract, built on older legal ideas like the “stakeholder,” and its enforceability depends entirely on how carefully the underlying agreement is drafted. This article explains what an escrow arrangement actually is under Kenyan law, who can lawfully hold the funds, and what a properly drafted escrow agreement needs to contain.

What an Escrow Arrangement Is, Legally

An escrow arrangement is, in substance, a three-party agreement: a buyer and seller (or two counterparties to any transaction) agree that money, documents, or both, will be held by a neutral third party pending satisfaction of specified conditions, at which point the holder releases the funds or documents to the appropriate party. Kenyan law does not have a statute called an “Escrow Act,” and property professionals and commentators have specifically flagged this absence as something the market has had to work around rather than rely on legislation for. What Kenyan law does recognise, through long-standing practice under the Advocates Act and its subsidiary rules, is the related concept of a “stakeholder,” a person holding money on behalf of two or more parties pending an event, rather than on behalf of one client alone.

The Advocates (Accounts) Rules define “client’s money” broadly enough to capture this role: money an advocate holds “as agent, bailee, trustee, stakeholder or in any other capacity” is treated as client money for accounting purposes. This means that when an advocate acts as an escrow holder in a property transaction, the funds are subject to the same client-account discipline as any other client money: rule 4 requires the advocate to pay such money into a client account without delay, and rule 10 prohibits withdrawing more from the account than is held for that specific client’s credit. In other words, Kenyan law regulates how an advocate handles escrow money once received, even though it does not have a standalone statute defining the escrow arrangement itself.

Who Can Lawfully Hold Escrow Funds

In practice, three types of party act as escrow holders in Kenyan property transactions: advocates, commercial banks, and, increasingly, specialist non-bank escrow or payment platforms. Advocates acting as stakeholders are governed by the framework above; their conduct is also subject to the Advocates Act and Law Society of Kenya discipline, which gives a wronged party a professional, and not just contractual, avenue for complaint if funds are mishandled. Banks offering escrow facilities operate under their banking licences and their own internal terms, typically documented in a tripartite escrow agreement between the bank, buyer and seller.

A non-bank platform that holds transaction funds electronically sits in a less settled position. The National Payment System Act, 2011 requires that “no person shall, in Kenya, conduct the business of a payment service provider except an authorised payment service provider,” and defines a payment service provider broadly enough to include a person storing or processing payments through an electronic system. The Act’s definitions do not mention escrow by name, so whether a given fintech escrow product needs Central Bank of Kenya authorisation depends on how its service is structured, not on the label “escrow” attached to it. Parties considering a non-bank, non-advocate escrow provider should confirm its regulatory status before relying on it, rather than assuming the word “escrow” implies oversight equivalent to a bank or a law firm.

Drafting an Enforceable Escrow Agreement

Because there is no statute filling in the gaps, the escrow agreement itself has to do all the work that legislation might otherwise do in a more developed escrow regime. A sound property escrow agreement should specify: the exact conditions that trigger release of the funds, described objectively enough that the escrow holder does not have to exercise discretion (for example, “registration of the transfer in the buyer’s name,” rather than “when the sale is complete”); what happens if the conditions are never met, including a long-stop date after which funds are returned to the payer; who bears the cost of holding the funds and any interest earned; the escrow holder’s fee and liability, including whether the holder is liable only for its own negligence or wilful default; and a dispute mechanism for what happens if the buyer and seller disagree about whether the release conditions have been satisfied, since the escrow holder should never be put in the position of unilaterally deciding a contested factual question between the parties.

This drafting matters most in off-plan property purchases, where a buyer’s entire deposit can otherwise sit unprotected with the developer for years before completion. Structuring payment through an advocate or bank escrow, released against verified construction milestones rather than paid to the developer on signing, shifts real risk away from the buyer, but only if the release conditions in the agreement are precise enough to be checked objectively rather than argued about later.

Escrow and Anti-Money Laundering Obligations

An escrow holder handling property transaction funds does not stand outside Kenya’s anti-money laundering framework. Advocates and real estate businesses that receive, hold or transfer client funds, including in an escrow or stakeholder capacity, fall within the reporting obligations of the Proceeds of Crime and Anti-Money Laundering Act regime that applies to the real estate sector generally. This means source-of-funds checks and reporting obligations sit alongside, rather than instead of, the escrow holder’s contractual duties to the buyer and seller. Our detailed guide on AML compliance for real estate businesses covers what these obligations require in practice.