Licence to Alter Escrow

Licence to Alter Escrow is an arrangement used when a landlord grants permission for a tenant or leaseholder to carry out (usually significant) alterations to a property.

Instead of the landlord holding a cash deposit or relying on undertakings, an agreed sum is paid into an independent escrow account. The funds are held there and released only when the agreed conditions are met.

This type of escrow is commonly used to protect against damage to common parts, incomplete works or failure to reinstate if alterations are not finished as agreed.

Licence to Alter Escrow is suitable for landlords, managing agents and leaseholders involved in alterations to residential or commercial property.

It is particularly relevant where works are structural, affect common parts, or involve extended programmes. It is also used where the landlord wants security but does not wish to hold funds directly.

Solicitors and managing agents often recommend escrow where neutrality is important or where the works present a higher risk to the building.

Licence to Alter Escrow is typically put in place when a licence to alter is granted but before works begin.

It is commonly used where the leaseholder is carrying out major alterations, where reinstatement may be required at a later date, or where there is a risk that works may be paused or abandoned.

Escrow can also be used where the licence allows works over a long period and the landlord wants assurance that funds will remain available if issues arise.

Alteration works can create risk for landlords and managing agents, particularly where works affect common parts or structural elements.

Landlords may be concerned about damage to the building, incomplete works, or the cost of reinstatement if the leaseholder stops work or breaches the licence. Leaseholders may be concerned about paying a large deposit directly to the landlord or having funds held indefinitely.

Licence to Alter Escrow addresses these challenges by placing funds with an independent third party. This removes control of the money from both sides and provides a clear, agreed framework for when funds may be released or retained.

The primary benefit of Licence to Alter Escrow is neutrality. Funds are held independently and cannot be accessed by either party without meeting the agreed conditions.

This protects landlords by ensuring that funds are genuinely available if damage occurs or reinstatement is required. At the same time, it protects leaseholders from funds being retained unnecessarily once obligations have been met.

Escrow provides clarity. Everyone knows what the funds are for and when they may be released.

Benefits for landlords and managing agents

For landlords and managing agents, Licence to Alter Escrow provides real security without the need to hold tenant funds directly.

Funds held in escrow are ring-fenced and protected. They can be applied to reinstatement or repairs if the licence is breached or works are discontinued.

Escrow can also reduce disputes, as the release conditions are documented in advance and administered by a neutral party rather than the landlord.

Benefits for leaseholders and tenants

For leaseholders and tenants, escrow avoids paying a deposit directly to the landlord and reduces the risk of funds being withheld unfairly.

Once the works are completed and any reinstatement obligations are satisfied, funds can be released promptly in line with the agreed conditions.

Escrow can also provide reassurance where works take place over a long period or where multiple approvals are required.

Benefits for solicitors and property advisors

For solicitors and property advisors, Licence to Alter Escrow provides a clear and defensible mechanism for handling alteration security.

It avoids extended retention of funds in client accounts and reduces professional risk. It also offers a neutral solution that can be recommended to both sides without appearing partisan.

Escrow can simplify transaction management and reduce the scope for disputes over deposits and reinstatement security.

Licence to Alter Escrow can be structured in different ways, depending on the nature of the works and the risk to the building. There is no single standard model.

Most commonly, escrow is used to hold a cash sum that would otherwise be paid as a deposit to the landlord. This sum is intended to cover potential damage to common parts or the cost of reinstatement if the works are not completed as agreed.

Escrow may also be used where works are extensive or phased, and where the landlord wants security that remains in place throughout the duration of the works.

Yes. Licence to Alter Escrow arrangements are often tailored to reflect the scope, duration and risk of the proposed alterations.

For example, funds may be released in stages as works are completed, inspections are passed or approvals are obtained. In some cases, a portion of the escrow may remain held until final reinstatement or sign-off.

Escrow can also be combined with other protections, such as professional supervision or certification, where appropriate.

All escrow arrangements are administered through the dospay digital escrow portal.

The portal provides a single place where authorised parties can view account balances, payment history and escrow status. It also supports the submission and tracking of information required for payments or releases, in line with the escrow agreement.

Using a digital portal reduces reliance on email chains and manual reconciliation. It improves transparency and creates a clear audit trail for payments and releases. Advisors often find this helpful when reviewing payment history or responding to queries during the life of the project.

