The Role of an Escrow Account in Property Transactions

Why buyer funds need a neutral custodian, what Kenyan law currently does and does not require, and how to structure secure payment terms, whether buying off-plan, on completion, or through a mortgage.

A property transaction moves large sums of money between parties who, in most cases, are meeting for the first time and will never transact with each other again. The buyer is asked to pay before receiving title. The developer or seller is asked to build, complete, or transfer before receiving full payment. An escrow account exists to close that gap: a neutral third party holds the funds and releases them only when agreed conditions are met, so neither side is exposed for longer than necessary.

In Nairobi’s off-plan and secondary markets alike, escrow has moved from a niche legal term to a standard question buyers now ask before signing. This article sets out what an escrow account actually does, where it currently sits in Kenyan law, and how a buyer, agent, or developer can use one properly.

What Is an Escrow Account?

An escrow account is a bank or trust account controlled by an independent party, typically a licensed financial institution or an advocate acting under the rules of the Law Society of Kenya, rather than by the buyer or seller directly. Funds deposited into it are released only when a defined trigger occurs: a signed completion certificate, a registered transfer, or a verified construction milestone.

This differs from paying a developer or seller directly, where the buyer has no practical control once funds leave their account. It also differs from a simple deposit held “in trust” by a sales agent, which carries no independent oversight unless that agent is a licensed advocate operating a client account.

Where Kenyan Law Currently Stands

Kenya does not yet have a dedicated statute making escrow accounts mandatory for off-plan property sales. Buyer protection instead comes from a combination of general law: the Land Registration Act, 2012, which governs how title is created and transferred; the Sectional Properties Act, 2020, which governs how individual units in a multi-unit development are eventually titled; and the Law of Contract Act, which governs the enforceability of the sale agreement itself.

Since there is no standalone escrow law, a developer can lawfully collect buyer deposits without any obligation to place them in a segregated account, prove land ownership, or demonstrate that construction has started or been approved. Escrow, where it exists in a Kenyan transaction today, is a contractual choice the parties agree to, not a default legal protection.

This gap has drawn sustained comment from legal practitioners and industry commentators through 2026, with calls for a Kenyan framework modelled on jurisdictions such as the UAE, where project-specific escrow accounts, phased fund release tied to verified milestones, and centralized developer licensing are mandatory. Until Kenyan legislation catches up, the burden sits with the buyer, their advocate, and the agreement they negotiate.

 

Why It Matters for Each Party

For the buyer

• Funds are not released to the developer or seller until the condition the buyer negotiated for is actually met.
• If a project stalls or the seller fails to deliver, undisbursed funds sitting in escrow are considerably easier to recover than funds already spent.
• Diaspora buyers transacting remotely gain a layer of oversight that does not depend on being physically present to verify progress.

For the developer or seller

• A buyer paying into escrow, rather than negotiating endlessly over timing, is a buyer who has effectively committed; the funds exist and are simply awaiting the trigger event.
• Milestone-based release gives a legitimate developer a documented, defensible payment trail tied to verifiable progress, which is useful in the event of a dispute.

For the transaction as a whole

• Disputes over “did the money arrive” or “was the condition met” are reduced, because the escrow holder’s records serve as an independent reference point.
• It separates the commercial question (is this a good property, at a fair price) from the custodial question (is my money safe while the deal completes); buyers can evaluate each on its own terms

What a Buyer Should Check Before Relying on Escrow

Not every account described as “escrow” functions as one. Before treating an arrangement as protective, a buyer’s advocate should confirm the following:

• The account is held by a CBK-licensed bank, or by an advocate operating a client account regulated under the Advocates Act and Law Society of Kenya rules, not by the developer, seller, or their marketing agent.
• The release conditions are written into the sale agreement in specific, verifiable terms, a named milestone, certified by a named party, rather than left to the developer’s discretion.
• The agreement states clearly what happens to escrowed funds if the transaction fails to complete: full refund, partial refund, or forfeiture, and within what time frame.
• For off-plan purchases, the agreement is reviewed against the Sectional Properties Act, 2020, particularly how and when the buyer’s unit will eventually be titled.
• An independent advocate, not affiliated with the developer’s legal team, reviews the agreement before any funds move.

 

The Broader Direction

Kenya’s regulatory conversation on escrow is active rather than settled. Industry and legal commentary through 2026 has pointed toward mandatory project-specific escrow accounts, centralized developer registration, and milestone-linked disbursement as likely features of future reform. Until that legislation is enacted, an escrow arrangement in Kenyan property transactions remains something that parties must actively negotiate and write into their agreement; it is not supplied automatically by the law.

For buyers, that makes the sale agreement, not the marketing brochure, the document that determines how well protected their money actually is. AYA Real Estate structures transactions with this in mind, working with buyers' and sellers' advocates to ensure payment terms are documented clearly before any funds change hands.