A Party Wall Escrow account is also sometimes known as a Security for Expenses account and arises when one neighbour wishes to carry out building works on a boundary or party wall shared with another neighbour.
When preparing a Party Wall Award under the Party Wall etc. Act 1996 (the 'Act'), Party Wall Surveyors appointed by the adjoining neighbour will sometimes insist on Security for Expenses being deposited by the building owner with an independent third party to be held in case the Works being carried out enter difficulties or cause damage to the adjoining neighbour.
The Act does not require any particular kind of person to hold the funds. Historically solicitors could be called upon to do so in a client account, though changes in the SRA's accounts rules meant that solicitors generally no longer provide this.
Similarly, while some surveyors who have signed up to and agreed the terms of the relevant RICS protection scheme can accept the deposit, the building owner and adjoining owner will generally not wish for the other neighbour's surveyor to do so because of the perceived absence of independence.
Generally, we recommend engaging the services of an experienced and competent third-party escrow agent, independent of either neighbour, who is familiar with Party Wall Escrow matters and able to open an escrow account and accept the sum of money for this exact purpose.
For peace of mind, the building owner may prefer to use an escrow agent who is also regulated by the Financial Conduct Authority for the purposes of providing payment account services, too, like we are, because that will give them some comfort that they have the appropriate compliance systems in place and are accustomed to segregating funds separately from their own operational funds.
The quantum of an agreed deposit can be a hotly-contested matter between Party Wall Surveyors. The appointed surveyors representing the building owner intending to carry out the construction will, of course, consider the lowest possible amounts to be more than feasible, whereby the Party Wall Surveyor representing the adjoining owner will generally seek the highest possible deposit to guard against damage to the adjoining owner's property.
This is where recourse to the Party Wall etc. Act is important - understanding exactly the basis upon which an adjoining owner can require the deposit, and its intended purpose, is a matter for the Party Wall Surveyors. The deposit generally exists so that the adjoining owner (the one not doing any construction, on the other side of the Party Wall) can call upon it in case of the following:
We have operated many third-party Party Wall Escrow accounts, and have seen building owners being required to deposit all of the following sums of money, which just serves to illustrate how dependent the sum is on the exact nature of the contemplated Works and the value and location of the properties concerned:
When confronted with the requirement to tie up large sums of money for an extended period of time, building owners will often ask their appointed surveyors to consider alternatives under the party wall award. Regrettably, however, while they could in principle exist, the viability and availability of alternatives is extremely restricted.
The past few years have seen a real tightening of the insurance market when it comes to construction - often insurance policies will cover circumstances where a contractor has been negligent, but a contractor doesn't need to be negligent for construction to cause damage to an adjoining owner - this can arise because of entirely independent circumstances that simply aren't covered.
In addition to this, like all policies of insurance, any premium must be paid upfront and is thereafter considered 'lost' (you never get it back), even if the neighbours don't end up having recourse to the policy or making any claims. This adds to the cost of the construction operations.
Further, as is often the case with insurance claims, there might be circumstances which the neighbours considered would be covered which turn out, owing to the detailed terms of the policy, not to be. There can also be a delay in getting funds paid out for insurance claims which means that the protections conferred by the Act are diluted significantly.
We are not familiar with the existence of any party wall bonds, but the same rules would apply in a bond context as in an insurance context:
Neighbours will often question whether or not their money is safe with an escrow agent. In order to reassure our own clients, we operate a triple-protection scheme whereby we segregate and safeguard funds, and also deposit them at the Bank of England.
We segregate all of the funds deposited with us away from our own funds to ensure that they are available to an Adjoining Owner if contemplated by the Party Wall Award, even in the unlikely event of our own insolvency.
We safeguard all of the funds we hold - this means that the underlying bank where the security is kept in escrow cannot invest those funds or use them for its own operational activities; they must simply be left until the construction has been completed and they can be released by consent of the neighbours' appointed surveyors.
And we do so at Bank of England. All of the deposited security is kept liquid and unencumbered at the Bank of England, so it is covered and protected for the duration (even for sums above the FSCS £85,000 limit).
Party Wall Escrow fees vary. Some providers charge an ongoing monthly cost, some charge a percentage-related fee, and some charge both. How our fees are calculated depends on the value of the deposit.
We charge an onboarding fee that includes all of our compliance activity and the necessary agreement paperwork to enable us to open the account. You can request a quote for your specific requirements.
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dospay is a trading name of DOS & Co. Ltd, a company registered in England and Wales with company number 08294966.
DOS & Co. Ltd. is registered with the Financial Conduct Authority under the Payment Services Regulations 2017 (FRN: 833374) for the provision of payment services.
All of our GBP escrow and third-party managed accounts are segregated and safeguarded at the Bank of England.
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