Licence to Alter Escrow works by holding a security sum independently while alteration works are carried out.

Instead of the landlord holding a cash deposit, the leaseholder pays the agreed amount into an escrow account. The funds remain there while works are underway and are reserved to cover damage, incomplete works or reinstatement if needed.

This provides protection without either party controlling the funds.

The lease and the licence to alter continue to govern what works are permitted and how they must be carried out. Those documents also set out reinstatement obligations and remedies for breach.

The escrow agreement sits alongside the licence and deals only with how the security funds are held and when they may be released or applied.

The escrow agent does not assess the quality of the works or interpret the lease. It acts only on the agreed release conditions.

Only parties authorised under the escrow agreement can give instructions to the escrow agent. This is agreed at the outset and documented clearly.

Instructions are usually tied to specific events, such as the issue of a certificate, confirmation of a milestone or the occurrence of a payment default. The escrow agent checks that the instruction matches the agreed conditions before acting.

This approach ensures that payments are controlled, predictable and not dependent on informal requests or unilateral decisions by one party.

Only parties authorised under the escrow agreement can give instructions to the escrow agent. This is agreed and documented at the outset.

Instructions are usually linked to clear events, such as confirmation that works are complete, certification by a surveyor, or confirmation that reinstatement obligations have been met.

The escrow agent checks that instructions match the agreed conditions before acting. Informal or unilateral requests are not accepted.

Below is a practical view of the steps that parties typically follow when using Licence to Alter Escrow.

1. ‍Pay security funds into escrow
   Before works begin, the leaseholder pays the agreed security sum into the escrow account.‍
2. Funds held while works are carried out
   The funds remain held independently while the alterations proceed.‍
3. Confirm completion or reinstatement
   Once the works are completed, or where required reinstatement has taken place, the agreed confirmation or certification is provided.‍
4. Release or apply funds in line with the licence
   Funds are released back to the leaseholder if obligations are met, or applied towards repairs or reinstatement if required, in line with the agreed terms.

Hold funds if issues arise
If there is uncertainty or dispute, the funds remain held while the agreed process is followed.

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Setting up a Licence to Alter Escrow account starts with agreeing the amount of security required and the circumstances in which it may be released or applied. This is usually set out in the licence to alter.

An escrow agreement is then prepared. This document sits alongside the lease and licence and deals only with how the security funds are held and released.

At the same time, we begin the account opening and onboarding process so the account is ready to receive funds before works commence.

The time needed to open a Licence to Alter Escrow account depends on the parties involved and the complexity of the arrangements.

For straightforward residential or commercial alterations, account opening can usually be completed within a short period once the required information has been provided and the escrow agreement is agreed. More complex ownership structures may take longer.

Most delays arise from incomplete onboarding information rather than from the escrow process itself.

To open a Licence to Alter Escrow account, standard onboarding checks are required. These are similar to the checks required when opening a bank account or instructing a law firm.

This usually includes confirming the identity of the leaseholder, the ownership and control of any corporate tenant, and the source of the security funds.

We may also need basic information about the property and the proposed works so the escrow account can be set up correctly.

The following information is typically required to open a Licence to Alter Escrow account:

• Details of the landlord and leaseholder
• Identification information for authorised individuals
• Corporate documents showing ownership and control, where applicable
• Source of funds information for the security sum
• Copy or summary of the licence to alter
• Agreed security amount and release conditions
• Expected works timetable

Providing this information clearly and early helps ensure the account can be opened without unnecessary delay.

A Licence to Alter Escrow account is funded by the leaseholder or tenant carrying out the works.

The security amount is usually agreed as part of the licence to alter and paid into escrow before works begin. In some cases, additional amounts may be paid in if the scope of works changes or if the licence requires staged security.

Once paid in, the funds are ring-fenced and held only for the purposes set out in the licence and escrow agreement.

Payments from a Licence to Alter Escrow account are made only when the agreed release conditions are met.

These conditions are usually linked to completion of the works, certification by a surveyor, confirmation from the landlord or managing agent, or completion of reinstatement obligations.

When a release request is made, we check that the agreed conditions have been satisfied before releasing funds in line with the escrow agreement.

If instructions are disputed or unclear, we will not release the funds.

Instead, the funds remain held safely in the escrow account while the parties follow the process set out in the escrow agreement. This may involve clarification, confirmation from an agreed third party, or the use of the dispute resolution process under the underlying contract.

This approach protects both parties. It ensures that money is not released prematurely and that funds remain available once the position is resolved.

If a party to the underyling contract becomes insolvent, we continue to operate under the escrow agreement.

Because the funds are held in escrow and not in the control of either party, they are protected from being used for other purposes. We will follow the agreed instructions and any applicable insolvency process, as set out in the escrow agreement.

In practice, this can provide greater certainty than relying on funds held directly by one of the parties, particularly where payment timing or entitlement is being considered as part of an insolvency situation.

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What happens if DOS & Co. becomes insolvent?

All escrow funds are segregated (kept separate from our own funds), safeguarded (protected by law from our own creditors) and kept liquid and unencumbered at the Bank of England. In the event of our insolvency, we have set aside regulatory capital that will be used by our administrators to 'unwind' our affairs - this will usually involve working with the parties to agree the identity of a new escrow agent who will 'step in' to carry out our obligations under the escrow agreement.

Funds paid into an escrow account are held separately from the money of the parties and separately from our own funds. They are not mixed with operational accounts.

All of our escrow funds are held liquid and unencumbered at the Bank of England. This means that there is no counterparty risk (the bank does not lend out funds, so a 'run on the bank' is not possible).

The escrow account is set up specifically for the purposes agreed in the escrow agreement. Funds can only be used in line with that agreement and cannot be applied for any other purpose.

This separation helps protect the funds if something goes wrong elsewhere. For example, the funds are not available to the creditors of the Employer, the Contractor, us, or the underlying bank. They remain ring-fenced for the project until they are released in accordance with the agreed conditions.

We are regulated by the Financial Conduct Authority for the provision of payment services. This means we are required to meet regulatory standards around governance, systems, controls and the handling of client funds.

Where escrow arrangements involve regulated payment activity, those activities are carried out within that regulatory framework. Other aspects of escrow are contractual in nature and governed by the escrow agreement between us and the parties.

In practical terms, this combination of regulation and contract provides structure and oversight, while still allowing escrow arrangements to be tailored to the needs of a specific matter or project.

Escrow is designed to hold, protect and release funds in line with agreed conditions. It does not decide who is right or wrong in a dispute.

We do not interpret the underlying contract, assess the quality of anything done or delivered under that underlying contract, or replace the role of a contract administrator, adjudicator or court. If there is a dispute, the funds remain held while the parties follow the agreed dispute resolution process.

The escrow arrangement also does not remove the need for a properly drafted underlying contract. It supports that contract by providing a clear and neutral payment mechanism, but it does not change the parties’ underlying rights or obligations.

Escrow pricing depends on the structure, value and duration of the escrow arrangement. There is no single fixed fee, as projects and payment flows vary.

Pricing usually reflects three main elements. First, the work involved in setting up the escrow arrangement, including compliance, onboarding and preparation of the escrow agreement. Second, the ongoing administration of the escrow account while funds are held. Third, the handling of payments or releases during the life of the project.

What pricing covers is the independent holding of funds, administration of agreed payment mechanics, record-keeping, reporting, all bank fees and support throughout the project. It does not cover legal advice, contract administration or dispute resolution, which remain the responsibility of the parties and their advisors.

If something goes wrong, the escrow arrangement provides a clear framework for dealing with it.

If there is a mistake, delay or disagreement about instructions, funds remain safely held in escrow while the issue is addressed. We follow the process set out in the escrow agreement and do not release funds unless and until the agreed conditions are met.

If a party has a concern about how the escrow account is being operated, we have a formal complaints process. This allows issues to be raised, reviewed and resolved in a structured way, with escalation routes available if needed.

We are a specialist provider focused on escrow and managed payment arrangements. Escrow is not an add-on to another service. It is a core part of what we do.

Escrow funds are held securely and separately, with infrastructure designed specifically for escrow rather than adapted from other uses. Account opening is handled efficiently, and escrow arrangements are administered through a dedicated digital escrow portal, giving authorised parties visibility and a clear audit trail.

Advisors often recommend dospay because we sit independently of the transaction, operate within a regulated framework, have a proven track record and focus on doing one thing well: Holding and administering escrow funds in a clear, neutral and predictable way.